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

FORM 10-Q

(Mark One)

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

For the quarterly period ended July 31, 2009

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

For the transition period from _________________________ to ____________________

Commission File Number 1-8366

POLYDEX PHARMACEUTICALS LIMITED(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.     Yes x            
No £

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

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

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

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

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

|Common Shares, $.0167 Par Value | 3,072,846                       
|------------------------------- | --------------------------------
|(Title of Class)                | (Outstanding at August 31, 2009)





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POLYDEX PHARMACEUTICALS LIMITED

TABLE OF CONTENTS

|                                  
|----------------------------------
|PART I FINANCIAL
      INFORMATION
|                                  
|Item 1                            
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|Item 2                            
|Item 3                            
|Item 4                            
|                                  
|PART II OTHER
      INFORMATION   
|Item 1                            
|Item 2                            
|Item 3                            
|Item 4                            
|Item 5                            
|Item 6                            
|                                  



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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.

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PART IFINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements (Unaudited).

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POLYDEX PHARMACEUTICALS LIMITED

Consolidated Balance Sheets 
(Expressed in United States
dollars)

|                                            |   | July 31     |  |   | January 31 | 
|------------------------------------------- | - | ----------- |  | - | ---------- | 
|                                            |   | 2009        |  |   | 2009       | 
|                                            |   | (Unaudited) |  |   | (Audited)  | 
|                                            |   |             |  |   |            | 
|                                            |   |             |  |   |            | 
|Assets                                      |   |             |  |   |            | 
|                                            |   |             |  |   |            | 
|Current assets:                             |   |             |  |   |            | 
|Cash in banks                               | $ | 201,361     |  | $ | 327,857    | 
|Investments available for sale (note 3)     |   | 445,980     |  |   | 381,457    | 
|Trade accounts
      receivable             |   | 841,347     |  |   | 161,858    | 
|Inventories                                 |   |             |  |   |            | 
|Finished goods                              |   | 740,082     |  |   | 626,058    | 
|Work in progress                            |   | 34,049      |  |   | 135,966    | 
|Raw materials                               |   | 295,132     |  |   | 241,599    | 
|                                            |   | 1,069,263   |  |   | 1,003,623  | 
|Prepaid expenses and other current assets   |   | 89,680      |  |   | 106,221    | 
|Total current assets                        |   | 2,647,631   |  |   | 1,981,016  | 
|Property, plant and equipment, net          |   | 4,433,626   |  |   | 4,057,959  | 
|Patents and intangible assets, net          |   | 33,451      |  |   | 37,471     | 
|Due from estate of
      former shareholder |   | 257,470     |  |   | 257,470    | 
|                                            | $ | 7,372,178   |  | $ | 6,333,916  | 

See accompanying notes.

P a g e |F-1

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POLYDEX PHARMACEUTICALS LIMITED

Consolidated Balance Sheets 
(Expressed in United States
dollars)

