UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549

____________

FORM 10-Q

(Mark One)

QQUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended October 31,
2008

£TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
_________________________ to ____________________

Commission File Number  1-8366

POLYDEX PHARMACEUTICALS LIMITED


(Exact Name of Registrant as Specified in
Its Charter)

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

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

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


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

YesQ        
No£

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

|Large accelerated filer           
    £ | Accelerated
    filer             £  
|---------------------------------------- | -------------------------------------
|Non-accelerated filer            
    £  | Smaller reporting company      
    Q

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

Yes
£NoQ

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

|Common Shares, $.0167 Par Value | 3,072,846                         
|------------------------------- | ----------------------------------
|(Title of Class)                | (Outstanding at November 30, 2008)

---



POLYDEX
PHARMACEUTICALS LIMITED

TABLE OF CONTENTS

|PART I  
    FINANCIAL INFORMATION |                                                                                            
|---------------------------------- | -------------------------------------------------------------------------------------------
|                                   |                                                                                            
|Item 1                             | CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)                                              
|                                   |                                                                                            
|                                   | Consolidated Balance Sheets October 31, 2008 (Unaudited)
    and January 31, 2008 (Audited)
|                                   |                                                                                            
|                                   | Consolidated Statements of Operations and
    Comprehensive Income (Loss)                  
|                                   | Three months and nine months ended October 31,
    2008 and 2007 (Unaudited)               
|                                   |                                                                                            
|                                   | Consolidated Statements of
    Shareholders Equity                                        
|                                   | Nine months ended October 31,
    2008 and 2007 (Unaudited)                                
|                                   |                                                                                            
|                                   | Consolidated Statements of Cash Flows                                                      
|                                   | Nine months ended October31, 2008 and 2007 (Unaudited)                                     
|                                   |                                                                                            
|                                   | Notes to Consolidated
    Financial Statements (Unaudited)                                 
|                                   |                                                                                            
|Item 2                             | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS      
|                                   |                                                                                            
|Item 3                             | QUANTITATIVE AND
    QUALITATIVE DISCLOSURES ABOUT MARKET RISK                             
|                                   |                                                                                            
|Item 4                             | CONTROLS AND PROCEDURES                                                                    
|                                   |                                                                                            
|PART II  
    OTHER INFORMATION    |                                                                                            
|                                   |                                                                                            
|Item 1                             | LEGAL PROCEEDINGS                                                                          
|                                   |                                                                                            
|Item 2                             | UNREGISTERED SALES OF
    EQUITY SECURITIES AND USE OF PROCEEDS                            
|                                   |                                                                                            
|Item 3                             | DEFAULTS UPON SENIOR SECURITIES                                                            
|                                   |                                                                                            
|Item 4                             | SUBMISSION OF MATTERS TO A
    VOTE OF SECURITY HOLDERS                                    
|                                   |                                                                                            
|Item 5                             | OTHER INFORMATION                                                                          
|                                   |                                                                                            
|Item 6                             | EXHIBITS                                                                                   
|                                   |                                                                                            
|                                   | Signatures and Certifications                                                              



---

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains
various "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, which represent the expectations or
beliefs of Polydex Pharmaceuticals Limited (the Company) concerning future
events, including, but not limited to, statements regarding the Companys future
growth, results of operations, liquidity and capital resources, expectations of
regulatory approvals and the commencement of sales of products. The Company has
tried to identify such forward-looking statements by use of words such as
"believes," "anticipates," "intends," "plans," "will," "should," "expects" and
similar expressions, but these words are not the exclusive means of identifying
such statements. The Company cautions that these and similar statements in this
Quarterly Report on Form 10-Q and in previously filed periodic reports including
reports filed on Forms 10-K and 10-Q are further qualified by various risks,
uncertainties and other factors that could cause actual results to differ
materially from those expressed in, or implied by, the forward-looking
statements. These factors include, without limitation, changing market
conditions, the progress of clinical trials and the results obtained, the
establishment of new corporate alliances, the impact of competitive products and
pricing, and the timely development, regulatory approval and market acceptance
of the Companys products, as well as the other risks discussed herein, none of
which can be assured. The forward-looking statements contained herein speak only
as to the date of this report. Except as otherwise required by federal
securities laws, the Company undertakes no obligation to publicly update or
revise any forward-looking statements or the risk factors described in this
Quarterly Report on Form 10-Q, whether as a result of new information, future
events, changed circumstances or any other reason after the date of this report.

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

---

PART I 
FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited).

POLYDEX PHARMACEUTICALS LIMITED

Consolidated Balance Sheets 
(Expressed in United States dollars)

|                                       |                                             |                 |         | October 31  |         | January 31
|-------------------------------------- | ------------------------------------------- | --------------- | ------- | ----------- | ------- | ----------
|                                       |                                             |                 |         | 2008        |         | 2008      
|                                       |                                             |                 |         | (Unaudited) |         | (Audited) 
|                                       |                                             |                 |         |             |         |           
|Assets                                 |                                             |                 |         |            
|                                       |                                             |                 |         |             |         |           
|Current assets:                        |                                             |                 |         |            
|                                       | Cash and cash equivalents (note
    3)      | $               | 13,628  | $           | 468,570
|                                       | Investments available for sale
    (note 4) |                 | 379,900 |             | 845,034
|                                       | Trade accounts receivable                   |                 | 887,476 |             | 611,975
|                                       | Inventories                                 |                 |         |             |        
|                                       |                                             | Finished goods  |         | 876,882     |         | 790,822   
|                                       |                                             | Work in process |         | 316,152     |         | 380,855   
|                                       |                                             | Raw materials   |         | 208,596     |         | 178,813   
|                                       |                                             |                 |         | 2,682,634   |         | 3,276,069 
|                                       |                                             |                 |         |             |         |           
|                                       | Prepaid expenses and other current assets   |                 | 79,151  |             | 116,172
|                                       |                                             |                 |         |             |         |           
|Total current assets                   |                                             | 2,761,785       |         | 3,392,241  
|                                       |                                             |                 |         |             |         |           
|Property, plant and equipment,
    net |                                             | 4,752,721       |         | 6,041,348  
|Patents and intangible assets,
    net |                                             | 39,481          |         | 45,511     
|Due from shareholder                   |                                             | 282,733         |         | 284,170    
|                                       |                                             |                 |         |             |         |           
|                                       |                                             |                 | $       | 7,836,720   | $       | 9,763,270 



