---

|                                                                                                  
|--------------------------------------------------------------------------------------------------
|United States 
    Securities and Exchange Commission                                             
|WASHINGTON, D.C. 20549                                                                            
|                                                                                                  
|FORM 10-K                                                                                         
|                                                                                                  
|(Mark One)                                                                                        
|                                                                                                  
|[X] Annual Report Pursuant to Section 13 or 15(d) of
      the Securities Exchange Act of 1934    
|For the fiscal year ended January 31, 2010                                                        
|                                                                                                  
|or                                                                                                
|                                                                                                  
|[ ] 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 001-8366                                                                   
|                                                                                                  
|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 MIL 2H5 |  | (416) 755-2231
|--------------------------------------------------------- |  | --------------
|(Address of principal executive offices)                  |  | Telephone No. 



|Securities
      Registered Pursuant to Section 12(b) of the Act:
|-----------------------------------------------------------------
|                                                                 
|Title of each class                                              
|None                                                             
|                                                                 
|                                                                 
|                                                                 
|Securities
      Registered Pursuant to Section 12(g) of the Act:
|Common Shares, par value $0.0167 per share                       

Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.

Yes [ ]         No [X]

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [ ]         No [X]

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

Yes [X]        
No [ ]

---

Indicate by check mark whether 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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [  ]

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 [  ] | Accelerated filer [  ]       
|---------------------------- | -----------------------------
|Non-accelerated filer [
 ]   | Smaller reporting company [X]

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes [  ]            
No [X]

The aggregate market value of the voting and non-voting common
equity held by non-affiliates, computed by reference to the price at which the
common equity was last sold or the average bid and asked price of such common
equity, as of the last business day of the registrants most recently completed
second fiscal quarter was $1,167,681. There were 3,072,846 common shares
outstanding as of April 30, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

NONE.

---

POLYDEX PHARMACEUTICALS LIMITED

TABLE OF CONTENTS

Cautionary Note Regarding Forward-Looking Statements

|PART I    
|----------
|Item 1.   
|Item 1A.  
|Item 1B.  
|Item 2.   
|Item 3.   
|Item 4.   
|          
|PART II   
|Item 5.   
|Item 6.   
|Item 7.   
|Item 7A.  
|Item 8.   
|Item 9.   
|Item 9A.  
|Item 9B.  
|          
|PART III  
|Item 10.  
|Item 11.  
|Item 12.  
|Item 13.  
|Item 14.  
|          
|PART IV   
|Item 15.  
|SIGNATURES



---

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains various
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, which represent the Companys expectations or
beliefs concerning future events, including, but not limited to statements
regarding the Companys going concern status, continued trading of the common
stock on the OTC BB, 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 Annual Report on Form 10-K and in previously
filed periodic reports, including reports filed on Forms 10-K and 10-Q, are
further qualified by various risks, uncertainties and other factors that could
cause actual results to differ materially from those expressed in, or implied
by, the forward-looking statements. These factors include, without limitation,
deregistration of the Companys common stock under the Securities Exchange Act
of 1934, as amended, changing market conditions, the progress of clinical trials
and the results obtained, the establishment of new corporate alliances, the
impact of competitive products and pricing, and the timely development,
regulatory approval and market acceptance of the Companys products, as well as
the other risks discussed herein, none of which can be assured. The
forward-looking statements contained herein speak only as to the date of this
report. Except as otherwise required by federal securities laws, the Company
undertakes no obligation to publicly update or revise any forward-looking
statements or the risk factors described in this Annual Report on Form 10-K,
whether as a result of new information, future events, changed circumstances or
any other reason after the date of this report.

---

PART I

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

Introduction

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

The Company was incorporated under the laws of the Commonwealth
of the Bahamas on June 14, 1979 as Polydex Chemicals Limited, and changed its
name on March 28, 1984.

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

Products and Sales

Iron Dextran

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

Dextran Sulphate

Dextran Sulphate is a specialty chemical derivative of Dextran
used in research applications by the pharmaceutical industry and other centers
of chemical research. Dextran Sulphate manufactured by the Company is sold
primarily to independent distributors and wholesalers in the United States and
Europe as analytical chemical applications. This usage requires no regulatory
approval.

1

---

Patents, Trademarks and Licenses

Cellulose Sulphate

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

During fiscal year ended January 31, 2001, a patent bearing
U.S. patent number 6,063,773 was issued to the Company and co-inventors entitled
Cellulose Sulphate for use as Antimicrobial and Contraceptive Agent. Various
clinical trials with respect to the safety and efficacy of this product have
been completed.

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

Low Molecular Weight Dextran

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

Iron Dextran

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

Suppliers

Dextran Products

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

2

---

The Company is dependent upon a single source for a certain raw
material used in the production of Dextran Sulphate. Such supply was adequate in
fiscal year 2010, and no shortages are anticipated in the near term. However,
any curtailment in availability of such raw material could be accompanied by
production or other delays as well as increased raw material costs, with
consequent adverse effect on the Companys results of operations. The Company
has no long-term contracts with any of its suppliers.

Order Book and Seasonality

The Companys order book as at January 31, 2010 was
significantly lower than levels seen in previous years due to the economic
slowdown, but slightly better than at January 31, 2009. The bulk product sold by
Dextran Products is primarily targeted to the swine industry where modern animal
husbandry techniques maintain most animals indoors. Certain producers in less
developed countries may raise animals outdoors thereby reducing the amount of
product required but such markets are small and decreasing in size as they
modernize. Therefore the Company does not believe that such seasonality is
material to its financial results as a whole. The Companys sale of Dextran
Sulphate is not subject to seasonality.

Competition

The Company is the only Canadian manufacturer of Iron Dextran.
On March 4, 2004, Sparhawk and Chemdex entered into an exclusive Supply
Agreement under which Sparhawk agreed to purchase 100% of its product needs for
bulk Iron Dextran solution from Chemdex for a period of 10 years, and Chemdex
agreed to sell such products in the United States exclusively to Sparhawk,
subject to minimum purchase requirements.

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

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

It has come to the attention of management that some producers
of Dextran in the world may have focused their attention on other products and
may not be producing Dextran anymore. This has resulted in a significant
increase in enquiries being received by the Company. All enquiries are actively
being investigated and some orders have been booked.

3

---

Environmental Compliance

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

Employees

As of March 31, 2010, the Company employed 21 employees, of
whom 13 were engaged in production, 6 in quality control, 2 in administration,
marketing and sales activities. None of the Companys employees is covered by
collective bargaining agreements. Management considers its relations with
employees to be good.

Research and Development

During the fiscal years ended January 31, 2010, 2009 and 2008,
the Company expended $4,486, $35,102 and $135,821 respectively, on research and
development, primarily relating to the development of Cellulose Sulphate.
Research and development expenditures are a result of additional product
development activities performed by the Company, including legal fees related to
patent acquisition and maintenance, and is funded outside of its partnership
relationships. During the fiscal years ended January 31, 2010, 2009 and 2008,
the Company did not recognize any investment tax credit benefits.

Cellulose Sulphate (Ushercell)

Ushercell is a high molecular weight Cellulose Sulphate
envisioned for topical vaginal use primarily in the prevention and transmission
of AIDS and other sexually transmitted diseases, as well as unplanned
pregnancies.

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

On January 31, 2007, the
Independent Review Board in conjunction with CONRAD, WHO, FHI and Polydex
announced the halting of two Phase III clinical trials to assess the effect of
Ushercell on vaginal HIV acquisition which had been started in six clinical
trial sites located in India and Africa. The trials were halted due to a
possible higher than expected incidence of HIV.

Low Molecular Weight Dextran

Cystic fibrosis is a genetic disease, which causes a cascade of
effects, the most severe being a build up of mucus in the lungs. This mucus is
difficult to remove and also permits the colonization of bacteria, which then
cause secondary infections and often death. Research relating to cystic fibrosis
has shown that a special form of Dextran, named by the Company as Usherdex 4, is
effective in preventing the colonization of bacteria in the mouth and in
stimulating the macrophages in the lungs to remove the bacteria present and
lessen secondary infections.

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

4

---

Segmented Information

The information regarding the
geographic distribution of revenue and revenue by significant customer is set
forth in Note 17 to the Companys Consolidated Financial Statements for the
fiscal year ended January 31, 2010 under Item 8 Financial Statements and
Supplementary Data.

5

---



|ITEM 1A. | RISK FACTORS
|-------- | ------------

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

The Company has a history of
operating losses. It expects to continue to incur losses and may not continue as
a going concern as indicated in the auditor's report and the notes to our
financial statements.

The Company has a history of
losses and can provide no assurance as to future operating results. As a result
of these losses, the Company may exhaust its financial resources and be unable
to complete the development of its product candidates.

The Company expects losses to
continue for the next few years as it attempts to develop its product
candidates, and there is no certainty that the Company will ever become
profitable as a result of these expenditures.

The Companys ability to become profitable depends primarily on
the following factors:

| | its ability to bring to market proprietary drugs that are progressing
  through its development process;                                                                                                    
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | its marketing and sales efforts; and                                                                                                                                                                        
| | its ability to enter into favorable alliances with third-parties who can
  provide substantial capabilities in clinical development, manufacturing,
  regulatory affairs, sales, marketing and distribution.

Even if the
  Company successfully develops and markets its product candidates, the Company
  may not generate sufficient or sustainable revenue to achieve or sustain
  profitability.

The Company's failure to continue as a going concern
may result in its insolvency or ceasing operations and result in a loss of your
investment in the Company.

The Company is planning to
deregister with the SEC. Information reported in the past to shareholders may
not be available to the same extent or frequency which could result in a decline
in our stock price or limit investors ability to trade in our stock.

Shortly following the filing of this
Annual Report on Form 10-K, the Company plans to file Form 15 to voluntarily
terminate its registration under the Securities Exchange Act of 1934, as amended
("Exchange Act"). The Company has determined that deregistering under the
Exchange Act would result in significant time and cost savings to the Company. 
This will result in less information about the Company being available to
shareholders and investors immediately following the filing of Form 15.

The Company is presently traded on the
Pink OTC Markets, Inc. ("Pink Sheets") which does not require Exchange Act
registration or the Company to meet the reporting requirements of the Exchange
Act. The Company plans to make available information required for its common
stock to continue to be traded on the Pink Sheets, but there is no assurance it
will do so or that market makers will continue to make a market in the Company's
common stock.

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

To achieve sustained profitability, the Company must, alone or
with corporate partners and collaborators, successfully research, develop and
commercialize identified technologies or product candidates, and/or increase
sales of higher margin products. These products are also rigorously regulated by
the U.S. federal government, particularly the FDA, and by comparable agencies in
state and local jurisdictions and in foreign countries. Specifically, each of
the following results is possible with respect to any one of the Companys
developmental product candidates: .

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

6

---



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

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

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

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

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

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

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

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

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

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

7

---

The Company has received various patents covering the uses of
its developmental products. However, the patent position of companies in the
pharmaceutical industry generally involves complex legal and factual questions,
and recently has been the subject of much litigation. Any patents the Company
has obtained, or may obtain in the future, may be challenged, invalidated or
circumvented.

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

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

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

|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------
|         |                          
|         | None                     
|         |                          
|ITEM 2.  | PROPERTIES               

The Companys wholly-owned subsidiary, Dextran Products
maintains its executive and sales offices and its manufacturing plant of
approximately 30,000 square feet in Toronto, Ontario, Canada.

The Company owns and operates a fermentation plant in Toronto,
Ontario, Canada. This plant has the capacity to simultaneously produce both 10%
and 20% Iron Dextran at the rate of up to 11,000 liters per week (there are
1.057 quarts in one liter), and 500 kilograms (there are 2.2 pounds in one
kilogram) per month of Dextran Sulphate. Current production is approximately
6,000 liters of Iron Dextran per week and approximately 600 kilos of Dextran
Sulphate per quarter.

Continuing in fiscal year 2008,
management proceeded with expansion of the Companys facility and modernization
of its powder-producing equipment in Toronto in order to increase production
capacity and also improve quality for a significant portion of the Companys
powdered products. The Company had embarked upon a major plant refurbishment
project that included the purchase and installation of more modern drying
equipment with increased throughput. Engineers prepared drawings and permits
were issued, allowing construction of a new drying facility to begin in the
fourth quarter of fiscal year 2007. The actual drying equipment is now installed
and is expected to be operational in the near future. It is expected that
improved quality of the finished product will result in new markets becoming
available.

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

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

8

---



|ITEM 4. | [RESERVED]
|------- | ----------

PART II

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

As of September 12, 2008, the Companys common shares were
delisted from the NASDAQ Capital Market. Subsequent to that date, the shares
have been listed and traded on the OTC Bulletin Board through March 2010 and the
Pink OTC Markets Inc. The Companys common shares trade under the symbol
POLXF.

The reported high and low closing prices of the Companys common shares
as reported on the OTC BB and Pink OTC Markets Inc.,for each full quarterly
period within the two most recent fiscal years of the Company were as
follows:

|Fiscal Year 2010 fiscal quarter ended:       |   | High |  |  | Low  | 
|-------------------------------------------- | - | ---- |  |  | ---- | 
|April 30, 2009                               | $ | 0.25 |  |  | 0.16 | 
|July 31, 2009                                |   | 0.40 |  |  | 0.38 | 
|October 31, 2009                             |   | 0.39 |  |  | 0.34 | 
|January 31, 2010                             |   | 0.33 |  |  | 0.17 | 
|                                             |   |      |  |  |      | 
|                                             |   |      |  |  |      | 
|Fiscal Year 2009 fiscal quarter
      ended: |   | High |  |  | Low  | 
|April 30, 2008                               | $ | 0.79 |  |  | 0.25 | 
|July 31, 2008                                |   | 1.19 |  |  | 0.35 | 
|October 31, 2008                             |   | 0.88 |  |  | 0.40 | 
|January 31, 2009                             |   | 0.69 |  |  | 0.10 | 

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

As of January 31, 2010 there
were approximately 338 holders of record of the Companys common shares.

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

The Company did not sell any
unregistered common shares during the fiscal year ended January 31, 2010, did
not make any repurchases of its common shares and does not currently have a plan
to repurchase any of its common shares.

9

---



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

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

|                                    | Fiscal year ended January 31,
|----------------------------------- | -----------------------------
|                                    |                              
|                                    |                              
|Sales from continuing operations    |                              
|Net loss from continuing operations |                              
|Net loss per common share           |                              
|Total assets                        |                              
|Long-term borrowings                |                              

10

---



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

The Companys fiscal year
ends on January 31stof each year. In this report,
fiscal year 2010 refers to the Companys fiscal year ended January 31, 2010. The
following discussion should be read in conjunction with the financial statements
and notes thereto included elsewhere in this report. The Companys financial
statements are prepared in accordance with United States generally accepted
accounting principles. All amounts are in United States dollars, unless
otherwise denoted. This discussion contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
For a discussion of risks, uncertainties and other factors that could cause
actual results to differ materially from those expressed in, or implied by the
forward-looking statements, see the discussion of Risk Factors and Cautionary
Note Regarding Forward-Looking Statements above.

Overview

The Company is engaged in the, manufacture and marketing of
Dextran-based products for the veterinary and human pharmaceutical market. The
Company conducts its business operations through its wholly-owned subsidiaries:
Dextran Products and Chemdex, Inc.

Dextran Products Business

The manufacture and sale of bulk quantities of Dextran and
derivative products for sale to large pharmaceutical companies throughout the
world is conducted through a Canadian subsidiary, Dextran Products. Such
products are used in the production of veterinary and human products such as
vaccines and ophthalmic products.

Fiscal year 2010 was not a satisfactory one for Polydex
Pharmaceuticals Limited. First, the Company continued to be negatively impacted
by the slowdown in the worldwide commodity markets, especially by the lowered
production in the hog markets, which in turn has reduced demand for a wide range
of products that the Company produces. There are however some indications that
this area is improving, especially in Europe and the United States which had
suffered the greatest declines. Second, the Canadian dollar has continued to
increase in value, and since the Companys sales were largely denominated in
United States dollars, while its costs were largely in Canadian dollars, this
impacted a large portion of the Companys costs, especially noticeable re the
negative gross margin obtained for the fiscal year. Third, the Company suffered
from significant inventory writedowns and production related problems, mainly in
the third quarter of fiscal 2010, as noted below. These factors combined to
impact our financial results. This included increased utlilization of the line
of credit and further reduction of our investment portfolio to meet cash
requirements, as well as the significant impairment writedown of our plant and
equipment.

Management continues to work
diligently to combat the negative challenges the Company continues to face.
Sales efforts are showing some hopeful indicators in the marketplace, especially
related to our higher margin powdered products. On the financial side, cost
control measures continue to yield even further savings, and efforts to reduce
exposure to exchange rate fluctuations have seen some success. Management will
continue its efforts to address the difficult situations it faces.

After the cancellation of the
Phase III clinical trials for Ushercell due to inconclusive results, the
Company`s share price declined, eventually resulting in the Company`s shares
being suspended from trading on the NASDAQ Capital Market on September
12th, 2008 and delisted in December 2008. It is important to note
however that this did not have an impact on the core operations or source of
funds for the core operations.

It is not known when results from
ongoing research aimed at characterizing the impact of Ushercell on mucosal
safety with new endpoints is to be expected. When they are published, the
Company will review further opportunities to develop the compound into a
commercial product.

The Company has invested
significant cash reserves in refurbishing the Toronto plant, in order to be able
to capitalize on the higher margins available for its powdered products line,
primarily Dextran and Dextran derivatives, should the market for these products
improve.

11

---

Chemdex Inc.

Chemdex is the US based
subsidiary that purchases raw materials from Dextran Products for the production
of Iron Dextran 10% for the American market. Chemdex then sells the bulk
material to Sparhawk Labs who produce the final dosage form for distribution in
the US.

Chemdex, Veterinary Laboratories and the Joint Venture
Business

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

Results of Operations

Fiscal Year ended January 31, 2010 compared to Fiscal
Year ended January 31, 2009 compared to Fiscal Year ended January 31, 2008

|                  |   |            |   |   |            |   |   |          |   |  | Fiscal Years                  |   
|----------------- | - | ---------- | - | - | ---------- | - | - | -------- | - |  | ----------------------------- | --
|                  |   | FY 2010    |   |   | FY 2009    |   |   | FY 2008  |   |  | 10 v 09                       |   
|                  |   |            |   |   |            |   |   |          |   |  | (% increase
      (decrease)) |   
|Loss before taxes | $ | (2,144,735 | ) | $ | (1,644,430 | ) | $ | (967,155 | ) |  | (30                           | )%
|Net Loss          |   | (2,144,735 | ) |   | (1,591,470 | ) |   | (885,211 | ) |  | (35                           | )%
|Loss per share    |   | (0.70      | ) |   | (0.52      | ) |   | (0.29    | ) |  |                               |   

The increase in net loss for the fiscal year 2010 as compared
to fiscal year 2009 is attributable to two principal causes. First, there was an
impairment charge of $1,007,109 (2009 - $550,956) against the long-lived assets
of the Company, which was determined on the basis of the Companys expected
future cash flows compared to the current value of the Companys property and
equipment. Second, from an operations aspect, the increase in net loss was
impacted by the continued decrease in sales and gross margins, and the continued
strengthening of the Canadian dollar as compared to the United States dollar
throughout the fiscal year. Because the majority of the Companys revenue is
denominated in United States dollars while the majority of its cost of sales is
denominated in Canadian dollars, at its Dextran Products subsidiary, when the
value of the Canadian dollar increases in relation to the United States dollar,
margins decrease and expenses increase. The average exchange rate used for
fiscal 2010 was only slightly worse than that encountered in fiscal 2009 (2.19%)
..