|                                                                    |        | July 31     |   |        | January 31  |  
|------------------------------------------------------------------- | ------ | ----------- | - | ------ | ----------- | -
|                                                                    |        | 2009        |   |        | 2009        |  
|                                                                    |        | (Unaudited) |   |        | (Audited)   |  
|                                                                    |        |             |   |        |             |  
|Liabilities and Shareholders' Equity                                |        |             |   |        |             |  
|                                                                    |        |             |   |        |             |  
|Current liabilities:                                                |        |             |   |        |             |  
|Bank indebtedness                                                   | $      | 235,731     |   | $      | --          |  
|Accounts payable                                                    |        | 684,724     |   |        | 150,965     |  
|Accrued
      liabilities                                           |        | 370,716     |   |        | 296,538     |  
|Customer deposits                                                   |        | 92,932      |   |        | 92,932      |  
|Current portion of
      long-term debt                             |        | 41,819      |   |        | 35,336      |  
|Current portion of capital lease obligations                        |        | 6,575       |   |        | 15,299      |  
|Current portion of due to shareholder                               |        | 30,000      |   |        | 30,000      |  
|Total current liabilities                                           |        | 1,462,497   |   |        | 621,070     |  
|                                                                    |        |             |   |        |             |  
|Long-term debt                                                      |        | 310,036     |   |        | 291,305     |  
|Capital lease obligations                                           |        | 21,350      |   |        | 20,902      |  
|Due to shareholder                                                  |        | 562,429     |   |        | 578,316     |  
|                                                                    |        |             |   |        |             |  
|                                                                    |        | 893,815     |   |        | 890,523     |  
|Total liabilities                                                   |        | 2,356,312   |   |        | 1,511,593   |  
|Going concern (note 1)                                              |        |             |   |        |             |  
|Shareholders' equity:                                               |        |             |   |        |             |  
|Capital stock                                                       |        |             |   |        |             |  
|Authorized:                                                         |        |             |   |        |             |  
|100,000 Class A preferred shares of $0.10 each                      |        |             |   |        |             |  
|899,400 Class B preferred shares of $0.0167 each                    |        |             |   |        |             |  
|10,000,000 common shares of $0.0167 each                            |        |             |   |        |             |  
|Issued and outstanding:                                             |        |             |   |        |             |  
|899,400 Class B preferred shares
      (January 31, 2009 - 899,400) | 15,010 |             |   | 15,010 |            
|3,072,846 common shares (January 31, 2009 - 3,072,846)              |        | 51,185      |   |        | 51,185      |  
|Contributed surplus                                                 |        | 23,527,576  |   |        | 23,527,576  |  
|Deficit                                                             |        | (19,928,343 | ) |        | (19,370,714 | )
|Accumulated other
      comprehensive income                        |        | 1,350,438   |   |        | 599,266     |  
|                                                                    |        | 5,015,866   |   |        | 4,822,323   |  
|                                                                    | $      | 7,372,178   |   | $      | 6,333,916   |  

See accompanying notes.

P a g e |F-2

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POLYDEX PHARMACEUTICALS LIMITED