|Page |   F-1 | 
|------------ | 

---

|                                         |                                                  |                         |                                                            |           |              |   |           
|---------------------------------------- | ------------------------------------------------ | ----------------------- | ---------------------------------------------------------- | --------- | ------------ | - | ----------
|                                         |                                                  |                         |                                                            |           | October 31   |   | January 31
|                                         |                                                  |                         |                                                            |           | 2008         |   | 2008      
|                                         |                                                  |                         |                                                            |           | (Unaudited)  |   | (Audited) 
|Liabilities and Shareholders'
    Equity |                                                  |                         |                                                            |          
|                                         |                                                  |                         |                                                            |           |              |   |           
|Current liabilities:                     |                                                  |                         |                                                            |          
|                                         | Bank indebtedness                                | $                       | 157,742                                                    | $         | -           
|                                         | Accounts payable                                 |                         | 375,304                                                    |           | 399,820     
|                                         | Accrued liabilities                              |                         | 200,467                                                    |           | 320,096     
|                                         | Payroll and related taxes payable                |                         | 103,372                                                    |           | 98,736      
|                                         | Loans payable                                    |                         | 16,487                                                     |           | -           
|                                         | Customer deposits                                |                         | 92,932                                                     |           | 92,932      
|                                         | Current portion of long-term debt                |                         | 34,039                                                     |           | 41,544      
|                                         | Current portion of capital lease
    obligations |                         | 4,192                                                      |           | 6,071       
|                                         | Current portion of due to shareholder            |                         | 30,000                                                     |           | 30,000      
|                                         |                                                  |                         |                                                            |           |              |   |           
|Total current liabilities                |                                                  | 1,014,535               |                                                            | 989,199  
|                                         |                                                  |                         |                                                            |           |              |   |           
|Long-term debt                           |                                                  | 307,196                 |                                                            | 398,540  
|Capital lease obligations                |                                                  | 22,008                  |                                                            | 6,734    
|Due to shareholder                       |                                                  | 588,434                 |                                                            | 628,569  
|Deferred income taxes                    |                                                  | -                       |                                                            | 55,962   
|                                         |                                                  |                         |                                                            |           | 917,638      |   | 1,089,805 
|                                         |                                                  |                         |                                                            |           |              |   |           
|Total liabilities                        |                                                  | 1,932,173               |                                                            | 2,079,004
|                                         |                                                  |                         |                                                            |           |              |   |           
|Shareholders' equity:                    |                                                  |                         |                                                            |          
|                                         | Capital stock                                    |                         |                                                            |           |             
|                                         |                                                  | Authorized:             |                                                            |           |              |  
|                                         |                                                  |                         | 100,000 Class A preferred shares of $0.10
    each         |           |              |   |           
|                                         |                                                  |                         | 899,400 Class B preferred shares of $0.0167
    each       |           |              |   |           
|                                         |                                                  |                         | 10,000,000 common shares of $0.0167 each                   |           |              |   |           
|                                         |                                                  | Issued and outstanding: |                                                            |           |              |  
|                                         |                                                  |                         | 899,400 Class B preferred shares                           |           | 15,010       |   | 15,010    
|                                         |                                                  |                         | 3,072,846 common shares (January 31, 2008 -
    3,072,846) |           | 51,185       |   | 51,185    
|                                         | Contributed surplus                              |                         | 23,499,154                                                 |           | 23,499,154  
|                                         | Deficit                                          |                         | (18,335,940)                                               |           | (17,779,244)
|                                         | Accumulated other comprehensive income           |                         | 675,138                                                    |           | 1,898,161   
|                                         |                                                  |                         |                                                            |           |              |   |           
|                                         |                                                  |                         |                                                            |           | 5,904,547    |   | 7,684,266 
|                                         |                                                  |                         |                                                            |           |              |   |           
|                                         |                                                  |                         |                                                            | $         | 7,836,720    | $ | 9,763,270 

See accompanying notes.



|Page |   F-2 | 
|------------ | 

---

POLYDEX PHARMACEUTICALS LIMITED

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

|                                                             |                                        |             | Three Months |           | Three Months |             | Nine Months |           | Nine Months
|------------------------------------------------------------ | -------------------------------------- | ----------- | ------------ | --------- | ------------ | ----------- | ----------- | --------- | -----------
|                                                             |                                        |             | Ended        |           | Ended        |             | Ended       |           | Ended      
|                                                             |                                        |             | October 31   |           | October 31   |             | October 31  |           | October 31 
|                                                             |                                        |             | 2008         |           | 2007         |             | 2008        |           | 2007       
|                                                             |                                        |             | (Unaudited)  |           | (Unaudited)  |             | (Unaudited) |           | (Unaudited)
|                                                             |                                        |             |              |           |              |             |             |           |            
|Sales                                                        | $                                      | 1,373,963   | $            | 1,357,681 | $            | 3,890,452   | $           | 4,209,179
|Cost of goods sold                                           |                                        | 1,574,676   |              | 1,219,734 |              | 3,635,263   |             | 3,763,168
|                                                             |                                        |             |              |           |              |             |             |           |            
|                                                             |                                        |             | (200,713)    |           | 137,947      |             | 255,189     |           | 446,011    
|                                                             |                                        |             |              |           |              |             |             |           |            
|Expenses:                                                    |                                        |             |              |           |              |             |             |          
|                                                             | General and administrative             |             | 247,503      |           | 270,414      |             | 786,811     |           | 839,602    
|                                                             | Interest expense                       |             | 17,401       |           | 24,613       |             | 52,404      |           | 74,457     
|                                                             | Selling and promotion                  |             | 19,204       |           | 20,273       |             | 51,141      |           | 71,447     
|                                                             | Research and development               |             | 4,474        |           | 49,007       |             | 32,521      |           | 124,854    
|                                                             | Depreciation                           |             | 9,089        |           | 10,189       |             | 27,351      |           | 29,745     
|                                                             | Foreign exchange loss (gain)           |             | (72,648)     |           | 24,371       |             | (80,735)    |           | 69,957     
|                                                             | Cash surrender value of life insurance |             | -            |           | -            |             | -           |           | (79,684)   
|                                                             | Interest and other income              |             | (8,899)      |           | (24,749)     |             | (2,310)     |           | (85,605)   
|                                                             |                                        |             |              |           |              |             |             |           |            
|                                                             |                                        |             | 216,124      |           | 374,118      |             | 867,183     |           | 1,044,773  
|                                                             |                                        |             |              |           |              |             |             |           |            
|Loss before income taxes                                     |                                        | (416,837)   |              | (236,171) |              | (611,994)   |             | (598,762)
|                                                             |                                        |             |              |           |              |             |             |           |            
|Provision for (recovery) of income taxes                     |                                        | 1,843       |              | 1,373     |              | (55,298)    |             | 1,373    
|                                                             |                                        |             |              |           |              |             |             |           |            
|Net loss for the period                                      |                                        | (418,680)   |              | (237,544) |              | (556,696)   |             | (600,135)
|                                                             |                                        |             |              |           |              |             |             |           |            
|Unrealized gain (loss) on investments
    available for sale |                                        | (2,414)     |              | (3,185)   |              | 22,431      |             | (2,786)  
|                                                             |                                        |             |              |           |              |             |             |           |            
|Currency translation adjustment                              |                                        | (1,092,741) |              | 976,761   |              | (1,245,454) |             | 1,705,584
|                                                             |                                        |             |              |           |              |             |             |           |            
|Comprehensive income (loss) for the period                   | $                                      | (1,513,835) | $            | 736,032   | $            | (1,779,719) | $           | 1,102,663