The increase in net loss for the
fiscal year 2009 as compared to fiscal year 2008 was due to the same factors as
mentioned above for the increased loss from 2009 to 2010.

12

---



|      |   |           |  |   |           |  |   |           |  |  | Fiscal Years                  |   
|----- | - | --------- |  | - | --------- |  | - | --------- |  |  | ----------------------------- | --
|      |   | FY 2010   |  |   | FY 2009   |  |   | FY 2008   |  |  | 10 v 09                       |   
|      |   |           |  |   |           |  |   |           |  |  | (% increase
      (decrease)) |   
|Sales | $ | 4,481,174 |  | $ | 4,824,906 |  | $ | 5,734,858 |  |  | (7                            | )%

Sales decreased in fiscal year 2010 compared to fiscal year
2009 as a result of decreased demand from existing customers throughout fiscal
year 2010. This decline in demand was caused by the general global economic
decline which included the decline in the hog markets, especially in Europe. As
a cost-saving measure, management determined it was prudent to close the
production plant for approximately 31⁄2 weeks during the fourth quarter.

Sales decreased in fiscal year
2009 compared to fiscal year 2008 as a result of decreased demand from existing
customers, primarily in the fourth quarter of fiscal year 2009. This decline in
demand was caused by the general global economic decline which included the
decline in the hog markets, especially in Europe. When the decline in sales
orders severely escalated early in the fourth quarter, management determined
that as a cost-saving measure, it was prudent to close the production plant for
approximately 8 weeks. This resulted in a sales decline of $714,175 for the
fourth quarter of fiscal year 2009 compared to the same quarter of fiscal year
2008. Year to date sales for the third quarter of fiscal year 2009 had already
been impacted by the general turmoil in the world economy and combined with the
reduced sales from the fourth quarter, resulted in an overall sales decline of
16% for fiscal year 2009 compared to the prior fiscal year.

|                    |   |         |    |   |         |  |   |         |  |  | Fiscal
      Years            |   
|------------------- | - | ------- | -- | - | ------- |  | - | ------- |  |  | ----------------------------- | --
|                    |   | FY 2010 |    |   | FY 2009 |  |   | FY 2008 |  |  | 10 v 09                       |   
|                    |   |         |    |   |         |  |   |         |  |  | (% increase
      (decrease)) |   
|Gross profit (loss) | $ | (91,725 | )  | $ | 31,903  |  | $ | 375,064 |  |  | (388                          | )%
|Percentage of sales |   | ( 2.0   | )% |   | 0.7%    |  |   | 6.5%    |  |  |                               |   

The negative gross profit in fiscal year 2010 resulted from a
7% decrease in sales, combined with production related factors that occurred in
the third quarter of fiscal year 2010. This included an equipment breakdown that
resulted in the loss of an expensive raw material, the reworking of a number of
batches of powdered product, and the writeoff of unsatisfactory product, all of
which directly affected gross profit adversly. In addition, the sales mix did
not favor our higher margin powdered products.

The decrease in gross profit in
fiscal year 2009 resulted from decreased sales, especially during the fourth
quarter, production problems incurred in the third quarter, and the plant
closure that took place during the fourth quarter. Though significant savings
resulted from the plant closure in production related areas such as plant labor,
utilities and raw materials, ongoing costs such as realty taxes, depreciation
and some utility costs were still incurred.

.

|                                                              |   |         |  |   |           |  |   |           |  |  | Fiscal
      Years            |   
|------------------------------------------------------------- | - | ------- |  | - | --------- |  | - | --------- |  |  | ----------------------------- | --
|                                                              |   | FY 2010 |  |   | FY 2009   |  |   | FY 2008   |  |  | 10 v 09                       |   
|                                                              |   |         |  |   |           |  |   |           |  |  | (% increase
      (decrease)) |   
|Selling, promotion, general
      and administrative expenses | $ | 965,593 |  | $ | 1,071,734 |  | $ | 1,211,172 |  |  | (10                           | )%

In fiscal year 2010, as in fiscal
year 2009, management continued its efforts to reduce overall selling, promotion
and general and administrative expenses. The most significant reductions
occurred in audit fees, administrative wages, office supplies and investor
communications.

13

---

In fiscal year 2009, management
continued to reduce overall selling, promotion and general and administrative
expenses. The most significant reductions occurred in administrative wages,
insurance, options expense, and selling and promotion costs. Reporting costs
were also reduced as a result of being suspended from listing in September 2008

|                                      |   |         |  |   |         |  |   |         |  |  | Fiscal
      Years            |   
|------------------------------------- | - | ------- |  | - | ------- |  | - | ------- |  |  | ----------------------------- | --
|Research and development              |   | FY 2010 |  |   | FY 2009 |  |   | FY 2008 |  |  | 10 v 09                       |   
|                                      |   |         |  |   |         |  |   |         |  |  | (% increase
      (decrease)) |   
|Research and development Expenditures | $ | 4,486   |  | $ | 35,102  |  | $ | 135,821 |  |  | (87                           | )%

In fiscal year 2010 all of the Companys research into
Ushercell was halted, with only some patent expenses being incurred and paid.
Further patent fees are also being curtailed. It is not known when results from
ongoing research aimed at characterizing the impact of Ushercell on mucosal
safety with new endpoints can be expected. At this point, when any new
information becomes available, the Company will assess the potential commercial
viability of the compound before investing in further research or development.
Since the cessation of the clinical trials for Ushercell, the Company has been
reviewing the other projects in its portfolio and actively pursuing their
potential for creating new market opportunities.

In fiscal year 2009, the Company
continued to reduce its research and development expenditures. Final payments
were made with respect to clinical studies related to the Ushercell project, and
a small amount was expended on process improvement projects related to the
Companys ongoing product lines. Patent fees were reduced to the minimum
necessary to maintain only certain existing patent rights.

Funding for the Companys primary
development products has been provided directly by third party public and/or
private sector groups to the entities carrying out such research. The Company
did not take possession or control over these funds. The Company benefits from
the results of research projects through the ownership of patents and/or
licenses with respect to the products involved. The Company has no commitments
to repay the funding or to purchase the results of the research.

|                                            |   |         |  |   |         |  |   |         |  |  | Fiscal
      Years            |   
|------------------------------------------- | - | ------- |  | - | ------- |  | - | ------- |  |  | ----------------------------- | --
|                                            |   | FY 2010 |  |   | FY 2009 |  |   | FY 2008 |  |  | 10 v 09                       |   
|                                            |   |         |  |   |         |  |   |         |  |  | (% increase
      (decrease)) |   
|Depreciation and
      amortization expense | $ | 429,683 |  | $ | 549,376 |  | $ | 559,866 |  |  | (22                           | )%

The significant decrease in
depreciation and amortization for fiscal year 2010 is due primarily to the
impairment writedown incurred at the end of fiscal year 2009. Depreciation will
continue to decrease in future years due to the additional writedown for fiscal
year 2010, as well as more assets becoming fully depreciated. Included in
depreciation and amortization expense are allocations to cost of goods sold in
the amount of $412,237 for fiscal year 2010 (2009 - $514,899; 2008 - $519,787).

The small decrease in
depreciation and amortization for fiscal year 2009 is due primarily to the small
decrease in average value of the Canadian dollar for the year, compared to
fiscal 2008.

|                 |   |         |  |   |         |  |   |         |  |  | Fiscal
      Years            |   
|---------------- | - | ------- |  | - | ------- |  | - | ------- |  |  | ----------------------------- | --
|                 |   | FY 2010 |  |   | FY 2009 |  |   | FY 2008 |  |  | 10 v 09                       |   
|                 |   |         |  |   |         |  |   |         |  |  | (% increase
      (decrease)) |   
|Interest expense | $ | 54,623  |  | $ | 66,714  |  | $ | 96,818  |  |  | (18                           | )%

The decrease in interest expense
in fiscal year 2010 is due to decreased interest rates compared to fiscal year
2009, which were in effect for the entire 2010 fiscal year, as well as the
continued decrease in other long-term debt and capital obligations.

14

---

The decrease in interest expense in fiscal year 2009 is
primarily due to the same factors as above.

|                                   |   |         |  |   |         |   |   |         |  |  | Fiscal
      Years            | 
|---------------------------------- | - | ------- |  | - | ------- | - | - | ------- |  |  | ----------------------------- | 
|                                   |   | FY 2010 |  |   | FY 2009 |   |   | FY 2008 |  |  | 10 v 09                       | 
|                                   |   |         |  |   |         |   |   |         |  |  | (% increase
      (decrease)) | 
|Foreign exchange loss
      (gain) | $ | 112,584 |  | $ | (77,818 | ) | $ | 43,256  |  |  | 245%                          | 

In fiscal year 2010, the Company
experienced an overall foreign exchange loss due to Dextran Products exposure
to the United States dollar, especially with the increase in value of the
Canadian dollar relative to the United States dollar throughout most of the 2010
fiscal year compared to its value in fiscal 2009. During fiscal year 2010
Dextran Products generally had a net asset exposure to the United States dollar
because accounts receivable balances denominated in United States dollars
normally exceeded its United States dollar denominated intercompany
payables.

In fiscal year 2009, the Company
experienced an overall foreign exchange gain due to Dextran Products exposure
to the United States dollar, especially with the decline in value of the
Canadian dollar relative to the United States dollar in the latter part of the
fiscal year. While the exchange rate was relatively consistent during the
earlier part of the fiscal year, the significant decline of the Canadian dollar
in the latter part of fiscal year 2009 was a major factor contributing to the
overall gain for the fiscal year.

|                                           |   |         |  |   |         |  |  |         |  |  | Fiscal
      Years            | 
|------------------------------------------ | - | ------- |  | - | ------- |  |  | ------- |  |  | ----------------------------- | 
|                                           |   | FY 2010 |  |   | FY 2009 |  |  | FY 2008 |  |  | 10 v 09                       | 
|                                           |   |         |  |   |         |  |  |         |  |  | (% increase
      (decrease)) | 
|Impairment of property
      and equipment | $ | 899,503 |  | $ | 550,956 |  |  | ----    |  |  | 63%                           | 

As discussed above, the Company
has determined that an additional charge of $899,503 in fiscal year 2010 is
appropriate to more accurately align the value of the Companys plant and
equipment with the value of future cash flows that are expected to be earned by
those capital assets.

|                                              |   |         |  |  |         |  |  |         |  |  | Fiscal
      Years            | 
|--------------------------------------------- | - | ------- |  |  | ------- |  |  | ------- |  |  | ----------------------------- | 
|                                              |   | FY 2010 |  |  | FY 2009 |  |  | FY 2008 |  |  | 10 v 09                       | 
|                                              |   |         |  |  |         |  |  |         |  |  | (% increase
      (decrease)) | 
|Impairment of due from
      shareholder loan | $ | 15,000  |  |  | ----    |  |  | ----    |  |  | 100%                          | 

The Company has determined that
a charge of $15,000 in fiscal year 2010 is appropriate to recognize a decrease
in the collectability of the loan to the shareholder. The Company will continue
to monitor the collateral associated with this loan, which includes the license
agreement for the manufacture of Iron Dextran mentioned above, and will make
future adjustments as appropriate.

|                                |   |         |  |   |         |  |   |         |  |  | Fiscal
      Years            | 
|------------------------------- | - | ------- |  | - | ------- |  | - | ------- |  |  | ----------------------------- | 
|                                |   | FY 2010 |  |   | FY 2009 |  |   | FY 2008 |  |  | 10 v 09                       | 
|                                |   |         |  |   |         |  |   |         |  |  | (% increase
      (decrease)) | 
|Interest and other
      income | $ | 11,188  |  | $ | 10,359  |  | $ | 184,821 |  |  | 8%                            | 

The increase in interest and
other income in fiscal year 2010 resulted primarily from there being no
significant loss on disposal as occurred in fiscal year 2009 as noted below.
Actual investment income was lower in fiscal 2010 due to the reduction in
investments available for sale, partially offset by the increased value of
the Canadian dollar.

15

---

Interest and other income
declined significantly in fiscal year 2009 compared to fiscal year 2008 due to
the loss realized on disposal of shares included in the investments available
for sale. This loss is partially offset by the gain shown in comprehensive
income. The decrease is also due to the lower interest rates experienced during
fiscal 2008 applicable to the due from shareholder amount.

|                               |  |         |  |   |         |   |   |         |   |  | Fiscal
      Years            | 
|------------------------------ |  | ------- |  | - | ------- | - | - | ------- | - |  | ----------------------------- | 
|                               |  | FY 2010 |  |   | FY 2009 |   |   | FY 2008 |   |  | 10 v 09                       | 
|                               |  |         |  |   |         |   |   |         |   |  | (% increase
      (decrease)) | 
|Recovery of income
      taxes |  | ---     |  | $ | (52,960 | ) | $ | (81,944 | ) |  | ---                           | 

The fiscal year 2009 decrease in tax provision is due to a
decrease in deferred tax liabilities. This deferred tax liability was no longer
considered necessary as the Company has loss carryforwards available that should
result in there being no income taxes payable for the foreseeable future.

The fiscal year 2008 decrease in tax provision is due to a
decrease in deferred tax liabilities of $83,317, combined with an increase in
current tax expense of $1,373. The decrease in the deferred tax liability is due
to the decrease in the timing difference related to the excess of carrying value
of depreciable assets over tax value, which in turn reduces future income tax
liabilities.

Liquidity and Capital Resources

As of January 31, 2010, the Company had
cash of $6,936, compared to cash of $327,857 at January 31, 2009. In fiscal year
2010, the Company expended cash of $589,723 in its operating activities,
compared to expending $251,128 for fiscal year 2009 and $297,899 for fiscal year
2008. Depreciation and amortization continues to be a large non-cash expense of
the Company, as are the impairment provisions that occurred in fiscal years 2009
and 2010.

Working capital decreased to $443,915,
and the current ratio decreased to 1.26 to 1 as of January 31, 2010, compared to
$1,359,946 and 3.19 to 1 as of January 31, 2009. Again, this significant decline
was impacted by the reclassification of the equipment loan as noted below.

As at January 31, 2010 and 2009,
the Company had no commitments for capital expenditures related to the plant
refurbishment at Dextran Products in Toronto.

At January 31, 2010, the Company had accounts receivable of
$535,896 and inventory of $1,184,218, compared to $161,858 and $1,003,623,
respectively, at January 31, 2009. The lower amount in accounts receivable and
inventory at January 31, 2009 was due to the plant closure and related lower
volume of sales in the fourth quarter of that fiscal year. At January 31, 2010,
the Company had accounts payable of $539,933, compared to $150,965 at January
31, 2009. The lower amount as at January 31, 2009 was due primarily to the
lowered production costs as a result of the plant closure and related lower
sales in the fourth quarter of that fiscal year. During fiscal year 2010,
capital expenditures totaled $68,327, as compared to $56,401 in fiscal year
2009.

As at January 31, 2010, the
Companys investments consisted of a short-term fixed income fund and a global
fixed income bond fund, both denominated in Canadian dollars. Unrealized gains
and losses will occur as the market interest rates and investment valuations
vary. Management does not expect significant gains or losses in the future due
to the relatively short term to maturity of the nature of these funds.
Management plans to convert a portion of these investments to cash as needed for
working capital.

16

---

The change in accumulated other comprehensive income of the
Company is almost entirely attributable to the currency translation adjustment
of Dextran Products. Dextran Products functional currency is the Canadian
dollar. This currency translation adjustment arises from the translation of
Dextran Products financial statements to United States dollars.

Dextran Products had a Cdn.
$250,000 (U.S. $233,798) (2009  U.S. $203,000) line of credit, of which
$235,768 was utilized at January 31, 2010 (2008 & 2009  Nil). This line of
credit bears interest at the Canadian banks prime lending rate plus 1.00% (2010
 3.25%; 2009  3.40%) and is repayable on demand. This indebtedness is
collateralized by a general security agreement over the Companys assets and a
collateral mortgage of Cdn. $500,000 on the Dextran Products building in
Toronto.

The bank indebtedness agreement
contains two covenants related to the operations at the Dextran Products
facility in Toronto, Canada. First, there is a Debt to Tangible Net Worth ratio,
which requires a maximum of 125%. As at January 31, 2010, prior to the
reclassification noted above, the Company met this requirement with a ratio of
42% (2009  16%). Second, there is a Debt Service Coverage Ratio, which requires
a minimum ratio of 120%. Due to the operating loss incurred in fiscal year 2010,
prior to the reclassification noted above, the Company did not meet this ratio
test, as the loss created a significant negative ratio of 1686% (2009-negative
990%) As a result of this covenant failure, the Companys line of credit has
been reduced to Cdn $250,000 (USD $233,798) since the first quarter of fiscal
year 2009, and a waiver, which had been granted by the bank in prior years, was
not granted by the bank at January 31, 2010. This default by the Company related
to this covenant has required the entire balance of the equipment loan to be
reclassified from a long-term liability to a current liability on the balance
sheet as at January 31, 2010.

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

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

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

Managements Plan to Improve the Results of Operations.

As at January 31, 2010, there
were certain negative financial indicators reflected in our financial
statements. These include an accumulated deficit of $21,515,449, a loss of $2,144,735 for the year, cash used in operations of $589,723, the plant shutdown
in the fourth quarter, and the inability of its subsidiary, Dextran Products
Limited, to meet its banks lending covenants as noted above. The Company has
also determined that an impairment charge was necessary to align the carrying
value of its property and equipment with the value of expected future cash
flows. To assess the value of the impairment, the Company compared the carrying
values of its building and production equipment to the value of estimated future
cash flows to be expected from the utilization of these assets over their
expected useful life, and determined the assets were further impaired by an
amount of $1,007,109 (2009 - $489,197)

These negative results are due to extreme fluctuations in the
value of the Canadian dollar versus the US Dollar as previously discussed, the
relatively low margin of the main product base, Iron Dextran, the decreased
sales due primarily to the general economic slowdown, especially related to the
hog markets worldwide, and inventory writedowns and production problems
primarily in the third quarter of fiscal year 2010.

To offset these poor results the Company continues to focus on
its active program to improve results with the following activities:

As a result of the dramatic impact of exchange rates during the
year, the Company has continued to aggressively seek cost reductions in all
areas of its operations. Cost reductions have been achieved in most areas
including raw material pricing, plant repairs, as well as insurance, legal,
audit and reporting costs. Payroll reductions have been implemented, with
reductions in management compensation and the implementation of shorter plant
hours of work when appropriate. The plant was also shutdown for
approximately 31⁄2 weeks in the fourth quarter, resulting in cash savings. These
cost control initiatives are ongoing and will continue to be of benefit to the
Company.

17

---

The Companys operating division, Dextran Products, also conducts weekly meetings with Production and Quality
Control to monitor all production processes and batch yields to ensure they are
maximized.

In fiscal year 2011, management
intends to continue its focus on the core business of Dextran Products that have
historically been the backbone of the company. It has come to the attention of
the Company that some other producers of Dextran and Dextran derivatives in the
world have refocused their attention on other products and are no longer
producing Dextran and Dextran derivatives. This has led to an increase in
interest in the Company as a potential supplier of this type of product, and the
Company is actively responding to these enquiries. These are powdered products
and as such present the possibility of increased sales of higher margin product
if they result in confirmed orders. At this time there have been a small number
of sales, along with a significant number of enquiries regarding our powdered
products.