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

|                                                        |  | Three Months |   |  | Three Months |   |  | Six Months  |   |  | Six Months  |  
|------------------------------------------------------- |  | ------------ | - |  | ------------ | - |  | ----------- | - |  | ----------- | -
|                                                        |  | Ended        |   |  | Ended        |   |  | Ended       |   |  | Ended       |  
|                                                        |  | July 31      |   |  | July 31      |   |  | July 31     |   |  | July 31     |  
|                                                        |  | 2009         |   |  | 2008         |   |  | 2009        |   |  | 2008        |  
|                                                        |  | (Unaudited)  |   |  | (Unaudited)  |   |  | (Unaudited) |   |  | (Unaudited) |  
|                                                        |  |              |   |  |              |   |  |             |   |  |             |  
|Sales                                                   |  | 1,232,799    |   |  | 1,296,704    |   |  | 2,262,960   |   |  | 2,516,489   |  
|Cost
      of goods sold                                |  | 1,432,414    |   |  | 1,104,798    |   |  | 2,254,845   |   |  | 2,060,587   |  
|                                                        |  |              |   |  |              |   |  |             |   |  |             |  
|Gross profit (loss)                                     |  | (199,615     | ) |  | 191,906      |   |  | 8,115       |   |  | 455,902     |  
|                                                        |  |              |   |  |              |   |  |             |   |  |             |  
|Expenses                                                |  |              |   |  |              |   |  |             |   |  |             |  
|General and administrative                              |  | 215,623      |   |  | 281,833      |   |  | 428,603     |   |  | 539,308     |  
|Interest expense,net                                    |  | 14,052       |   |  | 15,781       |   |  | 27,194      |   |  | 35,003      |  
|Selling and promotion                                   |  | 12,484       |   |  | 17,958       |   |  | 27,426      |   |  | 31,937      |  
|Research and development                                |  | 1,213        |   |  | 23,263       |   |  | 2,320       |   |  | 28,047      |  
|Depreciation                                            |  | 5,656        |   |  | 9,101        |   |  | 10,533      |   |  | 18,262      |  
|Foreign exchange loss (gain)                            |  | 57,728       |   |  | (7,456       | ) |  | 73,848      |   |  | (8,087      | )
|Interest and other expense (income)                     |  | (2,469       | ) |  | 20,961       |   |  | (4,180      | ) |  | 6,589       |  
|Total
      expenses                                    |  | 304,287      |   |  | 361,441      |   |  | 565,744     |   |  | 651,059     |  
|Loss before
      income taxes                          |  | (503,902     | ) |  | (169,535     | ) |  | (557,629    | ) |  | (195,157    | )
|Recovery of income taxes                                |  | -            |   |  | (57,141      | ) |  | -           |   |  | (57,141     | )
|Loss for the
      year                                 |  | (503,902     | ) |  | (112,394     | ) |  | (557,629    | ) |  | (138,016    | )
|Unrealized gain on investments
      available for sale |  | 4,408        |   |  | 24,741       |   |  | 6,845       |   |  | 24,845      |  
|Currency translation adjustment                         |  | 601,821      |   |  | (136,744     | ) |  | 744,327     |   |  | (152,713    | )
|Comprehensive income (loss) for the period              |  | 102,327      |   |  | (224,397     | ) |  | 193,543     |   |  | (265,884    | )
|Per share
      information:                            |  |              |   |  |              |   |  |             |   |  |             |  
|Loss per common
      share:                            |  |              |   |  |              |   |  |             |   |  |             |  
|Basic                                                   |  | (0.17        | ) |  | (0.04        | ) |  | (0.18       | ) |  | (0.04       | )
|Diluted                                                 |  | (0.17        | ) |  | (0.04        | ) |  | (0.18       | ) |  | (0.04       | )
|                                                        |  |              |   |  |              |   |  |             |   |  |             |  
|                                                        |  |              |   |  |              |   |  |             |   |  |             |  
|                                                        |  |              |   |  |              |   |  |             |   |  |             |  
|Weighted average number of common shares used
      in  |  |              |   |  |              |   |  |             |   |  |             |  
|computing net loss per share for the period:            |  |              |   |  |              |   |  |             |   |  |             |  
|Basic                                                   |  | 3,072,846    |   |  | 3,072,846    |   |  | 3,072,846   |   |  | 3,072,846   |  
|Diluted                                                 |  | 3,072,846    |   |  | 3,072,846    |   |  | 3,072,846   |   |  | 3,072,846   |  

See accompanying notes.

P a g e |F-3

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POLYDEX PHARMACEUTICALS LIMITED

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

|                                                  |   | Six Months  |   |   | Six Months  |  
|------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                  |   | Ended       |   |   | Ended       |  
|                                                  |   | July 31     |   |   | July 31     |  
|                                                  |   | 2009        |   |   | 2008        |  
|                                                  |   | (Unaudited) |   |   | (Unaudited) |  
|                                                  |   |             |   |   |             |  
|Preferred Shares:                                 |   |             |   |   |             |  
|Balance, beginning and end of
      period        | $ | 15,010      |   | $ | 15,010      |  
|                                                  |   |             |   |   |             |  
|Common Shares:                                    |   |             |   |   |             |  
|Balance, beginning and end of period              | $ | 51,185      |   | $ | 51,185      |  
|                                                  |   |             |   |   |             |  
|Contributed Surplus:                              |   |             |   |   |             |  
|Balance, beginning and end of
      period        | $ | 23,527,576  |   | $ | 23,499,154  |  
|                                                  |   |             |   |   |             |  
|Deficit:                                          |   |             |   |   |             |  
|Balance, beginning of period                      | $ | (19,370,714 | ) | $ | (17,779,244 | )
|Net loss for the period                           |   | (557,629    | ) |   | (138,016    | )
|                                                  |   |             |   |   |             |  
|Balance, end of period                            | $ | (19,928,343 | ) | $ | (17,917,260 | )
|                                                  |   |             |   |   |             |  
|Accumulated Other Comprehensive Income:           |   |             |   |   |             |  
|Balance, beginning of period                      | $ | 599,266     |   | $ | 1,898,161   |  
|Unrealized gain on investments available for sale |   | 6,845       |   |   | 24,845      |  
|Currency translation adjustment for the period    |   | 744,327     |   |   | (152,713    | )
|                                                  |   |             |   |   |             |  
|Balance, end of period                            | $ | 1,350,438   |   | $ | 1,770,293   |  