|                                                     |                        |         |   |           |   |           |   |           |   |          
|---------------------------------------------------- | ---------------------- | ------- | - | --------- | - | --------- | - | --------- | - | ---------
|Per share information:                               |                        |         |   |           |   |           |   |          
|                                                     | Loss per common share: |         |   |           |   |           |   |           |  
|                                                     |                        | Basic   | $ | (0.14)    | $ | (0.08)    | $ | (0.18)    | $ | (0.20)   
|                                                     |                        | Diluted | $ | (0.14)    | $ | (0.08)    | $ | (0.18)    | $ | (0.20)   
|                                                     |                        |         |   |           |   |           |   |           |   |          
|                                                     |                        |         |   |           |   |           |   |           |   |          
|                                                     |                        |         |   |           |   |           |   |           |   |          
|Weighted average number of common
    shares used in |                        |         |   |           |   |           |   |          
|computing net earnings per share for the period:     |                        |         |   |           |   |           |   |          
|                                                     |                        | Basic   |   | 3,072,846 |   | 3,072,846 |   | 3,072,846 |   | 3,072,846
|                                                     |                        | Diluted |   | 3,072,846 |   | 3,072,846 |   | 3,072,846 |   | 3,072,846

See accompanying notes.



|Page |   F-3 | 
|------------ | 

---

POLYDEX PHARMACEUTICALS LIMITED

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

|                                            |                                                                    |   | Nine Months  |   | Nine Months 
|------------------------------------------- | ------------------------------------------------------------------ | - | ------------ | - | ------------
|                                            |                                                                    |   | Ended        |   | Ended       
|                                            |                                                                    |   | October 31   |   | October 31  
|                                            |                                                                    |   | 2008         |   | 2007        
|                                            |                                                                    |   | (Unaudited)  |   | (Unaudited) 
|                                            |                                                                    |   |              |   |             
|Preferred Shares:                           |                                                                    |   |              |  
|                                            | Balance, beginning and end of period                               | $ | 15,010       | $ | 15,010      
|                                            |                                                                    |   |              |   |             
|Common Shares:                              |                                                                    |   |              |  
|                                            | Balance, beginning and end of period                               | $ | 51,185       | $ | 51,185      
|                                            |                                                                    |   |              |   |             
|Contributed Surplus:                        |                                                                    |   |              |  
|                                            | Balance, beginning and end of period                               | $ | 23,499,154   | $ | 23,483,659  
|                                            |                                                                    |   |              |   |             
|Deficit:                                    |                                                                    |   |              |  
|                                            | Balance, beginning of period                                       | $ | (17,779,244) | $ | (16,894,033)
|                                            | Net loss for the period                                            |   | (556,696)    |   | (600,135)   
|                                            |                                                                    |   |              |   |             
|                                            | Balance, end of period                                             | $ | (18,335,940) | $ | (17,494,168)
|                                            |                                                                    |   |              |   |             
|Accumulated Other Comprehensive
    Income: |                                                                    |   |              |  
|                                            | Balance, beginning of period                                       | $ | 1,898,161    | $ | 702,493     
|                                            | Unrealized loss reclassified on investments
    available for sale |   | 22,431       |   | (2,786)     
|                                            | Currency translation adjustment for the period                     |   | (1,245,454)  |   | 1,705,584   
|                                            |                                                                    |   |              |   |             
|                                            | Balance, end of period                                             | $ | 675,138      | $ | 2,405,291   

See accompanying notes.



|Page |   F-4 | 
|------------ | 

---

POLYDEX PHARMACEUTICALS LIMITED

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

|                                                             |                                                                   |                                        |           | Nine Months |             | Nine Months
|------------------------------------------------------------ | ----------------------------------------------------------------- | -------------------------------------- | --------- | ----------- | ----------- | -----------
|                                                             |                                                                   |                                        |           | Ended       |             | Ended      
|                                                             |                                                                   |                                        |           | October 31  |             | October 31 
|                                                             |                                                                   |                                        |           | 2008        |             | 2007       
|                                                             |                                                                   |                                        |           | (Unaudited) |             | (Unaudited)
|                                                             |                                                                   |                                        |           |             |             |            
|Cash provided by (used in):                                  |                                                                   |                                        |           |            
|                                                             |                                                                   |                                        |           |             |             |            
|Operating activities:                                        |                                                                   |                                        |           |            
|                                                             | Net loss for the period                                           | $                                      | (556,696) | $           | (600,135)  
|                                                             | Add (deduct) items not affecting
    cash:                        |                                        |           |             |            
|                                                             |                                                                   | Depreciation and amortization          |           | 433,849     |             | 414,789    
|                                                             |                                                                   | Interest on shareholder loan           |           | (15,063)    |             | (22,248)   
|                                                             |                                                                   | Loss on investments available for sale |           | 31,644      |             | -          
|                                                             |                                                                   | Loss on foreign exchange               |           | 26,097      |             | -          
|                                                             | Net change in non-cash working
    capital balances               |                                        |           |             |            
|                                                             |                                                                   | related to operations                  |           | (721,993)   |             | (291,100)  
|                                                             |                                                                   | `                                      |           |             |             |            
|                                                             |                                                                   |                                        |           | (802,162)   |             | (498,694)  
|                                                             |                                                                   |                                        |           |             |             |            
|Investing activities:                                        |                                                                   |                                        |           |            
|                                                             | Additions to property, plant and
    equipment and patents        |                                        | (80,163)  |             | (1,239,377)
|                                                             | Decrease in due from shareholder                                  |                                        | 16,500    |             | 23,432     
|                                                             | Decrease in accrued interest on
    investments                   |                                        | -         |             | 3,020      
|                                                             | Unrealized gain (loss) on
    commercial paper available for sale |                                        | -         |             | 7,053      
|                                                             | Proceeds of investments available for sale                        |                                        | 382,407   |             | 796,240    
|                                                             |                                                                   |                                        |           |             |             |            
|                                                             |                                                                   |                                        |           | 318,744     |             | (409,632)  
|                                                             |                                                                   |                                        |           |             |             |            
|Financing activities:                                        |                                                                   |                                        |           |            
|                                                             | Repayment of long-term debt                                       |                                        | (29,470)  |             | (27,029)   
|                                                             | Repayment of capital lease
    obligations                        |                                        | (3,892)   |             | (3,799)    
|                                                             | Decrease in due to shareholder                                    |                                        | (40,130)  |             | (11,343)   
|                                                             | Increase in bank indebtedness                                     |                                        | 157,742   |             | -          
|                                                             |                                                                   |                                        |           |             |             |            
|                                                             |                                                                   |                                        |           | 84,250      |             | (42,171)   
|                                                             |                                                                   |                                        |           |             |             |            
|                                                             | Effect of exchange rate changes
    on cash                       |                                        | (55,774)  |             | 104,238    
|                                                             |                                                                   |                                        |           |             |             |            
|Decrease in cash and cash
    equivalents                    |                                                                   | (454,942)                              |           | (846,259)  
|                                                             |                                                                   |                                        |           |             |             |            
|Cash and cash equivalents, beginning of period               |                                                                   | 468,570                                |           | 1,384,995  
|                                                             |                                                                   |                                        |           |             |             |            
|Cash and cash equivalents, end of period                     | $                                                                 | 13,628                                 | $         | 538,736    
|                                                             |                                                                   |                                        |           |             |             |            
|                                                             |                                                                   |                                        |           |             |             |            
|Cash and cash equivalents is
    comprised of the following: |                                                                   |                                        |           |            
|                                                             | Cash                                                              | $                                      | 13,628    | $           | 225,512    
|                                                             | Short-term deposits                                               |                                        | -         |             | 313,224    
|                                                             |                                                                   |                                        |           |             |             |            
|                                                             |                                                                   |                                        | $         | 13,628      | $           | 538,736    