The Company is well positioned to
take advantage of increased interest in these powdered products as a result of
having invested, over the past several years, in state of the art drying
equipment. This new drying equipment is now installed and is presently being
qualified. This last step requires the preparation of manuals and documents to
ensure consistent operation and therefore production of the highest quality
product. This should in turn ensure that the Company is capable of supplying
product to large pharmaceutical companies who have expressed such an
interest.

Overall, management believes that
a number of factors will lead to more profitable operations. First, the Company
provides unique, high quality products. This is confirmed by the interest shown
from various customers, some of whom have not only researched and tested
alternative sources to the products provided by the Company, but have also
visited our Toronto operations to confirm their desire to continue or expand
their relationship with Polydex Pharmaceuticals. Second, the economic turmoil
experienced primarily over the past two years has lessened the number of
available producers of comparable products. In addition, our customers have
informed us that some of our competitors have had difficulty achieving the high
quality standards that are the Companys norm. Third, though inconclusive at
this time, the international hog markets appear to have stabilized. This is
hopefully a precursor to improved market conditions overall, especially for our
core Dextran and Dextran related products. Fourth, recent strong interest in our
various product lines has occurred from new and existing customers, as evidenced
by the high level of enquiries and requests for samples being regularly
received, and the Companys recent return to full production levels. Fifth, the
lowered carrying cost of the capital assets will more accurately reflect the
lower income charge that is more appropriate to the contribution to be made by
these assets.

All of the foregoing expectations
are subject to the risks and uncertainties discussed above under Risk Factors
and Cautionary Note Regarding Forward Looking Statements. Should the above
expectations fail to occur or do not achieve the levels required to meet the
Companys profitability and liquidity requirements, management may seek other
sources of investment or liquidity from new or existing investors, creditors and
customers.

Related Party Transactions

In August 1997, the Company
loaned Thomas C. Usher, formerly its Vice-Chairman, Director of Research and
Development, a member of its Board of Directors and the beneficial owner of
greater than 5% of the outstanding common shares of the Company, $691,500 at an
interest rate equal to the United States bank prime rate plus 1.50% (the
Loan). The Loan was used to partially fund a $1,000,000 payment to the State
of Florida in order to allow Thomas C. Usher to regain possession of 430,000
Common Shares of the Company then held by the State as collateral security
relating to the liquidation of insurance companies formerly owned by Thomas C.
Usher. Repayment of the Loan is accomplished by periodic payments and through
offsets by the Company against royalty payments due Thomas C. Usher pursuant to
intellectual property license agreements and, in the past, bonus payments, if
any, granted to Thomas C. Usher as an employee of the Company. The amount
outstanding under the Loan as of January 31, 2010 was $314,266, as compared to
$299,716 at January 31, 2009, including accrued interest. The Company has taken
a cumulative provision of $353,041 against this loan and other amounts described
below as at January 31, 2010 (2009 - $323,490). This includes an additional
amount of $15,000 as shown on the statement of operations, which the Company has
determined necessary due to the decreasing life of the patent whose royalties
are being used to reduce
this Loan receivable. Thomas C. Usher passed away on February 26, 2005.  Obligations with respect to the Loan transferred to the estate of Thomas C. Usher.  The Company continues to be obligated to make royalty payments pursuant to the license
agreements, and intends to continue to offset such payments against the Loan.

18

---

In August 1999, Thomas C. Usher personally assumed all of the assets and liabilities of Novadex Corp., including the balance of receivables (the Receivables) due to the Company from Novadex Corp. The
Receivables have no specific repayment terms. The total outstanding amount of the Receivables as of January 31, 2010 was $706, as compared to $31,244 at January 31, 2009. Thomas C. Usher also owed $250,000 to a subsidiary of the Company,
Novadex International Limited, as of January 31, 2010, 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.

As of January 31, 2010, Thomas C. Usher, now through his estate, has pledged 243,263 common shares of the Company as security for these amounts owing to the Company. These common shares had a market value of $60,816
at January 31, 2010, based on the closing price of the Companys common shares on the Pink Sheets quotation service on January 31, 2010. George Usher did not purchase any shares from the estate during fiscal year 2010. During the third quarter
of fiscal year 2009, George Usher, Chief Executive Officer of the Company, purchased 27,500 shares of the Company from the estate for a cost of $16,500, based on the share market price at the time of purchase. Proceeds were used to reduce the
shareholder loan owing to the Company. The Company intends to continue to hold the 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 January 31, 2010 is $35,703 (2009 -
$36,297).

The Company also has an outstanding loan payable to the estate of Ruth Usher, a former director and widow of Thomas C. Usher, who passed away in July 2008. The amount due from the Company pursuant to this loan decreased
to $576,368 at January 31, 2010 from $608,316 at January 31, 2009 due to monthly payments by the Company exceeding interest charges. The Company is required to make blended monthly payments of $5,000 on this loan, and is current in its
payments.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Critical Accounting Policies

The Companys consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, applied on a consistent basis. The critical accounting policies include
the use of estimates of allowance for doubtful accounts, the useful lives of assets and the realizability of deferred tax assets.

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

Revenue Recognition

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

19

---

Allowance for Doubtful Accounts

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

Long-Lived Assets

Long-lived assets are stated at
cost, less accumulated depreciation or amortization computed using the
straight-line method based on their estimated useful lives ranging from three to
fifteen years. Useful life is the period over which the asset is expected to
contribute to the Companys cash flows. A significant change in estimated useful
lives could have a material impact on the results of operations. The Company
reviews the recoverability of its long-lived assets, including buildings,
equipment and other intangible assets, when events or changes in circumstances
occur that indicate that the carrying value of the asset may not be recoverable.
The 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.

Changes in Accounting Policies

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

Recent Accounting Pronouncements

|(a) | In June 2009, the Financial Accounting Standards Board
      (FASB) issued guidance now codified under Accounting Standards
      Codification (ASC) Topic 105-10, which establishes the FASB Accounting
      Standards Codification (the Codification) as the source of authoritative
      accounting principles recognized by the FASB to be applied in the
      preparation of financial statements in conformity with GAAP. ASC Topic
      105- 10 explicitly recognizes rules and interpretive releases of the
      Securities and Exchange Commission (SEC) under federal securities laws
      as authoritative GAAP for SEC registrants. Upon adoption of this guidance
      under ASC Topic 105-10, the Codification superseded all then-existing
      non-SEC accounting and reporting standards. All other non-grandfathered
      non-SEC accounting literature not included in the Codification became
      non-authoritative. The guidance under ASC Topic 105-10 became effective
      for the Company as of September 30, 2009. References made to authoritative
      FASB guidance throughout the consolidated financial statements have been
      updated to the applicable Codification section.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(b) | On October 10, 2008, the FASB issued FASB ASC 820-10-35
      (Previously known as: (FSP FAS 157-3, Determining the Fair Value of a
      Financial Asset in a Market That Is Not Active.) which was effective upon
      issuance, including periods for which financial statements have not been
      issued. It clarified the application of FASB ASC 820-10 in an inactive
      market and provided an illustrative example to demonstrate how the fair
      value of a financial asset is determined when the market for that
      financial asset is inactive. The adoption of this FSP did not have a
      material impact on the Companys consolidated financial position and
      results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

20

---



|(c) | In April 2009, the FASB issued FASB ASC 820-10-65
      (Previously known as: FSP 157-4 Determining Fair Value When the Volume
      and Level of Activity for the Asset or Liability Have Significantly
      Decreased and Identifying Transactions That Are Not Orderly). Based on
      the guidance, if an entity determines that the level of activity for an
      asset or liability has significantly decreased and that a transaction is
      not orderly, further analysis of transactions or quoted prices is needed,
      and a significant adjustment to the transaction or quoted prices may be
      necessary to estimate fair value in accordance with Statement of Financial
      Accounting Standards FASB ASC 820-10 (Prior authoritative literature:
      (SFAS) No. 157 Fair Value Measurements). This FSP is to be applied
      prospectively and is effective for interim and annual periods ending after
      June 15, 2009 with early adoption permitted for periods ending after March
      15, 2009. The company adopted this FSP for its quarter ended April 30,
      2009. The adoption has no impact on the Companys consolidated financial
      statements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(d) | In 2008, the FASB issued FASB ASC 815-40 (Previously
      known as: EITF 07-05, Determining whether an Instrument (or Embedded
      Feature) Is Indexed to an Entitys Own Stock). FASB ASC 815-40 provides
      guidance on determining what types of instruments or embedded features in
      an instrument held by a reporting entity can be considered indexed to its
      own stock for the purpose of evaluating the first criteria of the scope
      exception in FASB ASC 810-10-15 (Prior authoritative literature: paragraph
      11(a) of SFAS 133). The adoption of FASB ASC 815-40 effective February 1,
      2009 did not have any impact on the Companys consolidated financial
      statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(e) | In December 2007, the FASB issued FASB ASC 805-10 (Prior
      authoritative literature: SFAS No. 141 (revised 2007), Business
      Combinations, which replaces FASB Statement No. 141). FASB ASC 805-10
      establishes principles and requirements for how an acquirer recognizes and
      measures in its financial statements the identifiable assets acquired, the
      liabilities assumed, any non controlling interest in the acquiree and the
      goodwill acquired. The Statement also establishes disclosure requirements
      which will enable users to evaluate the nature and financial effects of
      the business combination. FASB ASC 805-10 will change how business
      combinations are accounted for and will impact financial statements both
      on the acquisition date and in subsequent periods. The adoption of FASB
      ASC 805-10 did not have an impact on the Companys consolidated financial
      position and results of operations although it may have a material impact
      on accounting for business combinations in the future which cannot
      currently be determined.                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(f) | In April 2009, the FASB issued FASB ASC 805-10-05
      (Previously known as: Statement No. 141(R)-1 "Accounting for Assets
      Acquired and Liabilities Assumed in a Business Combination That Arises
      from Contingencies"). For business combinations, the standard requires the
      acquirer to recognize at fair value an asset acquired or liability assumed
      from a contingency if the acquisition date fair value can be determined
      during the measurement period. The adoption of FASB ASC 805-10-05 as of
      February 1, 2009 did not have an impact on the Company's consolidated
      financial position and results of operations, however it may have a
      material impact in the future which cannot currently be
  determined                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(g) | In April 2009, the FASB issued FASB ASC 825-10-50
      (Previously known as: FASB Staff Position No. FAS 107-1) and FASB ASC
      270-10-05 (Prior authoritative literature: APB 28-1, Interim Disclosures
      about Fair Value of Financial Instruments,) which requires disclosures
      about fair value of financial instruments for interim reporting periods of
      publicly traded companies as well as in annual financial statements. This
      Staff Position is effective for interim reporting periods ending after
      June 15, 2009, with early adoption permitted
for periods ending after March 15, 2009. The Company adopted
      this pronouncement as of May 1, 2009 and it did not have a material impact
      on the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                

21

---



|    | In January 2010, the FASB issued updated guidance to
      amend the disclosure requirements related to recurring and nonrecurring
      fair value measurements. This update requires new disclosures on
      significant transfers of assets and liabilities between Level 1 and Level
      2 of the fair value hierarchy (including the reasons for these transfers)
      and the reasons for any transfers in or out of Level 3. This update also
      requires a reconciliation of recurring Level 3 measurements about
      purchases, sales, issuances and settlements on a gross basis. In addition
      to these new disclosure requirements, this update clarifies certain
      existing disclosure requirements. For example, this update clarifies that
      reporting entities are required to provide fair value measurement
      disclosures for each class of assets and liabilities rather than each
      major category of assets and liabilities. This update also clarifies the
      requirement for entities to disclose information about both the valuation
      techniques and inputs used in estimating Level 2 and Level 3 fair value
      measurements. This update will become effective for the Company with the
      interim and annual reporting period beginning February 1, 2010, except for
      the requirement to provide the Level 3 activity of purchases, sales,
      issuances, and settlements on a gross basis, which will become effective
      for the Company with the interim and annual reporting period beginning
      February 1, 2011. The Company will not be required to provide the amended
      disclosures for any previous periods presented for comparative purposes.
      Other than requiring additional disclosures, adoption of this update will
      not have a material effect on the Company's consolidated financial
      statements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(h) | In May 2009, the FASB issued FASB ASC 855-10 (Previously
      known as: SFAS No. 165, Subsequent Events) FASB ASC 855-10 establishes
      general standards for accounting for and disclosure of events that occur
      after the balance sheet date but before financial statements are available
      to be issued (subsequent events). More specifically, FASB ASC 855-10
      sets forth the period after the balance sheet date during which management
      of a reporting entity should evaluate events or transactions that may
      occur for potential recognition in the financial statements, identifies
      the circumstances under which an entity should recognize events or
      transactions occurring after the balance sheet date in its financial
      statements and the disclosures that should be made about events or
      transactions that occur after the balance sheet date. FASB ASC 855-10
      provides largely the same guidance on subsequent events which previously
      existed only in auditing literature. The guidance under ASC Topic 855-10
      became effective for the Company for the period ending July 31,
  2009                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | In February 2010, FASB issued ASU 2010-09 Subsequent
      Event (Topic 855) Amendments to Certain Recognition and Disclosure
      Requirements. ASU 2010-09 removes the requirement for an SEC filer to
      disclose a date through which subsequent events have been evaluated in
      both issued and revised financial statements. Revised financial statements
      include financial statements revised as a result of either correction of
      an error or retrospective application of GAAP. All of the amendments in
      ASU 2010-09 are effective upon issuance of the final ASU, except for the
      use of the issued date for conduit debt obligors. That amendment is
      effective for interim or annual periods ending after June 15,
  2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Company is evaluating the impact, if any, the
      adoption of ASU 2010-09 will have on its consolidated financial
      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(i) | In June 2009, the FASB issued ASC 810, Consolidation
      (ASC 810), which changes the approach in determining the primary
      beneficiary of a variable interest entity (VIE) and requires companies to
      more frequently assess whether they must consolidate VIEs. ASC 810 is
      effective for annual periods beginning after November 15, 2009. The
      Company is evaluating the impact, if any, the adoption of ASC 810 will
      have on its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | In October 2009, the FASB issued new guidance for revenue
      recognition with multiple deliverables, which is effective for revenue
      arrangements entered into or materially modified in fiscal years beginning
      on or after June 15, 2010, although early adoption is permitted. This
      guidance eliminates the residual method under the current guidance and
      replaces it with the relative selling price method when allocating
      revenue in a multiple deliverable arrangement. The selling price for each
deliverable shall be determined using vendor specific objective evidence of
selling price, if it exists, otherwise third-party evidence of selling price
shall be used. If neither exists for a deliverable, the vendor shall use its
best estimate of the selling price for that deliverable. After adoption, this
guidance will also require expanded qualitative and quantitative disclosures.
The Company is currently assessing the impact of adoption on its consolidated
financial position and results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

22

---



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

Exchange Rate Sensitivity

The Companys operations consist
of manufacturing activities in 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, were denominated in United States
dollars, the majority of its expenses were 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 financial statements of the Company contained in this report.
When the Canadian dollar rises in value relative to the United States dollar,
the carrying value of the assets and liabilities of Dextran Products as stated
in United States dollars increases. A rise in the Canadian dollar relative to
the United States dollar also results in a decrease in gross margins and net
income of Dextran Products. Dextran Products also experiences a foreign exchange
gain when the Canadian dollar rises in relation to the United States dollar
because it has a net asset exposure to the United States dollar resulting from
accounts receivable balances denominated in United States dollars normally
exceeding its United States dollar denominated intercompany payables. Similarly,
a decline in the Canadian dollar relative to the United States dollar results in
a foreign exchange loss and increased gross margins and net income at Dextran
Products. Management monitors currency fluctuations to ensure that an acceptable
margin level at Dextran Products is maintained. Management has the ability, to
some extent, to adjust sales prices to maintain an acceptable margin level, and
is endeavoring to arrange with some of its customers to have future sales
transactions denominated in Canadian dollars to reduce this exposure.

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. Though the long term equipment loan has been
reclassified as a current liability as at January 31, 2010, it was felt that
inclusion on this chart as part of long term liabilities would be more
informative to the user.

|                        |  |         |  |  | Expected
      Maturity Date |  |  |         |  |  |                        |  |  |         |  |  |            | 
|----------------------- |  | ------- |  |  | ---------------------------- |  |  | ------- |  |  | ---------------------- |  |  | ------- |  |  | ---------- | 
|                        |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|                        |  | 1/31/11 |  |  | 1/31/12                      |  |  | 1/31/13 |  |  | 1/31/14                |  |  | 1/31/15 |  |  | Thereafter | 
|                        |  |         |  |  |                              |  |  |         |  |  | (US$
      Equivalent) |  |  |         |  |  |            | 
|                        |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Assets:                 |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|                        |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Short-term investments: |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Fixed rate ($Cdn.)      |  | 358,478 |  |  |                             |  |  |        |  |  |                       |  |  |        |  |  |           | 
|Average interest rate   |  | 2.54%   |  |  |                             |  |  |        |  |  |                       |  |  |        |  |  |           | 
|                        |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Marketable securities:  |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Fixed rate ($Cdn.)      |  |        |  |  |                             |  |  |        |  |  |                       |  |  |        |  |  |           | 
|Average interest rate   |  |        |  |  |                             |  |  |        |  |  |                       |  |  |        |  |  |           | 
|                        |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Liabilities:            |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|                        |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Long-term debt:         |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Fixed rate ($Cdn.)      |  | 48,660  |  |  | 52,399                       |  |  | 56,432  |  |  | 60,789                 |  |  | 57,096  |  |  | 82,551     | 
|Average interest rate   |  | 7.34%   |  |  | 7.35%                        |  |  | 7.36%   |  |  | 7.38%                  |  |  | 6.95%   |  |  | 6.95%      | 

23

---

Interest Rate Sensitivity

The Company has interest earning
assets consisting of investment grade or higher short-term commercial paper and
medium-term fixed income instruments. A significant portion of the Companys
debt is at fixed rates. The variable rate debt represents the shareholder loan
payable, which is partially offset with the shareholder loan receivable. Both of
these financial instruments carry the same interest rate. As such, the Company
has no significant risk exposure to changes in interest rates. The following
table presents information about the Companys financial instruments that are
sensitive to changes in interest rates. All financial instruments are held for
other than trading purposes. The table presents principal cash flows and related
weighted average interest rates by expected maturity dates. Though the long term
equipment loan has been reclassified as a current liability as at January 31,
2010, it was felt that inclusion on this chart as part of long term liabilities
would be more informative to the user.