See accompanying notes.

P a g e |F-4

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POLYDEX PHARMACEUTICALS LIMITED

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

|                                                                            |  | Six Months  |   |  | Six Months  |  
|--------------------------------------------------------------------------- |  | ----------- | - |  | ----------- | -
|                                                                            |  | Ended       |   |  | Ended       |  
|                                                                            |  | July 31     |   |  | July 31     |  
|                                                                            |  | 2009        |   |  | 2008        |  
|                                                                            |  | (Unaudited) |   |  | (Unaudited) |  
|Cash provided by (used in):                                                
|Operating activities:                                                       |  |             |   |  |             |  
|Net loss for the period                                                     |  | (557,629    | ) |  | (138,016    | )
|Add (deduct) items not
      affecting cash:                                |  |             |   |  |             |  
|Depreciation and amortization                                               |  | 220,640     |   |  | 303,570     |  
|Interest on shareholder loan                                                |  | -           |   |  | (10,242     | )
|Loss on investments available for sale                                      |  | -           |   |  | 31,724      |  
|Net change in
      non-cash working capital balances related to operations |  | (17,220     | ) |  | (935,231    | )
|Cash used in operating activities                                           |  | (354,209    | ) |  | (748,195    | )
|Investing activities:                                                       |  |             |   |  |             |  
|Additions to property, plant and equipment                                  |  | (43,224     | ) |  | (27,913     | )
|Proceeds (acquisition) of
      investments available for sale              |  | (4,165      | ) |  | 376,623     |  
|Cash
      provided by (used in) investing activities                       |  | (47,389     | ) |  | 348,710     |  
|Financing activities:                                                       |  |             |   |  |             |  
|Repayment of long-term debt                                                 |  | (18,654     | ) |  | (20,428     | )
|Repayment of capital lease obligations                                      |  | (12,416     | ) |  | (2,941      | )
|Decrease in due to shareholder                                              |  | (15,887     | ) |  | (26,119     | )
|Increase in bank indebtedness                                               |  | 235,731     |   |  | 195,314     |  
|Cash
      provided by (used in) financing activities                       |  | 188,774     |   |  | 145,826     |  
|Effect of exchange rate
      changes                                       |  | 86,328      |   |  | (61,327     | )
|Net decrease in cash and cash equivalents                                   |  | (126,496    | ) |  | (314,986    | )
|Cash and cash
      equivalents, beginning of year                          |  | 327,857     |   |  | 468,570     |  
|Cash
      and cash equivalents, end of year                                |  | 201,361     |   |  | 153,584     |  
|                                                                            |  |             |   |  |             |  
|                                                                            |  |             |   |  |             |  
|Cash and cash equivalents is comprised of the following:                    |  |             |   |  |             |  
|Cash                                                                        |  | 201,361     |   |  | 68,909      |  
|Short-term deposits                                                         |  | -           |   |  | 84,675      |  
|                                                                            |  |             |   |  |             |  
|                                                                            |  | 201,361     |   |  | 153,584     |  

See accompanying notes.