See accompanying notes.



|Page |   F-5 | 
|------------ | 

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.

Basis of
Presentation:

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

2.

Significant Accounting Policies:

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

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

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

InventoriesInventories 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.



|Page |   F-6 | 
|------------ | 

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

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

Buildings 15 years 
Machinery and equipment 3 to 10 years

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

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

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

Revenue recognitionRevenue results from sales of bulk manufactured
products. Revenue is recognized when title and risk of ownership of products
pass to the customer. Title and risk of ownership pass to the customer pursuant
to the applicable sales contract, either upon shipment of product or upon
receipt by the customer.

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

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



|Page |   F-7 | 
|------------ | 

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

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

Stock optionsThe Company follows Statement of Financial Accounting
Standards No. 123(R), "Accounting for Stock-Based Compensation" ("SFAS 123(R)").
Under SFAS 123(R), compensation expense is recognized on the date of grant,
based on the fair value of the options granted.

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

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

3.

Cash and Cash Equivalents:

Cash and cash equivalents consist of
the following:

|                   | October 31 |        | January 31
|------------------ | ---------- | ------ | ----------
|                   |            | 2008   |           
|                   |            |        |           
|Cash               | $          | 13,628 | $         
|Short-term deposit |            | ---    |           
|                   | $          | 13,628 | $         



|Page |   F-8 | 
|------------ | 

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

4.

Investments
available for sale consist of the following:

|                                                  | October 31 |           | January 31
|------------------------------------------------- | ---------- | --------- | ----------
|                                                  |            | 2008      |           
|                                                  |            |           |           
|Canadian short-term fixed income fund             | $          | 205,033   | $         
|Global fixed income bond fund                     | $          | 174,867   | $         
|                                                  | $          | 379,900   | $         
|Current portion of investments available for sale | $          | (379,900) | $         
|                                                  | $          | ---       | $         

Canadian short-term fixed income bond fund is
currently yielding 3.35%. The Global fixed income bond fund is currently
yielding 3.1%. Investments available for sale are stated at fair market value,
based on quoted market prices. An unrealized loss of $22,431 has been
reclassified from Accumulated other comprehensive income.

5.

Stock-based Employee Compensation:

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

All options granted have terms of five years
and vest immediately. At October 31, 2008, the Company had 63,699 options
outstanding at exercise prices ranging from $0.79 to $10.01 and a weighted
average exercise price of $3.34. The options, which are immediately exercisable
and expire on dates between January 31, 2009 and January 31, 2013, entitle the
holder of an option to acquire one common share of the Company.

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



|Page |   F-9 | 
|------------ | 

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

6.

Segmented
Information:

|                                       | Nine Months | Nine Months
|-------------------------------------- | ----------- | -----------
|                                       | Ended       | Ended      
|                                       | October 31, | October 31,
|                                       | 2008        | 2007       
|                                       |             |            
|Total revenue by significant customer: |             |            
|Customer A                             | $           | 746,620    
|Customer B                             | $           | 735,078    
|Customer C                             | $           | 674,550    
|Customer D                             | $           | 53,960     
|Customer E                             | $           | ---        
|Customer F                             | $           | ---        
|                                       | $           | 2,210,208  
|                                       |             |            
|                                       |             |            
|                                       | Nine Months | Nine Months
|                                       | Ended       | Ended      
|                                       | October 31, | October 31,
|                                       | 2008        | 2007       
|                                       |             |            
|Sales by geographic destination:       |             |            
|United States                          | $           | 1,329,247  
|Europe                                 | $           | 1,040,771  
|Canada                                 | $           | 767,592    
|Other                                  | $           | 398,332    
|Pacific Rim                            | $           | 354,510    
|                                       | $           | 3,890,452  



|Page |   F-10 | 
|------------- | 

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

The Companys fiscal
year ends on January 31st of each year. In this report, fiscal year
2009 refers to the Companys fiscal year ended January 31, 2009. The following
discussion should be read in conjunction with the October 31, 2008 interim
consolidated financial statements and notes thereto included elsewhere in this
report. Operating results for the nine months ended October 31, 2008 are not
necessarily indicative of the results that may be expected for the fiscal year
ending January 31, 2009. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Companys annual
report on Form 10-K for the fiscal year ended January 31, 2008.The Companys financial statements are prepared in accordance with United
States generally accepted accounting principles. All amounts are in United
States dollars, unless otherwise denoted.

Overview

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

The manufacture and
sale of bulk quantities of dextran and derivative products for sale to large
pharmaceutical companies throughout the world is conducted through Dextran
Products in Canada, and Chemdex in the United States which distributes ferric
hydroxide and hydrogenated dextran to Sparhawk pursuant to a definitive supply
agreement.

Management Objectives for Fiscal 2009.