|                        |  |         |  |  | Expected
      Maturity Date |  |  |         |  |  |                        |  |  |         |  |  |            | 
|----------------------- |  | ------- |  |  | ---------------------------- |  |  | ------- |  |  | ---------------------- |  |  | ------- |  |  | ---------- | 
|                        |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|                        |  | 1/31/11 |  |  | 1/31/12                      |  |  | 1/31/13 |  |  | 1/31/14                |  |  | 1/31/15 |  |  | Thereafter | 
|                        |  |         |  |  |                              |  |  |         |  |  | (US$
      Equivalent) |  |  |         |  |  |            | 
|                        |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Assets:                 |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|                        |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Short-term investments: |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Fixed rate ($Cdn.)      |  | 358,478 |  |  |                             |  |  |        |  |  |                       |  |  |        |  |  |           | 
|Average interest rate   |  | 2.54%   |  |  |                             |  |  |        |  |  |                       |  |  |        |  |  |           | 
|                        |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Marketable securities:  |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Fixed rate ($Cdn.)      |  |        |  |  |                             |  |  |        |  |  |                       |  |  |        |  |  |           | 
|Average interest rate   |  |        |  |  |                             |  |  |        |  |  |                       |  |  |        |  |  |           | 
|                        |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Notes receivable:       |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Variable rate ($US)     |  | 15,072  |  |  | 15,788                       |  |  | 16,538  |  |  | 17,324                 |  |  | 18,147  |  |  | 231,397    | 
|Average interest rate   |  | 4.75%   |  |  | 4.75%                        |  |  | 4.75%   |  |  | 4.75%                  |  |  | 4.75%   |  |  | 4.75%      | 
|                        |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|                        |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Liabilities:            |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|                        |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Long-term debt:         |  |         |  |  |                              |  |  |         |  |  |                        |  |  |         |  |  |            | 
|Fixed rate ($Cdn.)      |  | 48,660  |  |  | 52,399                       |  |  | 56,432  |  |  | 60,789                 |  |  | 57,096  |  |  | 82,551     | 
|Average interest rate   |  | 7.34%   |  |  | 7.35%                        |  |  | 7.36%   |  |  | 7.38%                  |  |  | 6.95%   |  |  | 6.95%      | 
|Variable rate ($US)     |  | 32,623  |  |  | 34,172                       |  |  | 35,795  |  |  | 37,496                 |  |  | 39,277  |  |  | 397,006    | 
|Average interest rate   |  | 4.75%   |  |  | 4.75%                        |  |  | 4.75%   |  |  | 4.75%                  |  |  | 4.75%   |  |  | 4.75%      | 

24

---



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

Polydex Pharmaceuticals LimitedQuarterly Financial
HighlightsJanuary 31, 2010(Expressed in United States
dollars)

|                                          |  | Fourth Quarter    |   |  | Third Quarter     |   |  | Second
      Quarter |   |  | First Quarter     |  
|----------------------------------------- |  | ----------------- | - |  | ----------------- | - |  | -------------------- | - |  | ----------------- | -
|                                          |  | Fiscal
      Year |   |  | Fiscal
      Year |   |  | Fiscal
      Year    |   |  | Fiscal
      Year |  
|                                          |  | 2010              |   |  | 2009              |   |  | 2010                 |   |  | 2009              |  
|Sales from continuing
      operations    |  | 1,069,475         |   |  | 934,454           |   |  | 1,153,776            |   |  | 1,373,963         |  
|Gross profit (Loss)                       |  | (172,329          | ) |  | (223,286          | ) |  | 77,526               |   |  | (200,713          | )
|Net loss from continuing
      operations |  | (1,370,664        | ) |  | (1,030,593        | ) |  | (216,442             | ) |  | (418,680          | )
|Net loss per common share                 |  | (0.45             | ) |  | (0.34             | ) |  | (0.07                | ) |  | (0.014            | )

25

---

Schwartz Levitsky Feldman llp
CHARTERED ACCOUNTANTS 
LICENSED PUBLIC ACCOUNTANTS 
TORONTO MONTREAL

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of 
Polydex Pharmaceuticals Limited

We have audited the accompanying consolidated balance sheets
of Polydex Pharmaceuticals Limited as of January 31, 2010 and 2009 and the
related consolidated statements of operations and comprehensive income (loss),
shareholders equity and cash flows for each of the years in the three-year
period ended January 31, 2010. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no
such opinion.

In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Polydex Pharmaceuticals Limited as of January 31, 2010 and 2009, and
the consolidated results of its operations and its cash flows for each of the
years in the three-year period ended January 31, 2010 in conformity with
generally accepted accounting principles in the United States of America.

The accompanying consolidated financial statements have been
prepared assuming that the company will continue as a going concern. As
discussed in note 1 to the financial statements, the continuance of the Company
is dependent on its future profitability and the ongoing support of its
stockholders, affiliates and creditors. This raises substantial doubt about it
ability to continue as a going concern. The consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.

Since the accompanying consolidated financial statements have
not been prepared in accordance with generally accepted accounting principles
and standards in Canada, they may not satisfy the reporting requirements of
Canadian statutes and regulations.

|                         | "SCHWARTZ LEVITSKY FELDMAN LLP"
|------------------------ | -------------------------------
|Toronto, Ontario, Canada | Chartered Accountants          
|March 31, 2010           | Licensed Public Accountants    

| |                         
| | ------------------------
| | 1167 Caledonia Road     
| | Toronto, Ontario M6A 2X1
| | Tel: 416 785 5353       
| | Fax: 416 785 5663       

26

---

POLYDEX PHARMACEUTICALS LIMITED

Consolidated Balance Sheets (Expressed in United States
dollars)

|                                                        |   | January 31 |  |   | January 31 | 
|------------------------------------------------------- | - | ---------- |  | - | ---------- | 
|                                                        |   | 2010       |  |   | 2009       | 
|Assets                                                  |   |            |  |   |            | 
|Current assets:                                         |   |            |  |   |            | 
|Cash and cash equivalents (note 3)                      | $ | 6,936      |  | $ | 327,857    | 
|Investments
      available for sale (note 7)           |   | 368,061    |  |   | 381,457    | 
|Trade accounts receivable (note 19)                     |   | 535,896    |  |   | 161,858    | 
|(Allowance for
      doubtful accounts nil, 2009 nil)   |   |            |  |   |            | 
|Inventories (note 4)                                    |   | 1,184,218  |  |   | 1,003,623  | 
|Prepaid expenses and other current assets               |   | 59,205     |  |   | 106,221    | 
|Total current assets                                    |   | 2,154,316  |  |   | 1,981,016  | 
|Property, plant and equipment, net (note 5)             |   | 3,352,011  |  |   | 4,057,959  | 
|Patents and intangible assets, net (note 6)             |   | 29,431     |  |   | 37,471     | 
|Due from estate of
      former shareholder (note 8)    |   | 211,931    |  |   | 257,470    | 
|                                                        | $ | 5,747,689  |  | $ | 6,333,916  | 
|Liabilities and Shareholders' Equity                    |   |            |  |   |            | 
|Current liabilities:                                    |   |            |  |   |            | 
|Bank indebtedness
      (note 9)                        | $ | 235,768    |  | $ | -          | 
|Accounts payable                                        |   | 539,933    |  |   | 150,965    | 
|Accrued
      liabilities (note 11)                     |   | 474,391    |  |   | 296,538    | 
|Customer deposits                                       |   | 92,932     |  |   | 92,932     | 
|Current portion of
      long-term debt (note 10a)      |   | 332,617    |  |   | 35,336     | 
|Current portion of capital lease obligations (note 10b) |   | 4,760      |  |   | 15,299     | 
|Current portion of due to shareholder (note 8)          |   | 30,000     |  |   | 30,000     | 
|Total current liabilities                               |   | 1,710,401  |  |   | 621,070    | 
|Long-term debt (note 10a)                               |   | 1,350      |  |   | 291,305    | 
|Capital lease obligations (note 10b)                    |   | 19,200     |  |   | 20,902     | 
|Due to shareholder
      (note 8)                       |   | 546,395    |  |   | 578,316    | 
|                                                        |   | 566,945    |  |   | 890,523    | 
|Total liabilities                                       |   | 2,277,346  |  |   | 1,511,593  | 
|Going concern (note 1)                                  |   |            |  |   |            | 
|Related party transactions (note 8)                     |   |            |  |   |            | 

|Commitments and contingencies (note 21)                             |   |             |   |   |             |  
|------------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|Shareholders' equity:                                               |   |             |   |   |             |  
|Capital stock (note 12)                                             |   |             |   |   |             |  
|Authorized:                                                         |   |             |   |   |             |  
|100,000 Class A preferred shares of $0.10 each                      |   |             |   |   |             |  
|899,400 Class B preferred shares of $0.0167 each                    |   |             |   |   |             |  
|10,000,000 common shares of $0.0167 each                            |   |             |   |   |             |  
|Issued and outstanding:                                             |   |             |   |   |             |  
|899,400 Class B preferred shares (January 31, 2008 -
      899,400) |   | 15,010      |   |   | 15,010      |  
|3,072,846 common shares (January 31, 2008 - 3,072,846)              |   | 51,185      |   |   | 51,185      |  
|Contributed surplus                                                 |   | 23,547,736  |   |   | 23,527,576  |  
|Deficit                                                             |   | (21,515,449 | ) |   | (19,370,714 | )
|Accumulated other
      comprehensive income (note 20)              |   | 1,371,861   |   |   | 599,266     |  
|                                                                    |   | 3,470,343   |   |   | 4,822,323   |  
|                                                                    | $ | 5,747,689   |   | $ | 6,333,916   |  



|See accompanying notes. |                         |                         
|----------------------- | ----------------------- | ------------------------
|On behalf of the Board: |                         |                         
|                        | Derek Lederer, Director | Joseph Buchman, Director

27

---

POLYDEX PHARMACEUTICALS LIMITED

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

Years ended January 31, 2010, 2009 and 2008

|                                                  |           |            |             |              | Accumulated         |              
|------------------------------------------------- | --------- | ---------- | ----------- | ------------ | ------------------- | -------------
|                                                  |           |            |             |              | Other               | Total        
|                                                  | Preferred | **Common** | Contributed |              | Comprehensive       | Shareholders'
|                                                  | Shares    | Shares     | Surplus     | Deficit      | Income
      (Loss) | Equity       
|                                                  | $         | $          | $           | $            | $                   | $            
|Balance, January
      31, 2007                   | 15,010    | 51,185     | 23,483,659  | (16,894,033) | 702,493             | 7,358,314    
|Common share options issued                       |           |            | 15,495      |              |                     | 15,495       
|Comprehensive
      income:                       |           |            |             |              |                     |              
|Net loss for the year                             |           |            |             | (885,211)    |                     | (885,211)    
|Unrealized gain on investments available for sale |           |            |             |              | 3,702               | 3,702        
|Currency translation adjustment                   |           |            |             |              | 1,191,966           | 1,191,966    
|Balance, January
      31, 2008                   | 15,010    | 51,185     | 23,499,154  | (17,779,244) | 1,898,161           | 7,684,266    
|Common share options issued                       |           |            | 28,422      |              |                     | 28,422       
|Comprehensive
      income:                       |           |            |             |              |                     |              
|Net loss for the year                             |           |            |             | (1,591,470)  |                     | (1,591,470)  
|Unrealized gain on investments available for sale |           |            |             |              | 27,269              | 27,269       
|Currency translation adjustment                   |           |            |             |              | (1,326,164)         | (1,326,164)  
|Balance, January
      31, 2009                   | 15,010    | 51,185     | 23,527,576  | (19,370,714) | 599,266             | 4,822,323    
|Common share options issued                       |           |            | 20,160      |              |                     | 20,160       
|Comprehensive
      income:                       |           |            |             |              |                     |              
|Net loss for the year                             |           |            |             | (2,144,735)  |                     | (2,144,735)  
|Unrealized gain on investments available for sale |           |            |             |              | 11,957              | 11,957       
|Currency translation adjustment                   |           |            |             |              | 760,638             | 760,638      
|Balance, January 31, 2010                         | 15,010    | 51,185     | 23,547,736  | (21,515,449) | 1,371,861           | 3,470,343    

See accompanying notes.

28

---

POLYDEX PHARMACEUTICALS LIMITED

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

|Year ended January 31                                  |  | 2010       |   |  | 2009       |   |  | 2008      |  
|------------------------------------------------------ |  | ---------- | - |  | ---------- | - |  | --------- | -
|                                                       |  | **$**      |   |  | **$**      |   |  | **$**     |  
|Sales                                                  |  | 4,481,174  |   |  | 4,824,906  |   |  | 5,734,858 |  
|Cost of goods sold                                     |  | 4,572,899  |   |  | 4,793,003  |   |  | 5,359,794 |  
|Gross profit (loss)                                    |  | (91,725    | ) |  | 31,903     |   |  | 375,064   |  
|Expenses                                               |  |            |   |  |            |   |  |           |  
|General and administrative (note 12b)                  |  | 907,636    |   |  | 1,004,167  |   |  | 1,126,269 |  
|Selling and promotion                                  |  | 57,957     |   |  | 67,567     |   |  | 84,903    |  
|Interest expense,net (note 8)                          |  | 54,623     |   |  | 66,714     |   |  | 96,818    |  
|Depreciation                                           |  | 17,446     |   |  | 34,477     |   |  | 39,973    |  
|Research and development (note 14)                     |  | 4,486      |   |  | 35,102     |   |  | 135,821   |  
|Foreign exchange loss (gain)                           |  | 112,584    |   |  | (77,818    | ) |  | 43,256    |  
|Loss (gain) on sale of assets                          |  | (5,037     | ) |  | 5,527      |   |  | -         |  
|Cash surrender value of life insurance                 |  | -          |   |  | -          |   |  | (81,045   | )
|Impairment of property, plant and equipment            |  | 899,503    |   |  | 550,956    |   |  | -         |  
|Impairment of due from shareholder                     |  | 15,000     |   |  | -          |   |  | -         |  
|Interest and other income                              |  | (11,188    | ) |  | (10,359    | ) |  | (103,776  | )
|Total expenses                                         |  | 2,053,010  |   |  | 1,676,333  |   |  | 1,342,219 |  
|Loss before income taxes                               |  | (2,144,735 | ) |  | (1,644,430 | ) |  | (967,155  | )
|Recovery of income
      taxes (note 15)               |  | -          |   |  | (52,960    | ) |  | (81,944   | )
|Loss for the year                                      |  | (2,144,735 | ) |  | (1,591,470 | ) |  | (885,211  | )
|Unrealized gain on investments available for sale      |  | 11,957     |   |  | 27,269     |   |  | 3,702     |  
|Currency translation adjustment                        |  | 760,638    |   |  | (1,326,164 | ) |  | 1,191,966 |  
|Comprehensive
      income (loss) for the period       |  | (1,372,140 | ) |  | (2,890,365 | ) |  | 310,457   |  
|Per share information:                                 |  |            |   |  |            |   |  |           |  
|Loss per common share:                                 |  |            |   |  |            |   |  |           |  
|Basic                                                  |  | (0.70      | ) |  | (0.52      | ) |  | (0.29     | )
|Diluted                                                |  | (0.70      | ) |  | (0.52      | ) |  | (0.29     | )
|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 |  
|Diluted                                                |  | 3,072,846  |   |  | 3,072,846  |   |  | 3,072,846 |  

See accompanying notes.

29

---

POLYDEX PHARMACEUTICALS LIMITED

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

|Year ended January 31                                                                 |  | 2010       |   |  | 2009       |   |  | 2008       |  
|------------------------------------------------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ---------- | -
|                                                                                      |  | $          |   |  | $          |   |  | $          |  
|Cash provided by (used in):                                                           |  |            |   |  |            |   |  |            |  
|Operating activities:                                                                 |  |            |   |  |            |   |  |            |  
|Net loss for the period                                                               |  | (2,144,735 | ) |  | (1,591,470 | ) |  | (885,211   | )
|Add (deduct) items not affecting cash:                                                |  |            |   |  |            |   |  |            |  
|Depreciation and amortization                                                         |  | 429,683    |   |  | 549,376    |   |  | 559,866    |  
|Deferred income taxes (Recovery) (note 15)                                            |  | -          |   |  | (52,960    | ) |  | (83,317    | )
|(Gain) Loss on disposal of equipment                                                  |  | (5,037     | ) |  | 5,527      |   |  | -          |  
|Licence fee charged to due from shareholder (note 14)                                 |  | 30,539     |   |  | 32,769     |   |  | 70,280     |  
|Interest on shareholder loan                                                          |  | -          |   |  | (18,895    | ) |  | (28,998    | )
|Options issued in exchange for services (note 12b)                                    |  | 20,160     |   |  | 28,422     |   |  | 15,495     |  
|Impairment of property, plant and equipment                                           |  | 899,503    |   |  | 550,956    |   |  | -          |  
|Impairment of Due to shareholder                                                      |  | 15,000     |   |  | -          |   |  | -          |  
|Net change in non-cash working
      capital balances related to operations (note 16) |  | 165,164    |   |  | 245,147    |   |  | 53,986     |  
|Cash used in
      operating activities                                               |  | (589,723   | ) |  | (251,128   | ) |  | (297,899   | )
|Investing activities:                                                                 |  |            |   |  |            |   |  |            |  
|Additions to property, plant and equipment                                            |  | (68,327    | ) |  | (56,401    | ) |  | (1,486,866 | )
|Decrease in due from shareholder                                                      |  | -          |   |  | 12,826     |   |  | 38,504     |  
|Decrease in accrued interest on investments                                           |  | -          |   |  | -          |   |  | 3,020      |  
|Proceeds of investments available for sale                                            |  | 78,779     |   |  | 376,566    |   |  | 805,582    |  
|Proceeds from sale of equipment                                                       |  | 5,037      |   |  | -          |   |  | -          |  
|Cash provided by (used in) investing activities                                       |  | 15,489     |   |  | 332,991    |   |  | (639,760   | )
|Financing activities:                                                                 |  |            |   |  |            |   |  |            |  
|Repayment of long-term debt                                                           |  | (39,140    | ) |  | (37,770    | ) |  | (36,932    | )
|Repayment of capital lease obligations                                                |  | (16,894    | ) |  | (16,199    | ) |  | (5,220     | )
|Decrease in due to shareholder                                                        |  | (31,921    | ) |  | (50,253    | ) |  | (20,740    | )
|Increase in long-term bank
      indebtedness                                         |  | 235,768    |   |  | -          |   |  | -          |  
|Cash used in financing activities                                                     |  | 147,813    |   |  | (104,222   | ) |  | (62,892    | )
|Effect of exchange
      rate changes                                                 |  | 105,500    |   |  | (118,354   | ) |  | 84,126     |  
|Net decrease in cash and cash
      equivalents                                       |  | (320,921   | ) |  | (140,713   | ) |  | (916,425   | )
|Cash and cash
      equivalents, beginning of year                                    |  | 327,857    |   |  | 468,570    |   |  | 1,384,995  |  
|Cash and cash equivalents, end of year                                                |  | 6,936      |   |  | 327,857    |   |  | 468,570    |  
|Cash and cash equivalents is comprised of the following:                              |  |            |   |  |            |   |  |            |  
|Cash                                                                                  |  | 6,936      |   |  | 327,857    |   |  | 171,625    |  
|Short-term deposits                                                                   |  | -          |   |  | -          |   |  | 296,945    |  
|                                                                                      |  | 6,936      |   |  | 327,857    |   |  | 468,570    |  
|                                                                                      |  |            |   |  |            |   |  |            |  
|See accompanying notes.                                                               |  |            |   |  |            |   |  |            |  
|                                                                                      |  |            |   |  |            |   |  |            |  

30

---

**1. GENERAL**

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

Subsequent events have been evaluated
up to May 3, 2010, the date of filing the Company's 10K.

**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, 2010, the Company has
generated a consolidated net loss of $2,144,735 (2009-$1,591,470) and realized a
negative cash flow from operating activities of $589,723 (2009 - $251,128). There
is an accumulated deficit of $21,515,449 (2009 - $19,370,714) The Company,
through its wholly-owned subsidiary Dextran Products Limited, is also in
violation of its debt service loan covenant related to the bank term loan of
$332,280 (Cdn$355,307), which has resulted in the reclassification of this loan
as a current liability as at January 31, 2010. This default had been waived by
the bank subsequent to fiscal year ends 2009 and 2008. The Company has positive
working capital of $443,915 as at January 31, 2010 (2009 - $1,359,946).

Management has undertaken the following initiatives that it
believes will be instrumental in leading to more profitable operations:

| | Continued cost reductions relating to direct cost areas, including raw
  material pricing, and tighter control of plant hours of work (including the
  plant shutdown in the fourth quarter).
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Where possible, converting customer invoicing to Canadian dollars,
  resulting in reduced foreign exchange exposures for the Canadian operations.                                            
| | Continued emphasis on control of operational processes, combined with
  tighter criteria with respect to acceptance of returned goods for arbitrary
  inadequacies.                          
| | Continued cost reductions relating to administrative and overhead
  expenses, including audit fees, insurance, and reporting costs.                                                          
| | Immediate follow up and more aggressive pricing related to the
  significantly increased volume of enquiries and requests for samples.                                                       

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, and 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 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.

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.

31

---

**2. SIGNIFICANT ACCOUNTING POLICIES**

**Basis of consolidation**

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

**Cash and cash equivalents**

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

**Use of estimates**

The preparation of financial statements in conformity with
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 consolidated financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. Significant accounting estimates relate to the allowance for
unrecoverable amounts, depreciation and amortization rates, and asset impairment
charges.

**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.

**Investments available for sale**

Investments available for sale consist of medium-term fixed
income investments and mutual funds and are stated at fair value based on quoted
market prices. Interest income is included in other income in the consolidated
statements of operations as it is earned. Changes in fair 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.

32

---

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 yearsMachinery 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

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 of product by
the customer.

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

Comprehensive income

The Company discloses comprehensive income in their financial
statements. In addition to items included in net income, comprehensive income
includes items currently charged or credited directly to shareholders' equity,
such as foreign currency translation adjustments.

Shipping and handling costs

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

Research and development

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

33

---

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 these companies have been translated into United States dollars using the
current exchange rates at the consolidated balance sheet dates. Capital stock is
recorded at historical rates. Revenue and expense items are translated using the
average exchange rates for the year. The resulting gains and losses have been
reported separately as other comprehensive income (loss) within shareholders'
equity.

Derivative financial instruments

The Company's Canadian subsidiary from time to time enters into
foreign exchange contracts from time to time, to manage exposure to currency
rate fluctuations related to expected future cash flows. The Company does not
engage in speculative trading of derivative financial instruments. The foreign
exchange contracts are not designated as hedging instruments, and as a result
all foreign exchange contracts are marked to market and the resulting gains and
losses are recorded in the consolidated statements of operations in each
reporting period. Unrealized gains and losses are included in accrued
liabilities in the consolidated balance sheets and in net change in non-cash
working capital balances related to operations in the consolidated statements of
cash flows. For fiscal year 2010 the Company has not entered into any derivative
financial instruments.

Income taxes

The Company accounts for income taxes by recognizing deferred
tax assets and liabilities for the expected future tax consequences of events
that have been included in the consolidated financial statement or tax returns.
Deferred income taxes are provided using the liability method. Under the
liability method, deferred income taxes are recognized for all significant
temporary differences between the tax and financial statement bases of assets
and liabilities.

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

Stock options

The Company uses the fair value accounting to apply recognition
provisions to its employee stock options granted, modified or settled.
Compensation expense is recorded at the date stock options are granted. The
amount of compensation expense is determined by estimating the fair value of the
options granted using the Black-Scholes option pricing model.

Loss per common share

Basic loss per common share is computed using the weighted
average number of shares outstanding of 3,072,846 for the year ended January 31,
2010 (2009 & 2008 - 3,072,846). Diluted loss per common share is computed
using the weighted average number of shares outstanding adjusted for the
incremental shares, using the treasury stock method, attributed to outstanding
options to purchase common stock. No incremental shares in 2010, 2009, or 2008
were used in the calculation of diluted loss per common share. Options to
purchase of 254,397, 138,761, and 63,699 common shares in 2010, 2009 and 2008,
respectively, were not included in the computation of diluted loss per common
share because their effect was anti-dilutive.

34

---

3. CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following:

|     |  | 2010  |  |  | 2009    | 
|---- |  | ----- |  |  | ------- | 
|     |  | $     |  |  | $       | 
|     |  |       |  |  |         | 
|Cash |  | 6,936 |  |  | 327,857 | 
|     |  | 6,936 |  |  | 327,857 | 

4. INVENTORIES

Inventories consist of the following:

|                |  | 2010      |  |  | 2009      | 
|--------------- |  | --------- |  |  | --------- | 
|                |  | $         |  |  | $         | 
|                |  |           |  |  |           | 
|Finished goods  |  | 757,335   |  |  | 626,058   | 
|Work-in-process |  | 143,570   |  |  | 135,966   | 
|Raw materials   |  | 283,313   |  |  | 241,599   | 
|                |  | 1,184,218 |  |  | 1,003,623 | 

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

|                              |  | 2010          |   |  | 2009         | 
|----------------------------- |  | ------------- | - |  | ------------ | 
|                              |  |               |   |  |              | 
|                              |  |               |   |  | Accumulated  | 
|                              |  | Cost          |   |  | depreciation | 
|                              |  | $             |   |  | $            | 
|                              |  |               |   |  |              | 
|Land and buildings            |  | 4,820,640     |   |  | 1,218,202    | 
|Machinery and
      equipment |  | **9,433,144** |   |  | 8,187,265    | 
|                              |  | 14,253,784    |   |  | 9,405,467    | 
|Less: Impairment              |  |               |   |  |              | 
|Adjustment                    |  | (1,496,306    | ) |  |              | 
|                              |  | 12,757,478    |   |  | 9,405,467    | 

As stated in the Going Concern note above, the Companys
operations resulted in several negative financial indicators, including
recurring net losses, negative cash flows, violation of a covenant related to
its bank term loan, and the plant shutdown in the fourth quarter, which are
indicators that the property, plant and equipment may be impaired. To assess
this, the Company compared the carrying values of its building and production
equipment to the value of estimated future cash flows to be expected from the
utilization of these assets over their expected useful life, and has determined
the assets were further impaired by an amount of $1,007,109 (2009 - $489,197)

Included in machinery and equipment are assets under capital
lease with a total cost of $1,158,979 (2009 - $928,064) and accumulated
depreciation of $1,071,742 (2009 - $836,237). Depreciation of assets under
capital lease is included in cost of goods sold. Depreciation of $412,237 was
charged to cost of sales in fiscal 2010 (2009- $514,899). Assets not available
for use amounted to $2,974,347 (2009 - $2,861,449).

35

---

6. PATENTS AND INTANGIBLE ASSETS

Patents and intangible assets consist of the following:

|                                    |  | 2010   |  |  | 2009   | 
|----------------------------------- |  | ------ |  |  | ------ | 
|                                    |  | $      |  |  | $      | 
|                                    |  |        |  |  |        | 
|Cost                                |  | 80,341 |  |  | 80,341 | 
|Less accumulated
      amortization |  | 50,910 |  |  | 42,870 | 
|                                    |  | 29,431 |  |  | 37,471 | 

These patents and intangible assets will be amortized at
approximately $8,040 per year over the next 4 years.

7. INVESTMENTS AVAILABLE FOR SALE

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

|                                                                                                                                            |  | 2010    |  |  | 2009    | 
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- |  |  | ------- | 
|                                                                                                                                            |  | $       |  |  | $       | 
|                                                                                                                                            |  |         |  |  |         | 
|17,917 units (200922,685) of DFA Fixed
      Income Fund yielding 2.54%                                                                    |  | 162,869 |  |  | 175,523 | 
|TD short term bond
      fund consisting of Canadian government and    corporate
      bonds maturing in the next 1-5 years, yielding 2.53% |  | 205,192 |  |  | 205,934 | 
|                                                                                                                                            |  | 368,061 |  |  | 381,457 | 

Investments available for sale are stated at fair value, based
on quoted market prices. The Company expects that the investments available for
sale will be used for working capital for fiscal 2011 and onwards. Accordingly
the investments available for sale were classified as part of current assets as
at January 31, 2010.

36

---

8. RELATED PARTY TRANSACTIONS

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

|                                                        |  | 2010$    |   |  | 2009 
    $ |  
|------------------------------------------------------- |  | -------- | - |  | ----------- | -
|Amounts due from
      estate of former shareholder [i] |  | 211,931  |   |  | 257,470     |  
|Amounts due to
      shareholder [ii]                   |  | (576,395 | ) |  | (608,316    | )



|[i]  | Amounts due from estate of former shareholder (the
      Estate) bear interest at the United States banks prime lending rate plus
      1.5% (2010  4.75%; 2009  6.28%), except for an amount of $250,706 (2009
       $281,244) which is non-interest bearing. Interest income on this loan
      was recognized monthly in 2009. In 2010, a reserve equal to the interest
      income has been entered to offset this interest. These amounts have no
      fixed terms of repayment. The Estate has pledged 243,263 shares of the
      Company and has pledged future license fee payments from the Iron Dextran
      process license agreement [note 14]as collateral for this loan.
      During 2010, $30,539 (2009  $32,769; 2008  $70,280) of license fee
      payments were made. An additional reserve of $15,000 was entered in 2010,
      due to the decline in value of the licence fee payments as the agreement
      comes closer to its termination date. The Company will continue to hold
      the pledged assets as collateral until the loan is repaid. The Company had
      a commitment to pay a death benefit of $110,000 to the Estate. At January
      31, 2010, a balance of $35,703 is still to be paid to the Estate. See also
      Iron Dextran Process under Note 14.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|[ii] | Amounts due to shareholder are unsecured and bear
      interest at the United States banks prime lending rate plus 1.5% (2010 
      4.75%; 2009  6.28%). The Company is required to make monthly payments,
      inclusive of accrued interest, of $5,000. Based on the current rate of
      interest, the principal repayment on this loan for fiscal 2011 would be
      approximately $30,000. This loan may not be called and has no fixed
      maturity date                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Principal repayments on the amounts due to shareholder are as
follows:

|           |  | $       | 
|---------- |  | ------- | 
|           |  |         | 
|2011       |  | 30,000  | 
|2012       |  | 30,000  | 
|2013       |  | 30,000  | 
|2014       |  | 30,000  | 
|2015       |  | 30,000  | 
|Thereafter |  | 426,395 | 
|           |  | 576,395 | 

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

|                 |  | 2010   |  |  | 2009   |  |  | 2008   | 
|---------------- |  | ------ |  |  | ------ |  |  | ------ | 
|                 |  | $      |  |  | $      |  |  | $      | 
|                 |  |        |  |  |        |  |  |        | 
|Interest expense |  | 28,075 |  |  | 39,752 |  |  | 63,256 | 

9. BANK INDEBTEDNESS

The Company had a Canadian operating line of credit of Cdn.
$250,000 (U.S. $233,798; 2009  U.S. $224,880), of which Cdn. $181,000 was
utilized at January 31, 2010 (2009  Nil). The Canadian line of credit bears
interest at the Canadian banks' prime lending rate plus 1.00% (2010  3.25%;
2009  3.40%) . During March 2006, a term loan of Cdn $500,000 (U.S. $498,100)
was obtained for the purchase of equipment, bearing interest of 6.95% (note
10[a]). Bank indebtedness is collateralized by a general security agreement over
the Company's assets and a collateral mortgage of Cdn $500,000 on the Dextran
Products Limited ("Dextran Products") building.

37

---

Subsequent to the end of fiscal years 2010, 2009 and 2008, the
Company received notice from its Canadian bank that it was in default of one of
its covenants, and that this covenant was to be met on a going forward basis.
Subsequent to the fiscal years ended 2009 and 2008, the bank waived this
default. However, subsequent to the fiscal year ended January 31, 2010, the bank
has declined to waive this default, which has resulted in the reclassification
of the equipment loan from long term liabilities to current liabilities. The
other terms of the loan have not changed, and the Company continues to meet its
obligations with respect to this loan.

10. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

[a] Long-term debt consists of the following:

|                                                                                                                                                                                                                                    |  | 2010    |  |  | 2009    | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------- |  |  | ------- | 
|                                                                                                                                                                                                                                    |  | **$**   |  |  | **$**   | 
|                                                                                                                                                                                                                                    |  |         |  |  |         | 
|Note payable in blended quarterly payments
      of Cdn. $141 (U.S.    $115), bearing interest at a fixed
      rate of 11%,    maturing November 13, 2013                                                                          |  | 1,687   |  |  | 1,748   | 
|Bank term loan
      (note 9) payable in monthly installments of    Cdn.
      $5,792 (U.S. $4,722) principal and interest at the   
      Canadian banks prime lending rate plus 0.75% (2009 -
      6.95%),    maturing May 2016 |  | 332,280 |  |  | 324,893 | 
|                                                                                                                                                                                                                                    |  | 333,967 |  |  | 326,641 | 
|Less current
      portion                                                                                                                                                                                                          |  | 332,617 |  |  | 35,336  | 
|                                                                                                                                                                                                                                    |  | 1,350   |  |  | 291,305 | 

Interest expense for the year for long-term debt was $26,550
(2009 - $23,430). The bank term loan has been reclassified as a current
liability as a result of the Companys default of one of its covenants (see note
9 above).

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

|           |  | $       | 
|---------- |  | ------- | 
|           |  |         | 
|2011       |  | 44,361  | 
|2012       |  | 47,549  | 
|2013       |  | 50,942  | 
|2014       |  | 54,580  | 
|2015       |  | 57,927  | 
|Thereafter |  | 78,608  | 
|           |  | 333,967 | 

[b] Capital lease obligations consist of the following:

|                                                                                                                                                         |  | 2010   |  |  | 2009   | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------ |  |  | ------ | 
|                                                                                                                                                         |  | **$**  |  |  | **$**  | 
|                                                                                                                                                         |  |        |  |  |        | 
|Obligation (Cdn. $25,620) under a capital lease, repayable
      in    quarterly installments, bearing interest at 11.15% and
         maturing in 2014. |  | 23,960 |  |  | 24,815 | 

|Obligation under a
      capital lease, repayable in monthly    installments, bearing
      interest at Nil, and    matured in 2009. |  | ---    |  |  | 11,386 | 
|------------------------------------------------------------------------------------------------------------------------------------ |  | ------ |  |  | ------ | 
|                                                                                                                                     |  | 23,960 |  |  | 36,201 | 
|Less current
      portion                                                                                                           |  | 4,760  |  |  | 15,299 | 
|                                                                                                                                     |  | 19,200 |  |  | 20,902 | 

38

---

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

|                                                |  | $      | 
|----------------------------------------------- |  | ------ | 
|                                                |  |        | 
|2011                                            |  | 7,522  | 
|2012                                            |  | 7,522  | 
|2013                                            |  | 7,522  | 
|2014                                            |  | 7,522  | 
|Total minimum lease payments                    |  | 30,088 | 
|Less amount
      representing imputed interest |  | 6,128  | 
|                                                |  | 23,960 | 

Interest expense for the year for capital lease obligations was
$2,903 (2009 - $3,433)

11. ACCRUED LIABILITIES

|                                  |  | 2010    |  |  | 2009    | 
|--------------------------------- |  | ------- |  |  | ------- | 
|                                  |  | $       |  |  | $       | 
|                                  |  |         |  |  |         | 
|Payroll and related taxes payable |  | 251,649 |  |  | 132,495 | 
|Utilities and taxes               |  | 73,110  |  |  | 34,489  | 
|Professional fees payable         |  | 57,982  |  |  | 71,221  | 
|Death benefit payable             |  | 35,703  |  |  | 36,297  | 
|Others                            |  | 55,947  |  |  | 22,036  | 
|                                  |  | 474,391 |  |  | 296,538 | 

12. CAPITAL STOCK

[a] Share capital issued and outstanding

[i] Class A preferred shares

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

[ii] Class B preferred shares

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

39

---

[iii] Common shares

During the year ended January 31, 2010 no common share options
were exercised, and no common shares were issued.

During the year ended January 31, 2009, no common share options
were exercised, and no common shares were issued.

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

[b] Share option plan

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

All options granted have a term of five years and vest
immediately. At January 31, 2010, the Company had 254,397 options outstanding at
exercise prices ranging from $0. 25 to $10.01 and a weighted average exercise
price of $0.84. The options, which are immediately exercisable and expire on
dates between January 31, 2011 and January 31, 2015, entitle the holder of an
option to acquire one common share of the Company.

On January 31, 2010, 120,000 common share options were issued
to the independent directors of the Company. These options were valued at
$20,160 and were included in general and administrative expense. The fair value
for these options was estimated at the date of grant using the Black-Scholes
option pricing model with the following assumptions: risk-free interest rate of
2.50%; dividend yield of nil; volatility factor of the expected market price of
the Company's common stock of 1.230, and an expected life of five years.

On January 31, 2009, 78,947 common share options were issued to
the independent directors of the Company. These options were valued at $28,422
and were included in general and administrative expense. The fair value for
these options was estimated at the date of grant using the Black-Scholes option
pricing model with the following assumptions: risk-free interest rate of 2.50%;
dividend yield of nil; volatility factor of the expected market price of the
Company's common stock of 1.776, and an expected life of five years.

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

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

Weighted averageShare options
    
    
    exercise price per share2010
    
    
    2009
    
    
    2008
    
    
    2010
    
    
    2009
    
    
    2008#
    
    
    #
    
    
    #
    
    
    $
    
    
    $
    
    
    $Options outstanding, beginning of year
    
    138,761
    
    
    63,699
    
    
    37,725
    
    
    1.53
    
    
    3.34
    
    
    5.64Granted
    
    120,000
    
    
    78,947
    
    
    37,974
    
    
    0.25
    
    
    0.38
    
    
    0.79Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


|Expired                                                              |  | (4,364  | ) |  | (3,885  | ) |  | (12,000 | ) |   | 6.86 |  |   | 7.72 |  |   | 2.50 | 
|-------------------------------------------------------------------- |  | ------- | - |  | ------- | - |  | ------- | - | - | ---- |  | - | ---- |  | - | ---- | 
|Options outstanding, end of year                                     |  | 254,397 |   |  | 138,761 |   |  | 63,699  |   |   | 0.84 |  |   | 1.53 |  |   | 3.34 | 
|                                                                     |  |         |   |  |         |   |  |         |   |   |      |  |   |      |  |   |      | 
|Weighted average fair value of options
      granted during the year |  |         |   |  |         |   |  |         |   | $ | 0.25 |  | $ | 0.38 |  | $ | 0.51 | 

40

---

The following table summarizes information relating to the
options outstanding at January 31, 2010:

|         |             | Weighted average
|-------- | ----------- | ----------------
|Exercise | Number      | remaining       
|price    | outstanding | contractual life
|$        |             | [months]        
|         |             |                 
|0.25     | 120,000     | 60              
|0 38     | 78,948      | 48              
|0.79     | 37,974      | 36              
|3.00     | 6,000       | 24              
|7.52     | 3,975       | 12              
|10.01    | 7,500       | 18              
|         | 254,397     | 50              

13. VETERINARY LABORATORIES, INC.

Sparhawk Laboratories, Inc.

In 2004 the Company sold to Sparhawk Laboratories, Inc. the
assets of its subsidiary, Veterinary Laboratories, Inc. including its interest
in a joint venture with Sparhawk, As part of this sale, Chemdex, Inc. 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. This agreement expires in 2014. The Company is not exposed
to any potential losses due to this agreement.

14. LICENSE AGREEMENTS AND RESEARCH AND DEVELOPMENT

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

|                                      |  | 2010  |  |  | 2009   |  |  | 2008    | 
|------------------------------------- |  | ----- |  |  | ------ |  |  | ------- | 
|                                      |  | $     |  |  | $      |  |  | $       | 
|                                      |  |       |  |  |        |  |  |         | 
|Research and development expenditures |  | 4,486 |  |  | 35,102 |  |  | 135,821 | 
|Investment tax
      credits          |  |      |  |  |       |  |  |        | 
|Research and development expense      |  | 4,486 |  |  | 35,102 |  |  | 135,821 | 

Iron Dextran process

The Company has an agreement with the Estate which grants the
Company the exclusive worldwide license to use a certain process for producing
Iron Dextran. This license agreement expires in 2014. The Company pays a license
fee based on production volumes. The total license fee incurred during the year
was $30,539 [2009  $32,769; 2008  $70,280]. These payments are applied to the
balance owing by the Estate [note 8[i]].