Challenges that have
afflicted Polydex Pharmaceuticals Limited for more than the past year and a half
have continued largely unabated into the third quarter of fiscal year 2009. As a
Canadian based manufacturer of pharmaceutical based compounds exporting
internationally, the increase in value of the Canadian dollar by approximately
18% compared to the United States dollar from January of 2007 until late in the
third quarter of fiscal year 2009 had severely reduced the profitability of the
Canadian operations, and negatively impacted the Companys cash flows. In
addition, the world wide increase in the price of commodities has resulted in
lowered hog production, especially in Europe, where the Company has
traditionally derived a substantial portion of its sales. The cancellation of
Phase III HIV clinical trials in January of 2007 for the Companys cellulose
sulphate compound known as Ushercell was very disappointing to the Company, and
resulted in a drastic decline in our share price on NASDAQ, though it did not
have an impact on our core operations. This decline in share price eventually
led to the Companys shares being suspended from trading on the NASDAQ Capital
Market on September 12, 2008 and delisting in December 2008. Throughout this
period, the Company has been investing its significant cash reserves in the
refurbishment of the Toronto plant, in order to capitalize on the higher margins
available for its powdered products line. With all of these challenges occurring
at the same time, management has reacted in a number of effective ways, in
addition to those mentioned in our 10Q for the quarter ending July 31, 2008,
including:

|1  |  Page | 
|---------- | 

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- 





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

Though rigorous cost
cutting and careful price increases have been effective, our cash reserves have
been significantly reduced, and the Companys future will only be assured
through meeting the increasingly competitive demands of our customers, who are
experiencing their own pressures in the turbulence of the global marketplace.
Research and
development of the Companys human pharmaceutical products is coordinated at
Dextran Products. Ushercell is a high molecular weight cellulose sulphate that
was envisioned for topical vaginal use primarily in the prevention of unplanned
pregnancies, as well as the transmission of AIDS and other sexually transmitted
diseases. However, Phase III HIV clinical trials were cancelled in January of
2007 due to a higher than expected incidence of HIV. The New England Journal of
Medicine published a report on the Phase III trial data indicating that product
adherence was low among participants and concluded that cellulose sulphate may
not have increased HIV transmission after all but also may not have an HIV
preventative effect. In an article published in Obstetrics and Gynecology in
March 2008, the lead researchers were quoted by Reuters Health as
affirming that "Cellulose sulphate gel appears to be an effective vaginal
contraceptive without many side effects" with data showing an approximate 96%
effectiveness rate of pregnancy prevention when the product was used as
directed. The researchers added, "With time and further research, this vaginal
contraceptive may become an alternative to the nonoxynol-9 based contraceptive
gels currently available in the U.S." The Company never received any financial
gain from this project, and as a result, there is no immediate or direct effect
on sales or revenues. Management intends to pursue the development of cellulose
sulphate as a contraceptive.
2  |  Page

---

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

Results of Operations

|               | Three       | Three       |          | Nine        | Nine        |         
|-------------- | ----------- | ----------- | -------- | ----------- | ----------- | --------
|               | Months      | Months      |          | Months      | Months      |         
|               | Ended       | Ended       |          | Ended       | Ended       |         
|               | October 31, | October 31, |          | October 31, | October 31, |         
|               | 2008        | 2007        | Variance | 2008        | 2007        | Variance
|               |             |             |          |             |             |         
|Net  loss      | $(418,680)  | $(237,544)  | (76)%    | $(556,696)  | $(600,135)  | 7%      
|               |             |             |          |             |             |         
|Loss per Share | $(0.14)     | $(0.08)     |          | $(0.18)     | $(0.20)     |         

The net loss for the third quarter of
fiscal year 2009, as compared to the third quarter of fiscal year 2008, is
primarily a result of the negative gross margin experienced during the period
due to production issues, partially offset by the continuing decline in all
aspects of the Companys expenses. Expenses during the year to date of fiscal
year 2008 were also offset by $79,684, which was due to the collection of the
cash value of a life insurance policy during the second quarter of that fiscal
year, discussed further below.

|      | Three       | Three       |          | Nine        | Nine        |         
|----- | ----------- | ----------- | -------- | ----------- | ----------- | --------
|      | Months      | Months      |          | Months      | Months      |         
|      | Ended       | Ended       |          | Ended       | Ended       |         
|      | October 31, | October 31, |          | October 31, | October 31, |         
|      | 2008        | 2007        | Variance | 2008        | 2007        | Variance
|      |             |             |          |             |             |         
|Sales | $1,373,963  | $1,357,681  | 1%       | $3,890,452  | $4,209,179  | (8)%    

Sales for the third quarter of fiscal
year 2009 remained consistent with sales for the third quarter of fiscal year
2008, though the volumes of liquid products declined significantly, especially
in October, due primarily to lack of demand from customers affected by the
depressed hog markets, and the general turmoil in the world economy. Sales for
the nine months ended October 31, 2008 are lower compared to the nine months
ended October 31, 2007 due to lower overall production volumes resulting from
reduced demand.

|3  |  Page | 
|---------- | 

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|                    | Three       | Three       |          | Nine        | Nine        |         
|------------------- | ----------- | ----------- | -------- | ----------- | ----------- | --------
|                    | Months      | Months      |          | Months      | Months      |         
|                    | Ended       | Ended       |          | Ended       | Ended       |         
|                    | October 31, | October 31, |          | October 31, | October 31, |         
|                    | 2008        | 2007        | Variance | 2008        | 2007        | Variance
|                    |             |             |          |             |             |         
|Gross profit        | $(200,713)  | $137,947    | (245)%   | $255,189    | $446,011    | (43)%   
|Percentage of sales | (14.6)%     | 10.2%       |          | 6.6%        | 10.6%       |         

The significant decrease in gross
margin for the third quarter of fiscal year 2008 compared to the third quarter
of fiscal year 2007 is primarily due to two production related factors. First,
an equipment breakdown resulted in the loss of an expensive raw material.
Second, environmental factors necessitated the reworking of a number of batches
of powdered product, as well as the write off of unsatisfactory product. The
production problems experienced in the third quarter of fiscal year 2009, as
well as the decreased level of sales for the year to date of fiscal year 2009,
compared to the year to date of fiscal year 2008, resulted in the decreased
gross margin for fiscal year 2009.

|                        | Three       | Three       |          | Nine        | Nine        |         
|----------------------- | ----------- | ----------- | -------- | ----------- | ----------- | --------
|                        | Months      | Months      |          | Months      | Months      |         
|                        | Ended       | Ended       |          | Ended       | Ended       |         
|                        | October 31, | October 31, |          | October 31, | October 31, |         
|                        | 2008        | 2007        | Variance | 2008        | 2007        | Variance
|                        |             |             |          |             |             |         
|Selling, promotion,     |             |             |          |             |             |         
|general and             |             |             |          |             |             |         
|administrative expenses | $266,707    | $290,687    | (8)%     | $837,952    | $911,049    | (8)%    