41

---

15. INCOME TAXES

[a] Substantially all of the Company's activities are carried
out through operating subsidiaries in Canada and the United States. The
Company's effective income tax rate is dependent on the tax legislation in each
country and the operating results of each subsidiary and the parent company.

The components of loss before income taxes are as follows:

|              |  | 2010       |   |  | 2009       |   |  | 2008     |  
|------------- |  | ---------- | - |  | ---------- | - |  | -------- | -
|              |  | $          |   |  | $          |   |  | $        |  
|              |  |            |   |  |            |   |  |          |  
|Bahamas       |  | (1,290     | ) |  | (23,716    | ) |  | (111,208 | )
|Canada        |  | (2,158,079 | ) |  | (1,650,590 | ) |  | (878,468 | )
|United States |  | 14,634     |   |  | 29,876     |   |  | 22,521   |  
|              |  | (2,144,735 | ) |  | (1,644,430 | ) |  | (967,155 | )

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

|                                                                                               |  | 2010     |   |  | 2009     |   |  | 2008     |  
|---------------------------------------------------------------------------------------------- |  | -------- | - |  | -------- | - |  | -------- | -
|                                                                                               |  | $        |   |  | $        |   |  | $        |  
|Provision for (recovery of) income taxes
      based on    Canadian statutory income tax rates |  | (539,520 | ) |  | (511,683 | ) |  | (280,466 | )
|Increase in valuation allowance                                                                |  | 151,709  |   |  | 496,470  |   |  | 216,216  |  
|Tax and exchange rate changes on deferred
      tax items                                      |  | 393,967  |   |  | (37,205  | ) |  | 22,823   |  
|Items not
      deductible for tax                                                             |  | (6,156   | ) |  | (542     | ) |  | (40,517  | )
|                                                                                               |  |         |   |  | (52,960  | ) |  | (81,944  | )
|                                                                                               |  |          |   |  |          |   |  |          |  
|Provision for (recovery of) income taxes
      based on    United States income tax rates      |  | 5,415    |   |  | 11,054   |   |  | 8,333    |  
|Utilization of
      previously unrecognized tax losses                                        |  | (5,415   | ) |  | (11,054  | ) |  | (8,333   | )
|                                                                                               |  |         |   |  |         |   |  |         |  
|Recovery of
      income taxes                                                                 |  |         |   |  | (52,960  | ) |  | (81,944  | )

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

|                                              |  | 2010 |  |  | 2009    |   |  | 2008    |  
|--------------------------------------------- |  | ---- |  |  | ------- | - |  | ------- | -
|                                              |  | $    |  |  | $       |   |  | $       |  
|                                              |  |      |  |  |         |   |  |         |  
|Canadian deferred tax recovery                |  |     |  |  | (52,960 | ) |  | (83,317 | )
|Canadian current
      tax expense (recovery) |  |     |  |  |        |   |  | 1,373   |  
|                                              |  |     |  |  | (52,960 | ) |  | (81,944 | )

42

---

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

|                                                                    |  | 2010      |  |  | 2009      |  |  | 2008      |  
|------------------------------------------------------------------- |  | --------- |  |  | --------- |  |  | --------- | -
|                                                                    |  | $         |  |  | $         |  |  | $         |  
|Deferred tax assets                                                 |  |           |  |  |           |  |  |           |  
|Canadian                                                            |  |           |  |  |           |  |  |           |  
|Non-capital losses                                                  |  | 1,139,962 |  |  | 1,082,241 |  |  | 1,053,398 |  
|Unclaimed research and development expenses                         |  | 281,280   |  |  | 304,083   |  |  | 315,905   |  
|Excess of tax value over
      carrying value of                    |  |           |  |  |           |  |  |           |  
|depreciable assets                                                  |  | 455,624   |  |  | 184,476   |  |  |          |  
|Net capital losses [note
      15[c]]                               |  | 142,952   |  |  | 154,541   |  |  | 200,055   |  
|Other items                                                         |  | 43,470    |  |  | 20,846    |  |  | 14,414    |  
|United States                                                       |  |           |  |  |           |  |  |           |  
|Net
      operating loss carryforwards                              |  | 7,438     |  |  | 29,378    |  |  | 29,378    |  
|                                                                    |  | 2,070,726 |  |  | 1,775,565 |  |  | 1,613,150 |  
|Less valuation
      allowance                                      |  | 2,070,726 |  |  | 1,775,565 |  |  | 1,613,150 |  
|                                                                    |  |          |  |  |          |  |  |          |  
|Deferred tax liabilities                                            |  |           |  |  |           |  |  |           |  
|Excess of carrying value over tax value of
      depreciable assets |  |          |  |  |          |  |  | (47,120   | )
|Investment tax
      credits and other items                        |  |          |  |  |          |  |  | (8,842    | )
|Net deferred tax liabilities                                        |  |          |  |  |          |  |  | (55,962   | )

[c] The Canadian subsidiaries have non-capital loss
carryforwards available to reduce future years income for tax purposes totaling
approximately $4,560,000. These non-capital losses expire from 2011 to 2030 and
are stated below.

Year of expiry
    $2011
    249,0002015
    563,0002026
    666,0002027
    480,0002028
    718,0002029
    887,0002030
    997,000Total
    4,560,000


The Canadian subsidiaries also have deductions relating to
scientific research and experimental development credits amounting to
approximately $1,125,000. Certain Canadian subsidiaries also have net capital
losses available for carryforward of approximately $572,000 available to offset
future taxable capital gains. These potential deductions and net capital losses
have an indefinite carryforward period.

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

43

---

16. CONSOLIDATED STATEMENTS OF CASH FLOWS

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

|                                                |  | 2010     |   |  | 2009     |   |  | 2008     |  
|----------------------------------------------- |  | -------- | - |  | -------- | - |  | -------- | -
|                                                |  | $        |   |  | $        |   |  | $        |  
|                                                |  |          |   |  |          |   |  |          |  
|Decrease (increase) in assets                   |  |          |   |  |          |   |  |          |  
|Trade accounts receivable                       |  | (336,995 | ) |  | 381,994  |   |  | 691,495  |  
|Inventories                                     |  | (31,789  | ) |  | 114,488  |   |  | 212,075  |  
|Prepaid expenses
      and other current assets |  | 55,631   |   |  | (5,132   | ) |  | (3,566   | )
|                                                |  | (313,153 | ) |  | 491,350  |   |  | 900,004  |  
|Increase (decrease) in liabilities              |  |          |   |  |          |   |  |          |  
|Accounts payable                                |  | 352,175  |   |  | (198,510 | ) |  | (978,507 | )
|Accrued liabilities                             |  | 139,283  |   |  | (66,697  | ) |  | 147,783  |  
|Customer deposits                               |  | (13,141  | ) |  | 19,004   |   |  | (15,294  | )
|                                                |  | 165,164  |   |  | 245,147  |   |  | 53,986   |  

Cash paid during the year for interest was $54,623 (2009 
$66,714; 2008  $96,818). Cash paid during the year for income taxes was Nil
(2009  Nil; 2008  Nil).

During the fiscal year ended January 31, 2009, the Company
acquired a forklift truck for an amount of $19,518 and photocopier/printing
equipment for an amount of $18,710 under capital lease arrangements. There were
no capital equipment acquisitions under capital leases for the years ended
January 31, 2010 and 2008.

17. SEGMENTED INFORMATION

All manufacturing, sales and administrative operations are
carried out through Dextran Products Limited (Dextran) in Canada, while
Chemdex in the United States only sells bulk quantities of a specific dextran
derivative to Sparhawk under the Supply Agreement, as described in note
13.

Below is a breakdown of our sales revenue among significant
customers and by geographic region:

|                                             |   | 2010      |  |   | 2009      |  |   | 2008      | 
|-------------------------------------------- | - | --------- |  | - | --------- |  | - | --------- | 
|                                             |   | **$**     |  |   | **$**     |  |   | **$**     | 
|Total revenue by significant
      customer: |   |           |  |   |           |  |   |           | 
|                                             |   |           |  |   |           |  |   |           | 
|Customer A                                   | $ | 1,177,786 |  | $ | 767,878   |  | $ | 427,206   | 
|Customer B                                   |   | 1,075,210 |  |   | 1,095,647 |  |   | 1,106,972 | 
|Customer C                                   |   | 588,384   |  |   | 917,704   |  |   | 655,107   | 
|Customer D                                   |   | 220,160   |  |   | 220,160   |  |   | 578,120   | 
|Customer E                                   |   | 166,043   |  |   | 53,960    |  |   | 10,115    | 
|Customer F                                   |   | 8,000     |  |   | 376,027   |  |   | 291,983   | 
|Customer G                                   |   | ---       |  |   | ---       |  |   | 538,033   | 
|                                             |   | 3,235,583 |  |   | 3,431,376 |  |   | 3,607,536 | 

44

---

|                                 |  | **2010** |  |  | 2009  |  |  | 2008  | 
|-------------------------------- |  | -------- |  |  | ----- |  |  | ----- | 
|                                 |  | **$**    |  |  | **$** |  |  | **$** | 
|Sales by geographic destination: |  |          |  |  |       |  |  |       | 

|Europe        | $ | 1,361,141 |  | $ | 1,410,803 |  | $ | 1,928,278 | 
|------------- | - | --------- |  | - | --------- |  | - | --------- | 
|Canada        |   | 1,238,244 |  |   | 824,358   |  |   | 1,035,040 | 
|United States |   | 1,012,022 |  |   | 1,810,342 |  |   | 1,475,295 | 
|Other         |   | 452,002   |  |   | 405,132   |  |   | 452,028   | 
|Pacific Rim   |   | 417,765   |  |   | 374,271   |  |   | 844,217   | 
|              | $ | 4,481,174 |  | $ | 4,824,906 |  | $ | 5,734,858 | 

All the Companys long lived assets are located in Canada.

18. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

The carrying values of cash and cash equivalents, trade
accounts receivable, interest receivable and accounts payable approximate their
fair values as at January 31, 2010 because of the short period to maturity of
these financial instruments.

The estimated fair values of the bank indebtedness, due to
shareholder, long-term debt and capital lease obligations are not materially
different from the carrying values for financial statement purposes as at
January 31, 2010 and 2009. The estimated fair value of the amount due from
shareholder is not determinable because the amount has no fixed terms of
repayment.

Cash and cash equivalents and investments available for sale
have been classified as level 1 on the fair value hierarchy, since their fair
values are based on quoted market prices.

19. OTHER DISCLOSURES

[a] Concentration of accounts receivable

As at January 31, 2010, three (2009 - two) customers of the
Company comprised 82% (2009 - 73%) of the trade accounts receivable balance. No
other customers had trade accounts receivable outstanding at year end that
represented more than 10% of the Company's trade accounts receivable balance.

[b] Foreign currency risk

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

20. ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of other accumulated comprehensive income are
as follows:

|                                                                  |  | 2010      |  |  | 2009    | 
|----------------------------------------------------------------- |  | --------- |  |  | ------- | 
|                                                                  |  | $         |  |  | $       | 
|                                                                  |  |           |  |  |         | 
|Unrealized gains (losses) on investments
      available for sale |  | 29,258    |  |  | 17,301  | 
|Currency
      translation                                        |  | 1,342,603 |  |  | 581,965 | 
|Accumulated other comprehensive income                            |  | 1,371,861 |  |  | 599,266 | 

45

---

21. COMMITMENTS AND CONTINGENCIES

As at January 31, 2010, the Company had no commitments for
capital expenditures related to the plant refurbishment (2009 - NIL) at Dextran
Products in Toronto, and no additional other commitments (2010 & 2009 
$NIL). A subsidiary of the Company, Chemdex, Inc, has entered into a supply
agreement with Sparhawk to supply ferric hydroxide and hydrogenated dextran
solution on an exclusive basis until 2014 (note 13).

22. RECENT ACCOUNTING PRONOUNCEMENTS

(a) In June 2009, the Financial
Accounting Standards Board (FASB) issued guidance now codified under
Accounting Standards Codification (ASC) Topic 105-10, which establishes the
FASB Accounting Standards Codification (the Codification) as the source of
authoritative accounting principles recognized by the FASB to be applied in the
preparation of financial statements in conformity with GAAP. ASC Topic 105-10
explicitly recognizes rules and interpretive releases of the Securities and
Exchange Commission (SEC) under federal securities laws as authoritative GAAP
for SEC registrants. Upon adoption of this guidance under ASC Topic 105-10, the
Codification superseded all then-existing non-SEC accounting and reporting
standards. All other non-grandfathered non-SEC accounting literature not
included in the Codification became non-authoritative. The guidance under ASC
Topic 105-10 became effective for the Company as of September 30, 2009.
References made to authoritative FASB guidance throughout the consolidated
financial statements have been updated to the applicable Codification section.

(b) On October 10, 2008, the FASB
issued FASB ASC 8201035 (Previously known as: (FSP FAS 1573, Determining the
Fair Value of a Financial Asset in a Market That Is Not Active.) which was
effective upon issuance, including periods for which financial statements have
not been issued. It clarified the application of FASB ASC 820-10 in an inactive
market and provided an illustrative example to demonstrate how the fair value of
a financial asset is determined when the market for that financial asset is
inactive. The adoption of this FSP did not have a material impact on the
Companys consolidated financial position and results of operations.

(c) In April 2009, the FASB issued FASB
ASC 820-10-65 (Previously known as: FSP 157-4 Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly). Based on the
guidance, if an entity determines that the level of activity for an asset or
liability has significantly decreased and that a transaction is not orderly,
further analysis of transactions or quoted prices is needed, and a significant
adjustment to the transaction or quoted prices may be necessary to estimate fair
value in accordance with Statement of Financial Accounting Standards FASB ASC
820-10 (Prior authoritative literature: (SFAS) No. 157 Fair Value
Measurements). This FSP is to be applied prospectively and is effective for
interim and annual periods ending after June 15, 2009 with early adoption
permitted for periods ending after March 15, 2009. The company adopted this FSP
for its quarter ended April 30, 2009. The adoption has no impact on the
Companys consolidated financial statements.

(d) In 2008, the FASB issued FASB ASC
81540 (Previously known as: EITF 0705, Determining whether an Instrument (or
Embedded Feature) Is Indexed to an Entitys Own Stock). FASB ASC 81540 provides
guidance on determining what types of instruments or embedded features in an
instrument held by a reporting entity can be considered indexed to its own stock
for the purpose of evaluating the first criteria of the scope exception in FASB
ASC 8101015 (Prior authoritative literature: paragraph 11(a) of SFAS 133). The adoption of FASB
ASC 81540 effective February 1, 2009 did not have any impact on the Companys
consolidated financial statements

46

---

(e) In December 2007, the FASB issued
FASB ASC 80510 (Prior authoritative literature: SFAS No. 141 (revised 2007),
Business Combinations, which replaces FASB Statement No. 141). FASB ASC 80510
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any non controlling interest in the acquiree and the
goodwill acquired. The Statement also establishes disclosure requirements which
will enable users to evaluate the nature and financial effects of the business
combination. FASB ASC 80510 will change how business combinations are accounted
for and will impact financial statements both on the acquisition date and in
subsequent periods. The adoption of FASB ASC 80510 did not have an impact on
the Companys consolidated financial position and results of operations although
it may have a material impact on accounting for business combinations in the
future which cannot currently be determined.

(f) In April 2009, the FASB issued FASB
ASC 8051005 (Previously known as: Statement No. 141(R)1 "Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arises
from Contingencies"). For business combinations, the standard requires the
acquirer to recognize at fair value an asset acquired or liability assumed from
a contingency if the acquisition date fair value can be determined during the
measurement period. The adoption of FASB ASC 8051005 as of February 1, 2009
did not have an impact on the Company's consolidated financial position and
results of operations, however it may have a material impact in the future which
cannot currently be determined

(g) In April 2009, the FASB issued FASB
ASC 8251050 (Previously known as: FASB Staff Position No. FAS 1071) and FASB
ASC 2701005 (Prior authoritative literature: APB 281, Interim Disclosures
about Fair Value of Financial Instruments,) which requires disclosures about
fair value of financial instruments for interim reporting periods of publicly
traded companies as well as in annual financial statements. This Staff Position
is effective for interim reporting periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009. The Company
adopted this pronouncement as of May 1, 2009 and it did not have a material
impact on the consolidated financial statements.

In January 2010, the FASB issued
updated guidance to amend the disclosure requirements related to recurring and
nonrecurring fair value measurements. This update requires new disclosures on
significant transfers of assets and liabilities between Level 1 and Level 2 of
the fair value hierarchy (including the reasons for these transfers) and the
reasons for any transfers in or out of Level 3. This update also requires a
reconciliation of recurring Level 3 measurements about purchases, sales,
issuances and settlements on a gross basis. In addition to these new disclosure
requirements, this update clarifies certain existing disclosure requirements.
For example, this update clarifies that reporting entities are required to
provide fair value measurement disclosures for each class of assets and
liabilities rather than each major category of assets and liabilities. This
update also clarifies the requirement for entities to disclose information about
both the valuation techniques and inputs used in estimating Level 2 and Level 3
fair value measurements. This update will become effective for the Company with the interim
and annual reporting period beginning February 1, 2010, except for the
requirement to provide the Level 3 activity of purchases, sales, issuances, and
settlements on a gross basis, which will become effective for the Company with
the interim and annual reporting period beginning February 1, 2011. The Company
will not be required to provide the amended disclosures for any previous periods
presented for comparative purposes. Other than requiring additional
disclosures,adoption of this update will not have a material effect on the
Company's consolidated financial statements.

47

---

(h) In May 2009, the FASB issued FASB
ASC 855-10 (Previously known as: SFAS No. 165, Subsequent Events) FASB ASC
855-10 establishes general standards for accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are
available to be issued (subsequent events). More specifically, FASB ASC 855-10
sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition in the financial statements, identifies the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements and the disclosures that
should be made about events or transactions that occur after the balance sheet
date. FASB ASC 855-10 provides largely the same guidance on subsequent events
which previously existed only in auditing literature. The guidance under ASC
Topic 855-10 became effective for the Company for the period ending as of July
31, 2009

In February 2010, FASB issued ASU
2010-09 Subsequent Event (Topic 855) Amendments to Certain Recognition and
Disclosure Requirements. ASU 2010-09 removes the requirement for an SEC filer to
disclose a date through which subsequent events have been evaluated in both
issued and revised financial statements. Revised financial statements include
financial statements revised as a result of either correction of an error or
retrospective application of GAAP. All of the amendments in ASU 2010-09 are
effective upon issuance of the final ASU, except for the use of the issued date
for conduit debt obligors. That amendment is effective for interim or annual
periods ending after June 15, 2010. The Company is evaluating the impact, if
any, the adoption of ASU 2010-09 will have on its consolidated financial
statements.

(i) In June 2009, the FASB issued ASC
810, Consolidation (ASC 810), which changes the approach in determining the
primary beneficiary of a variable interest entity (VIE) and requires companies
to more frequently assess whether they must consolidate VIEs. ASC 810 is
effective for annual periods beginning after November 15, 2009. The Company is
evaluating the impact, if any, the adoption of ASC 810 will have on its
consolidated financial statements.