The decrease during the third quarter
and year to date of fiscal year 2008 in selling, promotion, general and
administrative expenses is primarily due to a general decrease in the expenses
of the Company, as well as the reduction in value of the Canadian dollar
experienced the third quarter and year to date of fiscal year 2009. These
reductions included legal, insurance, consulting and reporting costs, and are a
result of the continued focus by management to minimize these costs.

|                         | Three       | Three       |          | Nine        | Nine        |         
|------------------------ | ----------- | ----------- | -------- | ----------- | ----------- | --------
|                         | Months      | Months      |          | Months      | Months      |         
|                         | Ended       | Ended       |          | Ended       | Ended       |         
|                         | October 31, | October 31, |          | October 31, | October 31, |         
|                         | 2008        | 2007        | Variance | 2008        | 2007        | Variance
|                         |             |             |          |             |             |         
|Research and development |             |             |          |             |             |         
|expenditures             | $4,474      | $49,007     | (91)%    | $32,521     | $124,854    | (74)%   

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



|4  |  Page | 
|---------- | 

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|                     | Three       | Three       |          | Nine        | Nine        |         
|-------------------- | ----------- | ----------- | -------- | ----------- | ----------- | --------
|                     | Months      | Months      |          | Months      | Months      |         
|                     | Ended       | Ended       |          | Ended       | Ended       |         
|                     | October 31, | October 31, |          | October 31, | October 31, |         
|                     | 2008        | 2007        | Variance | 2008        | 2007        | Variance
|                     |             |             |          |             |             |         
|Depreciation and     |             |             |          |             |             |         
|amortization expense | $130,279    | $144,104    | (10)%    | $433,849    | $414,789    | 5%      

The decrease in depreciation and
amortization expense is a result of the decrease in capital expenditures for the
third quarter of fiscal year 2009 compared to the third quarter of fiscal year
2008. The increase for the nine months ended October 31, 2008 is primarily due
to the decreased average value of the Canadian dollar for the year to date of
fiscal 2009 compared to the year to date for fiscal year 2008. Significant asset
acquisitions related to the plant refurbishment have not been put into service
and are therefore not yet being depreciated. These acquisitions are expected to
be available by the end of the fourth quarter of fiscal year 2009.

|                 | Three       | Three       |          | Nine        | Nine        |         
|---------------- | ----------- | ----------- | -------- | ----------- | ----------- | --------
|                 | Months      | Months      |          | Months      | Months      |         
|                 | Ended       | Ended       |          | Ended       | Ended       |         
|                 | October 31, | October 31, |          | October 31, | October 31, |         
|                 | 2008        | 2007        | Variance | 2008        | 2007        | Variance
|                 |             |             |          |             |             |         
|Interest Expense | $17,401     | $24,613     | (29)%    | $52,404     | $74,457     | (30)%   

Interest expense for the third
quarter and year to date of fiscal year 2009 decreased from the comparative
amount for the third quarter and year to date of fiscal year 2008 primarily due
to the decrease in interest rates experienced in the current fiscal year.

|                 | Three       | Three       |          | Nine        | Nine        |         
|---------------- | ----------- | ----------- | -------- | ----------- | ----------- | --------
|                 | Months      | Months      |          | Months      | Months      |         
|                 | Ended       | Ended       |          | Ended       | Ended       |         
|                 | October 31, | October 31, |          | October 31, | October 31, |         
|                 | 2008        | 2007        | Variance | 2008        | 2007        | Variance
|                 |             |             |          |             |             |         
|Foreign exchange |             |             |          |             |             |         
|(gain) loss      | $(72,648)   | $24,371     | 398%     | $(80,735)   | $69,957     | 215%    

The foreign exchange gain for the
third quarter and year to date of fiscal year 2009 was due to the continued
increase in value of the United States dollar compared to the Canadian dollar
throughout these periods, especially in October 2008. This contrasts with the
continued decline in value of the United States dollar relative to the Canadian
dollar during the corresponding periods of fiscal
year 2008. The gain in the third quarter of fiscal year 2009 is partially offset
by the inclusion of a loss of US$22,597 related to foreign exchange forward
contracts expiring in November and December 2008. At October 31, 2008, Dextran
Products has a net asset exposure to the United States dollar because its
liabilities denominated in United States dollars were less than its United
States dollar denominated accounts receivable balances.

|5  |  Page | 
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|                   | Three       | Three       |          | Nine        | Nine        |         
|------------------ | ----------- | ----------- | -------- | ----------- | ----------- | --------
|                   | Months      | Months      |          | Months      | Months      |         
|                   | Ended       | Ended       |          | Ended       | Ended       |         
|                   | October 31, | October 31, |          | October 31, | October 31, |         
|                   | 2008        | 2007        | Variance | 2008        | 2007        | Variance
|                   |             |             |          |             |             |         
|Interest and other |             |             |          |             |             |         
|income and cash    |             |             |          |             |             |         
|surrender value of |             |             |          |             |             |         
|life insurance     | $(8,899)    | $(24,749)   | (64)%    | $(2,310)    | $165,289    | (101)%  

The loss in interest and other income
in the third quarter of fiscal year 2009 is primarily due to the increase in
value of the US dollar compared to the Canadian dollar during this period. The
decrease in interest and other income in the year to date of fiscal year 2009
compared to the year to date of fiscal year 2008 is due to the increase in the
value of the US dollar compared to the Canadian dollar throughout this period as
mentioned above, as well a the recognition of the loss on investments that was
previously carried in Accumulated and other comprehensive income. Investment
income for the second quarter and the year to date of fiscal year 2009 also
decreased due to the decrease in the investments available for sale and cash
equivalents. The year to date of fiscal year 2008 also included the redemption
of the cash surrender value of an insurance policy that was no longer required.

|                     | Three       | Three       |          | Nine        | Nine        |         
|-------------------- | ----------- | ----------- | -------- | ----------- | ----------- | --------
|                     | Months      | Months      |          | Months      | Months      |         
|                     | Ended       | Ended       |          | Ended       | Ended       |         
|                     | October 31, | October 31, |          | October 31, | October 31, |         
|                     | 2008        | 2007        | Variance | 2008        | 2007        | Variance
|                     |             |             |          |             |             |         
|Provision for        |             |             |          |             |             |         
|(recovery of) income |             |             |          |             |             |         
|taxes                | 1,843       | 1,373       | 34%      | $(55,298)   | 1,373       | (4,128)%

The tax recovery for the year to date
ended October 31, 2008 results from the reversal of the deferred tax provision
previously carried as an other liability on the balance sheet, and which was no
longer required due to the availability of the Companys carryforward of unused
tax losses, and tax credits arising from unused research and development
expenditures. The tax provision for the third quarter of fiscal year 2008 was
due entirely to the change in exchange rates during the period, as compared to
the third quarter of fiscal year 2008, which was due to tax payments related to
Chemdex, Inc. The Canadian operations continue to have significant research and
development tax pools to offset current taxes payable.



|6  |  Page | 
|---------- | 

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Liquidity and Capital Resources

As of October 31,
2008, the Company had cash and cash equivalents of $13,628, compared to cash and
cash equivalents of $468,570 at January 31, 2008, and $538,736 at October 31,
2007. In the third quarter of fiscal year 2009 the Company utilized cash of
$66,785 in its operating activities, compared to $154,881 for the third quarter
of fiscal year 2008. The decrease in cash from operations during the third
quarter of fiscal year 2009 was primarily due to the loss from operations during
the period, as well as the decrease in accounts payable. Depreciation continues
to be a large non-cash expense of the Company.

The Companys working capital
decreased to $1,763,737 and a working capital ratio of 2.77 to 1 as of October
31, 2008, compared to $2,403,042 and 3.43 to 1 as of January 31, 2008.

As of October 31,
2008, the Company had accounts receivable of $887,476 and inventory of
$1,401,630, compared to $611,975 and $1,350,490 respectively at January 31, 2008
and $507,376 and $1,860,195 respectively at October 31, 2006. The increase in
accounts receivable is due to the significant volume of sales which occurred
late in the quarter, and the timing of customer payments.

At October 31, 2008,
the Company had accounts payable of $375,304 compared to $399,820 at January 31,
2008 and $493,800 at October 31, 2007. The decrease in accounts payable was due
to reductions in outstanding amounts related to the plant refurbishment and the
timing of supplier payments.

During the third
quarter of fiscal year 2009, capital expenditures totaled $52,250 as compared to
$150,056 in the third quarter of fiscal year 2008. The expenditures for the
third quarter of fiscal year 2008 were primarily for construction costs relating
to the plant refurbishment at the Dextran Products plant in Toronto.

The change in
accumulated other comprehensive income of the Company is primarily attributable
to the currency translation adjustment of Dextran Products. Dextran Products
functional currency is the Canadian dollar, which has depreciated compared to
the United States dollar during the third quarter of fiscal year 2009. This
currency translation adjustment arises from the translation of Dextran Products
financial statements to U.S. dollars.

Dextran Products has a
Cdn. $250,000 (U.S. $207,500) operating line of credit, of which Cdn. $190,000
was utilized at October 31, 2008 and nil January 31, 2008. This line of credit
bears interest at the Canadian banks prime lending rate plus 1.00% (October 31,
2008  5.00%; January 31, 2008  6.50%). The line of credit is used periodically
by the Company to cover temporary short-term Canadian dollar cash needs. For
these short-term cash needs, the interest expense on the credit line is
typically less than the transaction costs incurred in selling short-term
investments. In May 2006 a fixed term rate loan of Cdn. $500,000 (U.S. $415,110)
was obtained to fund capital purchases. The interest rate is 0.75% over Canadian
bank prime lending rate (6.95%). 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 building in Toronto.

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The decrease in
long-term debt from January 31, 2008 is due to repayments during the period,
while the increase in capital lease obligations is due to the acquisition of a
photocopying system during the third quarter of fiscal year 2009.

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.

Related Party Transactions

In August 1997, the
Company loaned the late Thomas C. Usher, its Vice-Chairman, Director of Research
and Development, a member of its Board of Directors and the beneficial owner of
greater than 5% of the outstanding common shares of the Company, $691,500 at an
interest rate equal to the prime rate of Toronto Dominion Bank plus 1.50% (the
"Loan"). The Loan was used to partially fund a $1,000,000 payment to the State
of Florida in order to allow Thomas C. Usher to regain possession of 430,000
Common Shares of the Company then held by the State as collateral security
relating to the liquidation of insurance companies formerly owned by Thomas C.
Usher. Repayment of the Loan is accomplished by periodic payments and, in the
past, bonus payments, if any, granted to Thomas C. Usher as an employee of the
Company. The amount outstanding under the Loan as of October 31, 2008 was
$295,884, as compared to $297,321 at January 31, 2008, including accrued
interest. The Company has taken a cumulative provision of $323,490 against
accrued interest on this loan at October 31, 2008, and January 31, 2008.
Obligations with respect to the Loan transferred to the estate of Thomas C.
Usher upon his death in February 2005.

In August 1999, Thomas
C. Usher 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 October 31, 2008 and January 31,
2008 was $60,339. The Company continues to be obligated to make royalty payments
to Mr. Ushers estate pursuant to intellectual property license agreements, and
intends to continue to offset such payments against the Receivables. Thomas C.
Usher also owed $250,000 to a subsidiary of the Company, Novadex International
Limited, as of October 31, 2008, pursuant to a non-interest bearing loan with no
specific repayment terms. The outstanding amount of this loan has not changed
from January 31, 2008. The amounts continue to remain owing from the estate of
Thomas C. Usher.

As of October 31,
2008, Thomas C. Usher, now through his estate, had 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 $121,631 at October 31, 2008, based on the closing
price of the Companys common shares as quoted on the Pink Sheets quotation
service on October 31, 2008. During the third quarter of fiscal year 2008,
George G. 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 remaining
pledged assets as collateral until the amounts owing discussed above are repaid.



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The Company has 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 October 31, 2008 is
$36,908.

The Company also has
an outstanding loan payable to Ruth Usher, a former director and the widow of
Thomas C. Usher. The amount due from the Company pursuant to this loan decreased
to $618,411 at October 31, 2008 from $658,569 at January 31, 2008 due to monthly
payments by the Company, less interest charges.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet
arrangements.

Critical Accounting Policies

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

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

Revenue Recognition

All revenue is from
sales of bulk 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.



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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 two fiscal years.

Long-Lived Assets

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

Deferred Tax Assets

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

The Joint Venture

In 1992, Vet Labs, a
subsidiary of Chemdex, Inc. and Sparhawk entered into a Joint Venture for the
manufacture and sale of veterinary pharmaceutical products. Vet Labs and
Sparhawk each owned 50% of the Joint Venture during its operation.