(j) In October 2009, the FASB issued
new guidance for revenue recognition with multiple deliverables, which is
effective for revenue arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010, although early adoption is permitted.
This guidance eliminates the residual method under the current guidance and
replaces it with the relative selling price method when allocating revenue in
a multiple deliverable arrangement. The selling price for each deliverable shall
be determined using vendor specific objective evidence of selling price, if it
exists, otherwise thirdparty evidence of selling price shall be used. If
neither exists for a deliverable, the vendor shall use its best estimate of the
selling price for that deliverable. After adoption, this guidance will also
require expanded qualitative and quantitative disclosures. The Company is
currently assessing the impact of adoption on its consolidated financial
position and results of operations.

48

---

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

None

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls

The Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act, as amended. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures cannot be relied upon to ensure that
information required to be disclosed in the reports the Company files and
submits under the Exchange Act is recorded, processed, summarized and reported
as and when required or to ensure that information is accumulated and
communicated to our management to allow timely decisions regarding required
disclosure. Therefore controls and procedures were not effective for fiscal year
ended January 31, 2010.

Managements Report on Internal Control over Financial
Reporting

Management of the Company is
responsible for establishing and maintaining adequate internal control over
financial reporting as defined in Rule 13a-15(f) under the Securities Exchange
Act of 1934. We have assessed the effectiveness of those internal controls as of
January 31, 2010.

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

A material weakness in internal
controls is a deficiency in internal control, or combination of control
deficiencies, that adversely affects the Companys ability to initiate,
authorize, record, process, or report external financial data reliably in
accordance with accounting principles generally accepted in the United States of
America such that there is more than a remote likelihood that a material
misstatement of the Companys annual or interim financial statements that is
more than inconsequential will not be prevented or detected.

In the course of making our
assessment of the effectiveness of internal controls over financial reporting,
we identified a material weakness in our internal control over financial
reporting. This material weakness consisted of inadequate staffing within the
accounting operations of our company. The small number of employees who are responsible for accounting
functions prevents us from segregating duties within our internal control
system. The inadequate segregation of duties is a weakness because it could lead
to the untimely identification and resolution of accounting and disclosure
matters or could lead to a failure to perform timely and effective reviews. Due
to this material weakness, management concluded that its internal control over
financial reporting was not effective as of January 31, 2010.

49

---

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

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

Management has reacted to the
Companys profitability and liquidity issues in various ways, one of which is
the reduction of administrative personnel. Inherent in remedying the internal
control weaknesses noted above is increased division of duties, which would
require the addition of administrative personnel. The Company fully intends to
address this need once more profitable operating results have been achieved.

This annual report does not
include an attestation report of the Companys registered public accounting firm
regarding internal control over financial reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only managements report in this annual report.

There was no change in internal
control over financial reporting during our fourth fiscal quarter ended January
31, 2010 that has materially affected, or is likely to materially affect, our
internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

NONE

50

---

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICER AND CORPORATE
GOVERNANCE

Board of Directors

The Board of Directors currently
consists of four members, three of whom are independent directors who meet the
independence standards for audit committee members as set forth in the Sarbanes
Oxley Act of 2002 and the corporate governance listing requirements applicable
to companies listed on the NASDAQ Capital Market. The directors of the Company
are divided into three classes, designated as Class I, Class II and Class III.
At each Annual Meeting, one class of directors is elected to serve for a
three-year term or until their respective successors are duly elected and
qualified.Messr. Usher is a Class II director.

No director, executive officer,
affiliate of the Company or holder of five percent or more of any class of the
Companys voting securities or any associate thereof is a party in any material
proceedings adverse to the Company or has a material interest adverse to the
Company in any material proceeding.

As of April 30, 2010, the
following information relates to our directors: their principal occupation and
employment, age, the year in which each became a director of the Company, and
directorships in companies having securities registered pursuant to the
Securities Exchange Act of 1934, as amended.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |     | Year First
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | ----------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |     | Elected   
|Name and Occupation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | Age | Director  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |     |           
|DEREK JOHN MICHAEL LEDERER, Chartered Accountant. Mr.
      Lederer is the principal of Derek Lederer C.A., a public accounting firm
      since 1970, and is a former adjunct professor at York University in
      Toronto, Ontario.
    Mr. Lederers skill set as an accountant in public
      practice, and as an academic has proven invaluable to Polydex. His
      financial reporting expertise provides guidance to the Company as it deals
      with the many changes it has encountered. This is especially true more
      recently as the challenges facing the Company have resulted in financial
      statements that have included going- concern qualifications,, write downs
      of capital assets and reclassification of debt, to name a few. In
      addition, his financial analytical skills have been brought to bear as he
      also monitors budgets and especially cash flow, as well as gross
      profitability. | 68  | 1998      

51

---



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     | Year first
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --- | ----------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     | Elected   
|Name and Occupation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Age | Director  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |           
|JOHN L.E. SEIDLER. Mr. Seidler earned his BA from Leeds
      University in England and his MBA from the University of Western Ontario.
      A senior management veteran with 30 years of experience at three of the
      top Fortune 100 companies, Mr. Seidler has particular management expertise
      in the pharmaceutical field having served as a Country Manager and
      Director of International Public Affairs for Pfizer Inc., as an
      international executive for Johnson & Johnson, including Vice
      President International for Janssen Pharmaceuticals, and as Chief
      Operating Officer of Orbis International, an eye care not-for-profit
      company. He is currently a Sales/Professional Relations executive at Free
      & Clear Inc., a leading behaviour-based tobacco cessation program.                                                                                                                                                                                                                                                                                                         | 74  | 1998      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |           
|Mr. Seidlers background in the pharmaceutical industry and
      his experiences in senior management positions in that sector are valuable
      to the Company in various aspects. Mr. Seidler has consistently brought
      these attributes to bear as he questions all aspects of the Companys
      operations, including his monitoring of budgeting and cash flow, sales
      performance, profitability analysis and client retention. His experience
      in the international sector has also proven beneficial with regard to the
      marketing guidance he provides in relation to the international markets in
      which Polydex competes. His background includes risk assessment and
      financial analysis, skills which are vital to directing the operations of
      Polydex.                                                                                                                                                                                                                                                                                                                                  |     |           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |           
|JOSEPH BUCHMAN. Currently, Mr. Buchman is a Financial
      Services Representative with Metlife Financial Services, where he has
      served in various capacities since 1979. Mr. Buchmans unique background
      adds a measure of diversity and practicality to the Board. As a former
      vice- president of an investment firm in charge of operations and finance,
      he is well acquainted with the investment community and its requirements.
      As well, he actively participates in the monitoring of the Companys
      operations through regular review of the Companys budgets and cash flows,
      and providing advice on the implications of the the Companys
      communications and interactions with shareholders.                                                                                                                                                                                                                                                                                                                                                                                       | 70  | 1983      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |     |           
|GEORGE G. USHER. Mr. Usher has served as Chairman of the
      Board since January 27, 1998, President and Chief Executive Officer of the
      Company since 1993 and 1996, respectively, and Vice President of Dextran Products Limited, a subsidiary of the
Company, since 1987. Previously, Mr. Usher was employed by the Company in
various positions since 1982.
Mr. Usher is the most knowledgeable and experienced individual
within Polydex. He has worked in all areas of the Company, allowing him to be
fully versed in not only the strategic issues that affect the industry and its
markets, but also in the many technical aspects related to production, quality
control and product research. His educational background in animal science and
chemistry enables him to not only deal with the many issues surrounding
producing quality product, but also in efficiently understanding the complex
requirements of new and developing markets. He has also become a Certified
Insurance Professional, which further adds to his understanding and ability to
deal with the many risks and opportunities the Company faces. | 51  | 1988      

52

---

Member Communication with the Board

The Board of Directors has
established a process to receive communications from Members. Members may
contact any member (or all members) of the Board of Directors (or the
non-management directors as a group) or any committee of the Board of Directors
by mail. To communicate with the Board of Directors, any individual director or
any group or committee of directors, correspondence should be addressed to the
Board of Directors or any such individual director or group or committee of
directors by either name or title. All such requests should be directed to Linda
Hughes, Polydex Pharmaceuticals Limited Investor Relations, c/o North Arm
Capital Services, 347 Evergreen Way, Point Roberts, Washington, USA 98281.

All communications received as
set forth in the preceding paragraph will be opened by the Companys office of
Investor Relations for the sole purpose of determining whether the contents
represent a message to the Companys directors. Any contents that are not in the
nature of advertising, promotions of a product or service, or patently offensive
material will be forwarded promptly to the addressee. In the case of
communications to the Board of Directors or any group or committee of directors,
the Investor Relations office will make sufficient copies of the contents to
send to each director who is a member of the group or committee to which the
correspondence or e-mail is addressed.

Board Committees and Nominating Procedures

The Companys Board of Directors
has three standing Committees: Audit, Compensation, and Nominating and Corporate
Governance.

For the fiscal year ended January
31, 2010, independent directors Derek John Michael Lederer (Chair), Joseph
Buchman and John L.E. Seidler comprised the Audit Committee, which held 4
meetings. The Audit Committee is comprised solely of directors who meet all the
independence standards for audit committee members, as set forth in the
Sarbanes-Oxley Act of 2002 and the corporate governance listing requirements
applicable to companies whose securities are listed on the NASDAQ Capital
Market. The Board of Directors has designated Derek John Michael Lederer as
an audit committee financial expert as that term is defined in the SEC rules
adopted pursuant to the Sarbanes-Oxley Act. The charter of the Audit Committee
is available on the Companys website at www.polydex.com.

53

---

For the fiscal year ended January
31, 2010, independent directors Joseph Buchman (Chair), Derek John Michael
Lederer and John L.E. Seidler comprised the Compensation Committee.The
Compensation Committee convenes when determined appropriate or necessary by its
members. The Compensation Committee generally has responsibility for (1)
recommending to the Board of Directors guidelines and standards relating to the
determination of executive compensation, (2) reviewing the Companys executive
compensation and benefits policies, including incentive compensation and
equity-based plans, (3) setting compensation level of Companys Chief Executive
Officer and all other executive officers, and (4) reporting to the Board of
Directors regarding the foregoing. The charter of the Compensation Committee is
available on the Companys website at www.polydex.com.

The Board of Directors
established a Nominating and Corporate Governance Committee, which is comprised
of independent directors John L.E. Seidler (chair), Joseph Buchman and Derek
John Michael Lederer. The Nominating and Corporate Governance Committee convenes
when determined appropriate or necessary by its members. The Nominating and
Corporate Governance Committee generally has responsibility for (1) identifying
candidates who are eligible, in accordance with the Companys Memorandum of
Association and Articles of Association, and advisable to serve as members of
the Companys Board of Directors, (2) advising the Board of Directors with
respect to matters relating to the compensation, procedures and committees of
the Board of Directors, (3) developing and recommending to the Board of
Directors a set of corporate governance principles applicable to the Company,
and (4) overseeing corporate governance matters generally. The charter of the
Nominating and Corporate Governance Committee is available on the Companys
website at www.polydex.com.

The Nominating and Corporate
Governance Committee will consider director candidates recommended by Members.
In considering candidates submitted by Members, the Nominating and Corporate
Governance Committee will take into consideration the needs of the Board of
Directors and the qualifications of the candidate. The Nominating and Corporate
Governance Committee may also take into consideration the number of Common
Shares held by the recommending Member and the length of time that such Common
Shares have been held. To have a candidate considered by the Nominating and
Corporate Governance Committee, a Member must submit the recommendation in
writing and must include the following information: (1) the name of the Member
and evidence of the persons ownership of the Companys Common Shares, including
the number of Common Shares owned and the length of time of ownership; and (2)
the name of the candidate, the candidates resume or a listing of his or her
qualifications to be a director of the Company and the persons consent to be
named as a director if selected by the Nominating and Corporate Governance
Committee and nominated by the Board of Directors.

To be considered for nomination
at an annual general meeting of the Company, the Member recommendation and
information described above must be addressed to the Companys Chairman at 421
Comstock Road, Toronto, Ontario, Canada M1L 2H5, and must be received by the
Chairman not less than 120 days prior to the anniversary date of our most recent
Annual Meeting. If, however, the Company did not hold an Annual Meeting the
previous year, or if the date of the Annual Meeting to which the recommendation
applies has been changed by more than 30 days from the anniversary date of our
most recent Annual Meeting, then the recommendation and information must be
received not later than the close of business on the 10th day following the day
on which notice of the date of the Annual Meeting is mailed or public disclosure
of the date of the Annual Meeting is made, whichever occurs first.

All director candidates
recommended by the Nominating and Corporate Governance Committee must be
consistent with the Board of Directors criteria for selecting directors. These
criteria include the possession of such knowledge, experience, skills, expertise
and diversity so as to enhance the Board of Directors ability to manage and
direct the affairs and business of the Company, including, when applicable, to
enhance the ability of committees of the Board of Directors to fulfill their
duties and/or to satisfy any independence requirements imposed by law,
regulation or NASDAQ Capital Market listing requirement. The Board does not have
a specific diversity policy. In addition, the Nominating and Corporate Governance Committee examines, among other things, a
candidates ability to make independent analytical inquiries, understanding of
the Companys business environment, potential conflicts of interest,
independence from management and the Company, integrity and willingness to
devote adequate time and effort to responsibilities associated with serving on
the Board of Directors.

54

---

The Nominating and Corporate
Governance Committee identifies potential nominees by asking current directors
and executive officers to notify the Nominating and Corporate Governance
Committee if they become aware of persons meeting the criteria described above,
and in particular any such persons who have had a change in circumstances that
might make them available to serve on the Board of Directors  for example,
retirement as a senior executive of a public company. The Nominating and
Corporate Governance Committee also, from time to time, may engage firms that
specialize in identifying director candidates. As described above, the Committee
will also consider candidates recommended by Members.

Once a person has been identified
by the Nominating and Corporate Governance Committee as a potential candidate,
the Nominating and Corporate Governance Committee may collect and review
publicly available information regarding the person to assess whether the person
should be considered further. If the Nominating and Corporate Governance
Committee determines that the candidate warrants further consideration, the
Chair or another member of the Nominating and Corporate Governance Committee
contacts the person. Generally, if the person expresses a willingness to be
considered and to serve on the Board of Directors, the Nominating and Corporate
Governance Committee requests information from the candidate, reviews the
persons accomplishments and qualifications, including in light of any other
candidates that the Nominating and Corporate Governance Committee might be
considering, and conducts one or more interviews with the candidate. In certain
instances, Nominating and Corporate Governance Committee members may contact one
or more references provided by the candidate or may contact other members of the
business community or other persons that may have greater first-hand knowledge
of the candidates accomplishments. The Nominating and Corporate Governance
Committees evaluation process does not vary based on whether or not a candidate
is recommended by a Member, although, as stated above, the Board of Directors
may take into consideration the number of Common Shares held by the recommending
Member and the length of time that such Common Shares have been held.

Risk Oversight and Structure

The Board of Directors of Polydex is chaired by the President
and Chief Executive Officer of Polydex, Mr. George Usher. These roles can be
effectively combined at Polydex as it is a smaller Company and its operations
are not difficult to understand. In addition, Mr. Ushers involvement with all
operating activities allows him to provide specific, functional operational
information as well as strategic guidance to the Board. There is no lead,
independent director on the Board.

There is regular, ongoing interaction between the Board as a
whole and the CEO, in discussing and managing the material risks the Company
faces. The most obvious interaction occurs quarterly when the Board as a whole
meets with senior management, including the CFO and the COO of Dextran, to
review the quarterly report (10-Q) and discuss various aspects of the Companys
operations. This discussion is wide ranging and includes all aspects of the
issues and opportunities encountered in the quarter, as well as an update of
sales and marketing efforts, and more recently the financial problems being
encountered. Also included are budgets and cash flows, client retention issues,
gross profit discussion and updates regarding financial reporting, economic
trends, and new business opportunities.

In addition, there is very frequent communication between the
chair of the audit committee and the CEO, who regularly meet to discuss all
matters of significance to the Company on an ongoing basis. Separate communication amongst the
directors is also prevalent and encouraged.

55

---

Code of Ethics

The Board of Directors has
adopted a Code of Ethics that is specifically applicable to its executive
officers and senior financial officers, including its principal executive
officer and its principal financial officer. The Code of Ethics is available on
the Companys website at www.polydex.com.
Among other things, our Code of Ethics requires officers to disclose to the
Companys Audit Committee any actual or potential conflicts of interest.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities
Exchange Act requires the Companys directors, executive officers and any person
who beneficially owns more than ten percent of the Common Shares to file with
the SEC an initial report of ownership and reports of changes in ownership of
Common Shares. Officers, directors and greater than ten-percent beneficial
owners are required by SEC regulation to furnish the Company with copies of all
Section 16(a) reports they file.

To the Companys knowledge, based solely upon a review of
Forms 3 and 4 and amendments thereto furnished to the Company during its most
recent fiscal year, and Forms 5 furnished to the Company with respect to its
most recent fiscal year from reporting persons that no other reports were
required, the Company failed to prepare, during the fiscal year ended January 31,
2010, a filing on behalf of Messrs, Lederer, Seidler, and Buchman  to report the annual
grant of options issued to directors.  The Company is working to implement a system whereby
the late filings will be eliminated and all Section 16(a) filings will be made
on time.

ITEM 11. EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth all of the compensation awarded
to, earned by, or paid to the Companys principal executive officer,
principal financial officer, and the other highest paid executive officer
whose total compensation exceeds $100,000 (collectively its named executive
officers) for the year ended January 31, 2010.





|**Name and**           |  | **Fiscal** |  |   | **Salary** |  |   | **All Other**    |     |   | **Total** | 
|---------------------- |  | ---------- |  | - | ---------- |  | - | ---------------- | --- | - | --------- | 
|**Principal Position** |  | **Year**   |  |   |            |  |   | **Compensation** |     |   |           | 
|George G. Usher        |  | 2010       |  | $ | 247,700    |  | $ | 21.000           | (1) | $ | 268,700   | 
|                       |  | 2009       |  | $ | 234,700    |  | $ | 20,300           | (1) | $ | 255,000   | 
|John A. Luce           |  | 2010       |  | $ | 55,564     |  |   | --               |     | $ | 55,564    | 
|                       |  | 2009       |  | $ | 57,000     |  |   | --               |     | $ | 57,000    | 
|Sharon Wardlaw         |  | 2010       |  | $ | 105,000    |  |   | --               |     | $ | 105,000   | 
|                       |  | 2009       |  | $ | 100,000    |  |   | --               |     | $ | 100,000   | 

56

---

Note: All 2010 figures are stated in U.S. Dollars using an
exchange rate of CDN 1.09 and 2009 figures are stated using an exchange rate of
CDN 1.10.

(1) Included car allowance valued at $13,000.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information regarding each
unexercised option held by the Companys named executive officers as of January
31, 2010.

|                  |  | Number of   |  |   |          |  |  |            | 
|----------------- |  | ----------- |  | - | -------- |  |  | ---------- | 
|                  |  | Securities  |  |   |          |  |  |            | 
|                  |  | underlying  |  |   |          |  |  |            | 
|                  |  | unexercised |  |   | Option   |  |  | Option     | 
|Name              |  | options     |  |   | exercise |  |  | expiration | 
|                  |  | exercisable |  |   | price    |  |  | date       | 
|George G. Usher   |  | 4,000       |  | $ | 10.01    |  |  | 7/31/2011  | 
|John Alfred Luce  |  | 500         |  | $ | 10.01    |  |  | 7/31/2011  | 
|Sharon L. Wardlaw |  | 2,000       |  | $ | 10.01    |  |  | 7/31/2011  | 

Executive Officers

|Name                  | Age | Title                                                             
|--------------------- | --- | ------------------------------------------------------------------
|George G. Usher (1)   | 51  | Chairman of the Board,
      President and Chief Executive Officer
|John A. Luce (2)      | 63  | Chief Financial Officer                                           
|Sharon L. Wardlaw (3) | 57  | Chief Operating Officer,
      Secretary and Treasurer            

(1) See Board of Directors for biographical information and
period of service.