On January 13, 2004,
the Company, Chemdex and Vet Labs entered into an Asset Purchase Agreement with
Sparhawk. Pursuant to the Asset Purchase Agreement, the Company agreed to sell
substantially all of the assets of Vet Labs, including its interest in the Joint
Venture, to Sparhawk for $5,500,000 in cash. Effective March 4, 2004, this sale
was completed and a gain of $1,859,471 was recognized. Simultaneously with the
closing, Chemdex advanced $350,000 to Sparhawk in exchange for an unsecured
subordinated promissory note bearing interest at 13% per annum and a warrant to
purchase 4% of the equity of Sparhawk.



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On May 31, 2006, payment in full for principal
and interest of the promissory note was received. The warrant expired at the
earlier of payment in full of the promissory note or March 4, 2014, and
therefore expired before it could be exercised. Chemdex also entered into a
supply agreement with Sparhawk to supply ferric hydroxide and hydrogenated
dextran solution to Sparhawk on an exclusive basis in the United States for 10
years.

Since Sparhawk was
thinly capitalized and highly leveraged, the Company had deferred $350,000 of
the gain relating to the promissory note receivable from Sparhawk. Since payment
in full on the promissory note was received on May 31, 2006, the deferred gain
of $350,000 was recognized at April 30, 2006 and included in other income on the
statement of operations.

Changes in Accounting Policies

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



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Item 3. Quantitative and Qualitative
Disclosures About Market Risk

Exchange Rate Sensitivity

The Companys operations consist primarily of
manufacturing activities located in Toronto, Canada. The Companys products are
sold in North America, Europe and the Pacific Rim.

While the majority of the sales of Dextran
Products, the Companys Canadian operation, are denominated in United States
dollars, the majority of its expenses are incurred in Canadian dollars. The
majority of the assets and liabilities of Dextran Products are denominated in
Canadian dollars prior to the currency translation adjustment necessary for
preparation of the consolidated financial statements of the Company contained in
this report. When the Canadian dollar rises in value relative to the United
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 loss 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 receivables denominated in United States dollars
exceeding United States dollar denominated accounts payable and customer
deposits. Similarly, a decline in the Canadian dollar relative to the United
States dollar results in a foreign exchange gain and increased gross margins and
net income at Dextran Products.

Management monitors currency fluctuations and
endeavors to ensure that an acceptable margin level at Dextran Products is
maintained. Management has the ability, to some extent, to adjust sales prices
to maintain an acceptable margin level.

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

|                  | Expected Maturity Date |         |        
|----------------- | ---------------------- | ------- | -------
|                  |                        |         |        
|                  | 1/31/09                | 1/31/10 | 1/31/11
|                  |                        |         |        
|Assets:           |                        |         |        
|Short-term        |                        |         |        
|investments:      |                        |         |        
|Fixed rate ($Cdn) | 387,509                |        |       
|Average interest  |                        |         |        
|rate              | 3.20%                  |        |       
|Liabilities:      |                        |         |        
|Long-term debt:   |                        |         |        
|Fixed rate ($Cdn) | 16,250                 | 51,718  | 43,198 
|Average interest  |                        |         |        
|rate              | 8.52%                  | 8.80%   | 9.16%  



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Interest Rate Sensitivity

The Company has interest earning assets
consisting of investment grade short-term instruments. A significant portion of
the Companys debt is at fixed rates. The variable rate debt represents the
shareholder loan payable, which is partially offset by the shareholder loan
receivable. Both of these financial instruments carry the same interest rate. As
such, the Company has a reduced level of risk exposure to changes in interest
rates.

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

|                  | Expected Maturity Date |         |        
|----------------- | ---------------------- | ------- | -------
|                  |                        |         |        
|                  | 1/31/09                | 1/31/10 | 1/31/11
|                  | (US$ Equivalent)      
|Assets:           |                        |         |        
|Short-term        |                        |         |        
|investments:      |                        |         |        
|Fixed rate        |                        |         |        
|($Cdn)            | 387,509                |        |       
|Average           |                        |         |        
|interest rate     | 3.20%                  |        |       
|Notes receivable: |                        |         |        
|Variable rate     |                        |         |        
|($US)             | 987                    | 19,043  | 20,138 
|Average           |                        |         |        
|interest rate     | 5.75%                  | 5.75%   | 5.75%  
|Liabilities:      |                        |         |        
|Long-term debt:   |                        |         |        
|Fixed rate        |                        |         |        
|($Cdn)            | 16,250                 | 51,718  | 43,198 
|Average           |                        |         |        
|interest rate     | 8.52%                  | 8.80%   | 9.16%  
|Variable rate     |                        |         |        
|($US)             | 221                    | 24,454  | 25,860 
|Average           |                        |         |        
|interest rate     | 5.75%                  | 5.75%   | 5.75%  



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Item 4. Controls and Procedures.

The Company completed
an evaluation as of the end of the period covered by this report under the
supervision and with the participation of management, including its Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of its disclosure controls and procedures pursuant to Rule
13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Companys
disclosure controls and procedures are effective in alerting them on a timely
basis of material information relating to the Company (including its
consolidated subsidiaries) required to be included in its periodic Securities
and Exchange Commission filings.

There have been no
changes in the Companys internal control over financial reporting identified in
connection with the evaluation discussed above that occurred in the Companys
fiscal quarter ended October 31, 2008 that has materially affected, or is
reasonably likely to materially affect, the Companys internal control over
financial reporting.



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PART II 
OTHER INFORMATION

Item 1.

Legal Proceedings

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

Item 2.

Unregistered
Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3.

Defaults Upon
Senior Securities

Not applicable.

Item 4.

Submission of
Matters to a Vote of Security Holders.

None

Item 5.

Other Information

None.



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

(a) Exhibits

|3.1  | Memorandum of Association of Polydex Pharmaceuticals Limited, as amended to
    date (filed as Exhibit 3.1 to the Annual Report on Form 10-K filed April 30,
    1997, and incorporated herein by reference)         
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2  | Articles of
    Association of Polydex Pharmaceuticals Limited, as amended to date (filed as
    Exhibit 3.2 to the Quarterly Report on Form 10-Q filed September 13, 1999,
    and incorporated herein by reference)
|31.1 | Certification of Chief
    Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange
    Act of 1934                                                                                                
|31.2 | Certification of Chief
    Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange
    Act of 1934                                                                                                
|32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                
|32.2 | Certification of Chief
    Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                                                            

(b)

Reports on Form
8-K

Not applicable.

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SIGNATURES

Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.

Date:

December 12, 2008



POLYDEX
      PHARMACEUTICALS LIMITED (Registrant)By
      /s/ George
      G. UsherGeorge G. Usher,
      Chairman, President and 
      Chief Executive Officer
 (Principal Executive Officer)By
      /s/ John A. LuceJohn A. Luce, Chief
      Financial Officer 
      (Principal Financial Officer)




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Exhibit Index

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



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