(2) John Alfred Luce, Chartered Accountant Principal of John A.
Luce C.A., a public accounting firm since 1992 and a former partner with Ernst
& Young. John A. Luce was appointed to the position of Chief Financial
Officer in July 2006.

(3) Sharon L. Wardlaw has served as the Chief Financial
Officer, Secretary and Treasurer of the Company since 1994. In July 2006, she
was appointed to the position of Chief Operating Officer. She also currently
serves as the President of Dextran Products Limited, a subsidiary of the
Company. Since joining the Company in 1984, she has been employed in various
capacities.

57

---

Employment Agreements

George G. Usher has an employment agreement with the Company,
which provides for his continued employment with the Company through September
1, 2014. Thereafter, the Initial Term will automatically be extended and renewed
for successive 12-month periods (each, a Renewal Term), unless
otherwise stated in a writing delivered by the Company to Mr. Usher at least 90
days prior to the expiration of the Initial Term or each Renewal Term, as the
case may be.Under the agreement, Mr. Usher is to be paid an annual base
salary of CDN $300,000 for the length of the term. Mr. Ushers annual base
salary shall be reviewed by the Compensation Committee at least once in each
fiscal year and increased in the sole

In addition, at the
discretion of the Compensation Committee, Mr. Usher may receive an additional
cash bonus based upon the Companys performance, as well as Mr. Ushers
individual performance, during the fiscal year.

Under the terms of Mr.
Ushers employment agreement, if Mr. Usher is terminated by the Company without
cause prior to or following a change-in-control of the Company, he is entitled
to receive a severance payment equal to three times his annual base salary, plus
the amount of his target bonus earned on a pro rata basis through the date of
his termination. These amounts are payable over a period of one year from the
date of termination. In addition, Mr. Usher is entitled to receive medical
and/or dental benefits for a period of one year following such
termination. In the event of Mr. Ushers death or a permanent disability,
Mr. Usher is entitled to receive a payment equal to three times his annual base
salary, payable over a period of one year from the date of death or such
disability. Mr. Usher is not entitled to receive any benefits in the event of
termination for cause or a voluntary termination of employment by Mr. Usher.

Effective November 26, 2007, at his election, Mr.
Usher took a 10% reduction in his base salary, reducing it from an annual salary
of CDN $300,000 to CDN $270,000.

The Company also has a
commitment to its Chief Operating Officer and Chief Financial Officer. Should
there be a change of control of the Company, the Chief Operating Officer, Sharon
Wardlaw is to be paid for one full year's salary, while the Chief Financial
Officer, John Luce, is to be paid six months' salary, in recognition of their past
services to the Company.

Compensation of Directors

In the fiscal year ended January
31, 2010, the Board of Directors conducted 5 telephonic meetings. Each director
attended at least 75% of the aggregate number of meetings held by the Board of
Directors. The Audit Committee met 4 additional times. The Compensation
Committee held 1 meeting during the fiscal year ended January 31, 2010. Members
of the Nominating and Corporate Governance Committee did not hold any committee
meetings

The Company pays directors
Buchman, Lederer and Seidler $1,500 for each meeting of the Board attended in
person and $700 per Board meeting attended by telephone. Audit Committee,
Compensation Committee and Nominating and Corporate Governance Committee members
receive an additional $700 perCommittee meetingattended. George
G. Usher receives payment as an officer and employee of the Company and does not
receive additional compensation for his service as a director.

The following chart shows the
compensation paid by the Company to each outside director in the fiscal year
ended January 31, 2010.

Director Compensation

Fees Earned
    
    
    Options Awardedor paid in cash
    
    
    During Year (4
    )
    
    TotalDerek John
      Michael Lederer (1)
    $
    7,000
    
    $
    6,720
    
    $
    13,720John L.E. Seidler (2)
    $
    7,000
    
    $
    6,720
    
    $
    13,720Joseph Buchman (3)
    $
    7,000
    
    $
    6,720
    
    $
    13,720


58

---



|(1) | On January 31, 2010, Mr. Derek John Michael
      Lederer had an aggregate number of 82,299 stock options outstanding.                                        
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                               
|(2) | On January 31, 2010, Mr. John L.E. Seidler had
      an aggregate number of 82,299 stock options outstanding                                                  
|    |                                                                                                                                                               
|(3) | On January 31, 2010, Mr. Joseph Buchman had an
      aggregate number of 82,299 stock options outstanding.                                                    
|    |                                                                                                                                                               
|(4) | The amount of compensation expense is
      determined by estimating the fair value of the options granted using the
      Black-Scholes option pricing model.

ITEM 12. OWNERSHIP OF VOTING SECURITIES

Except as noted, the following
tables set forth certain information regarding beneficial ownership of the
Common Shares and the Class B Preferred Shares, as of April 30, 2010, by (i)
persons owning beneficially 5% or more of the Class B Preferred Shares and/or
the Common Shares, (ii) each of the Companys directors and executive officers
and (iii) all directors and executive officers as a group:

Security Ownership of 5% or Greater Holders

|Preferred Shares:        |                                                                                                                                                                   |                      |             
|------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------------
|                         |                                                                                                                                                                   |                      |             
|                         | Name and Address of                                                                                                                                               | Amount and Nature of | Percent     
|Title of Class           | Beneficial Owner                                                                                                                                                  | Beneficial Ownership | of Class (1)
|                         |                                                                                                                                                                   |                      |             
|Class B Preferred Shares | George G. Usher Chairman of
      the Board, Director, President and CEO Polydex Pharmaceuticals
      Limited 421 Comstock Road Toronto, Ontario, Canada M1L 2H5 | 899,400 (1)          | 100%        
|Common Shares            | Alan Gelband Gelband & Co. Inc.
      750Third Avenue, 21stFloor New York, NY 10017                                                                               | 254,181 (4)          | 8.3%        
|Common Shares            | George G. Usher Chairman of
      the Board, Director, President and CEO Polydex Pharmaceuticals
      Limited 421 Comstock Road Toronto, Ontario, Canada M1L 2H5 | 269,713 (2)          | 8.8%        
|Common Shares            | Estate of Thomas C. Usher 
    Peter T. Higgs, Trustee c/o Polydex
      Pharmaceuticals Limited 421 Comstock Road Toronto, Ontario, Canada
      M1L 2H5         | 243,263(3)           | 7.9%        

|Common Shares | Joseph Buchman Director 
    c/o Polydex
      Pharmaceuticals Limited 421 Comstock Road Toronto, Ontario, Canada
      M1L 2H5 | 206,495 (2) | 6.7%
|------------- | ------------------------------------------------------------------------------------------------------------------------------- | ----------- | ----

59

---



|(1) | As of April 30, 2010, the Company had outstanding
      899,400 Class B Preferred Shares and 3,072,846 Common Shares.                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                 
|(2) | Includes 211,560 Common Shares owned directly by George
      G. Usher, 54,153 of the Common Shares held by the Estate of Thomas C.
      Usher, Peter T. Higgs, Trustee, of which George G. Usher is the
      beneficiary and options to purchase 4,000 Common Shares held by George G.
      Usher, and exercisable within sixty (60) days of April 30, 2010.
|    |                                                                                                                                                                                                                                                                                                                                                                 
|(3) | Includes 243,263 Common Shares owned directly by the
      Estate of Thomas C. Usher which are pledged as collateral for amounts
      owing to the Company as described below.                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                 

|(4) | As reported on Schedule 13D filed November 12, 2009.
      Includes 130,003 shares in managed accounts.
|--- | -------------------------------------------------------------------------------------------------------

Set forth below is information relating to our equity
compensation plans, namely our 2001 Stock Option Incentive Plan, as of January
31,
2010:

|Plan Category                                                    |  | Number of         |  |  | Weighted-average     |  |  | Number of securities    | 
|---------------------------------------------------------------- |  | ----------------- |  |  | -------------------- |  |  | ----------------------- | 
|                                                                 |  | securities to be  |  |  | exercise price of    |  |  | remaining available for | 
|                                                                 |  | issued upon       |  |  | outstanding options, |  |  | future issuance under   | 
|                                                                 |  | exercise of       |  |  | warrants and rights  |  |  | equity compensation     | 
|                                                                 |  | outstanding       |  |  |                      |  |  | plans (excluding        | 
|                                                                 |  | options, warrants |  |  |                      |  |  | securities reflected in | 
|                                                                 |  | and rights        |  |  |                      |  |  | column (a))             | 
|                                                                 |  |                   |  |  |                      |  |  |                         | 
|                                                                 |  | (a)               |  |  | (b)                  |  |  | (c)                     | 
|Equity
      compensation plans approved by security holders     |  | 254,397           |  |  | $0.84                |  |  | 700,553                 | 
|Equity compensation
      plans not approved by security holders |  | 0                 |  |  | 0                    |  |  | 0                       | 
|Total                                                            |  | 254,397           |  |  | $0.84                |  |  | 700,553                 | 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE

Except as described below, since
February 1, 2009, none of the Companys directors, executive officers, or
certain relatives or associates of such persons has had a direct or indirect
material interest in any transaction in which the Company was a participant and
where the amount involved exceeded $120,000 or one percent of the average of the Companys total
assets at year end for the last two completed fiscal years.

60

---

In August 1997, the Company
loaned Thomas C. Usher, formerly its Vice-Chairman, Director of Research and
Development, a member of its Board of Directors and the beneficial owner of
greater than 5% of the outstanding common shares of the Company, $691,500 at an
interest rate equal to the prime 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 through
offsets by the Company against royalty payments due Thomas C. Usher pursuant to
intellectual property license agreements and, in the past, bonus payments, if
any, granted Thomas C. Usher as an employee of the Company. The amount
outstanding under the Loan as of January 31, 2010 was $314,266, as compared to
$299,716 at January 31, 2009, including accrued interest. The Company has taken
a cumulative provision of $353,041 against this loan and other amounts
described below as at January 31, 2010 (2009 - $323,490). This includes an
additional amount of $15,000 as shown on the statement of operations, which the
Company has determined, necessary due to the decreasing life of the patent whose
royalties are being used to reduce this Loan receivable. Thomas C. Usher passed
away on February 26, 2005. Obligations with respect to the Loan transferred to
the estate of Thomas C. Usher of which our Chairman and Chief Executive Officer,
George Usher is a beneficiary and co-trustee and our Chief Operating Officer,
Sharon Wardlaw, is co-trustee. The Company continues to be obligated to make
royalty payments pursuant to the license agreements, and intends to continue to
offset such payments against the Loan.

In August 1999, Thomas C. Usher
personally assumed all of the assets and the 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 amountof the Receivables as of January 31, 2010 was$706,as compared to $31,244 at January 31, 2009. Thomas C. Usher
also owed $250,000 to a subsidiary of the Company, Novadex International
Limited, as of January 31, 2010, pursuant to a non-interest bearing loan with no
specific repayment terms. The outstanding amount of this loan has not changed
from January 31, 2007. The amounts continue to remain owing from the estate of
Thomas C. Usher.

The estate of Thomas C. Usher
currently has pledged 243,263common shares of the Company as security
for these amounts owing to the Company. These common shares had a market value
of $60,816 at January 31, 2010, based on the closing price of the Companys
common shares on the Pink Sheets quotation service on January 31, 2010. The
Company intends to continue to hold the pledged assets as collateral until the
amounts owing discussed above are repaid.

The Company had a commitment to
pay an amount equal to $110,000 to Thomas C. Ushers estate. The amount owing on
this commitment as at January 31, 2010 is $35,703.

The Company also has an
outstanding loan payable to Ruth Usher, a member of the Board of Directors
through her retirement on October 31, 2003, a former director, and the widow of
Thomas C. Usher. The amount due from the Company pursuant to this loan decreased
to $576,368.43 at January 31, 2010 from $608,293 at January 31, 2009 due to
interest charges exceeding monthly payments by the Company. The Company is
required to make blended monthly payments of $5,000 on this loan. The Company
is current in its payments.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate fees billed for
professional services rendered by Schwartz Levitsky Feldman LLP for the audit of
the Companys annual financial statements for the fiscal year ending January 31,
2010 and reviews of the financial statements included in the Companys quarterly
reports on the Form 10-Q for such fiscal year were CDN $74,000 as compared to $84,000 for the
previous fiscal year ending January 31, 2009. The foregoing fees were incurred
with respect to professional services that are normally provided by the
Companys auditors and include services that are normally provided by Schwartz Levitsky Feldman LLP Chartered Accountants in connection with statutory and
regulatory filings or engagements for those fiscal years.

61

---

Audit-Related Fees

Schwartz Levitsky Feldman LLP did
not bill the Company any fees in the fiscal years ended January 31, 2010 or 2009
for professional services for assurance and related services that are reasonably
related to the performance of the audit or review of the Companys financial
statements and are not reported under the caption Audit Fees above.

Tax Fees

Schwartz Levitsky Feldman LLP Chartered Accountants did not
bill the Company any fees for tax compliance, tax advice and tax planning with
respect to the fiscal years ended January 31, 2010 or 2009.

All Other Fees

Schwartz Levitsky Feldman LLP did not bill the Company any fees
in the fiscal years ended January 31, 2010 or 2009 for professional services
other than as set forth under the captions Audit Fees above.

Review and Approval by Audit Committee

The Audit Committee reviews, and
in its sole discretion pre-approves, the Companys independent auditors annual
engagement letter including proposed fees and all audit and non-audit services
provided by the independent auditors. Accordingly, all services described under
Audit-Related Fees, Tax Fees and All Other Fees were pre-approved by the
Audit Committee. The Audit Committee may not engage the independent auditors to
perform non-audit services prescribed by law or regulation. The Audit Committee
may delegate pre-approval authority to a member of the Audit Committee, and
authority delegated in such manner must be reported at the next scheduled
meeting of the Audit Committee.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

(1) Financial Statements of Polydex
Pharmaceuticals

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

(2) Financial Statement Schedules

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

62

---

(3) Exhibits

|3.1  | Memorandum of Association of Polydex Pharmaceuticals
      Limited, as amended (filed as Exhibit 3.1 to the Annual Report on Form
      10-K filed April 30, 1997, and incorporated herein by reference)                                                                                                                            
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                     
|3.2  | Articles of Association of Polydex Pharmaceuticals
      Limited, as amended (filed as Exhibit 3.2 to the Quarterly Report on Form
      10-Q filed September 13, 1999, and incorporated herein by
  reference)                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                     
|10.1 | Employment Agreement between Polydex Pharmaceuticals
      Limited and George G. Usher dated December 22, 1993 (filed as Exhibit 10.2
      to the Annual Report on Form 10-K filed April 30, 1997, and incorporated
      herein by reference)                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                     
|10.2 | Amendment to Employment Agreement between Polydex
      Pharmaceuticals Limited and George G. Usher dated February 1, 1999 (filed
      as Exhibit 10.4 to the Annual Report on Form 10-K filed April 29, 1999,
      and incorporated herein by reference)                                                                         
|     |                                                                                                                                                                                                                                                                                                                                     
|10.3 | Research Agreement among Dextran Products Limited,
      Canadian Microbiology Consortium, British Columbias Childrens Hospital
      and the University of British Columbia, dated April 1, 1996 (filed as
      Exhibit 10.4 to the Annual Report on Form 10-K filed April 30, 1997, and
      incorporated herein by reference)
|     |                                                                                                                                                                                                                                                                                                                                     
|10.4 | Joint Venture Agreement among Chemdex, Inc., Veterinary
      Laboratories Inc. and Sparhawk Laboratories, Inc., dated December 1, 1992
      (filed as Exhibit 10.5 to the Annual Report on Form 10-K filed April 30,
      1997, and incorporated herein by reference)                                                            
|     |                                                                                                                                                                                                                                                                                                                                     
|10.5 | Asset Purchase Agreement dated as of January 13, 2004, by
      and among Sparhawk Laboratories, Inc., Polydex Pharmaceuticals Limited,
      Chemdex, Inc. and Veterinary Laboratories, Inc. (filed as Exhibit 10.9 to
      the Annual Report on Form 10-K filed April 30, 2004, and incorporated
      herein by reference)      
|     |                                                                                                                                                                                                                                                                                                                                     
|10.6 | Supply Agreement, dated as of March 1, 2004, by and
      between Chemdex, Inc. and Sparhawk Laboratories, Inc. (filed as Exhibit
      10.10 to the Annual Report on Form 10-K filed April 30, 2004, and
      incorporated herein by reference)                                                                                   
|     |                                                                                                                                                                                                                                                                                                                                     
|10.7 | Unsecured Subordinated Promissory Note dated March 4,
      2004 made by Sparhawk Laboratories, Inc. in favor of Chemdex, Inc. (filed
      as Exhibit 10.11 to the Annual Report on Form 10-K filed April 30, 2004,
      and incorporated herein by reference)                                                                    
|     |                                                                                                                                                                                                                                                                                                                                     
|10.8 | Warrant and Repurchase Agreement, dated March 4, 2004
      issued by Sparhawk Laboratories, Inc. to Chemdex, Inc. (filed as Exhibit
      10.12 to the Annual Report on Form 10-K filed April 30, 2004, and
      incorporated herein by reference)                                                                                

63

---



|21   | Subsidiaries of Polydex Pharmaceuticals Limited (filed as
      Exhibit 21 to the Annual Report on Form 10-K filed April 28, 2000, and
      incorporated herein by reference)
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                               
|31.1 | Certification of Chief Executive Officer Pursuant to
      Section 302 of Sarbanes-Oxley Act of 2002                                                                          
|     |                                                                                                                                                                               
|31.2 | Certification of Chief Financial Officer Pursuant to
      Section 302 of Sarbanes-Oxley Act of 2002                                                                          
|     |                                                                                                                                                                               
|32.1 | Certification of Chief Executive Officer Pursuant to
      Section 906 of Sarbanes-Oxley Act of 2002                                                                          
|     |                                                                                                                                                                               
|32.2 | Certification of Chief Financial Officer Pursuant to
      Section 906 of Sarbanes-Oxley Act of 2002                                                                          

64

---

SIGNATURES

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

|                     | POLYDEX PHARMACEUTICALS LIMITED    
|-------------------- | -----------------------------------
|Date: April 30, 2010 | By: /s/ George G. Usher            
|                     | George G. Usher, President and     
|                     | Chief Executive Officer            
|                     | (Principal Executive Officer)      
|                     |                                    
|Date: April 30, 2010 | /s/ John A. Luce                   
|                     | Chief Financial Officer            
|                     | (Principal Financial and Accounting
|                     | Officer)                           

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

|Date: April 30, 2010 | /s/ George G. Usher                 
|-------------------- | ------------------------------------
|                     | George G. Usher, Director, President
|                     | and Chief Executive Officer         
|                     | (Principal Executive Officer)       
|                     |                                     
|Date: April 30, 2010 | /s/ Joseph Buchman                  
|                     | Joseph Buchman, Director            
|                     |                                     
|Date: April 30, 2010 | /s/ Derek John Michael Lederer      
|                     | Derek John Michael Lederer, Director
|                     |                                     
|Date: April 30, 2010 | /s/ John L.E. Seidler               
|                     | John L.E. Seidler, Director         

65

---

EXHIBIT INDEX

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

66

---