P a g e |F-5

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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 2009 Annual Report on Form 10-K for the fiscal year ended January 31, 2009 as filed by Polydex Pharmaceuticals Limited
(the "Company") with the Securities and Exchange Commission. The unaudited interim consolidated financial statements as of July 31, 2009 and 2008 include all normal recurring adjustments which management considers necessary for a fair
presentation. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire fiscal year.  The interim consolidated financial statements include the accounts and
transactions of the Company and its majority owned subsidiaries in which the Company has equal to or more than a 50% ownership interest and exercises control.

Going Concern

These consolidated financial statements have been prepared on going concern basis which assumes that the Company will be able to realize assets and discharge liabilities in the normal course of business for the foreseeable future, For the
fiscal year ended January 31, 2009, the Company generated a consolidated net loss of $1,591,470 (July 31, 2009-$557,629; January 31, 2008-$885,211) and realized a negative cash flow from operating activities of $251,128 (July 31, 2009-$354,209; January 31, 2008-$297,899). There was an accumulated deficit of $19,370,714 (July 31, 2009-$19,928,343; January 31, 2008 - $17,779,244) The Company, through its wholly owned subsidiary Dextran
Products Limited, was also in violation of its debt service loan covenant related to the bank term loan of $324,893 (Cdn$398,481) (July 31, 2009-$350,019; Cdn$377,145), on which the Company subsequently received a waiver from its
bank. The Company had positive working capital of $1,359,946 as at January 31, 2009 (July 31, 2009-$1,185,134; January 31, 2008 - $2,403,042).

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

- Continued close monitoring of direct cost areas, including raw material pricing, and tight control of plant hours of work.
- Monitoring of the supervisory hierarchy over production personnel, to ensure efficient communication, especially as related to problem identification and scheduling.
- Cost monitoring relating to administrative and overhead expenses, including administrative wages, insurance, and reporting costs.
- Continued interaction with larger new and potential customers, including site visits, in order to address their opportunities and concerns, and strengthen our relationship with them.

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

P a g e |F-6

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

2.

Significant Accounting Policies:

Basis of consolidation

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

Use of estimates

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

Cash and cash equivalents

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

Inventories

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

P a g e |F-7

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Investments available for sale

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

Property, plant and equipment and patents and intangible assets

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

Buildings 15 years 
Machinery and equipment 3 to 10 years

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

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

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

Revenue recognition

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

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

Shipping and handling costs

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

P a g e |F-8

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Research and development

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

Foreign currency translation

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

Stock options

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

Earnings (loss) per common share

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

**3.**

**Investments Available For Sale:**

|Investments available for sale consist of the following: |   |         |  |   |            | 
|-------------------------------------------------------- | - | ------- |  | - | ---------- | 
|                                                         |   | July 31 |  |   | January 31 | 
|                                                         |   | 2009    |  |   | 2009       | 
|                                                         |   |         |  |   |            | 
|Canadian short-term fixed income fund                    | $ | 242,649 |  | $ | 205,934    | 
|Global fixed
      income bond fund                      | $ | 203,331 |  | $ | 175,523    | 
|                                                         | $ | 445,980 |  | $ | 381,457    | 

Canadian short-term fixed income bond fund is currently
yielding 2.96% . The Global fixed income bond fund is curently yielding
approximately 2.71% . Investments available for sale are stated at fair market
value, based on quoted market prices. An unrealized gain of $6,845 has been included in accumulated other comprehensive income.

P a g e |F-9

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

4.

Commitments and Contingencies:

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

5.

Stock-based Employee
Compensation:

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

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

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, 2009 to July 31, 2009, because there were no options granted
during this period. Similarly, no stock-based employee compensation expense was
recorded during the period from February 1, 2008 to July 31, 2008, because there
were no options granted during that period.

6.

Segmented Information:

|                                       |  
|-------------------------------------- | -
|                                       |  
|                                       |  
|                                       |  
|                                       |  
|                                       |  
|                                       |  
|Total revenue by significant customer: |  
|**Customer A**                         | $
|**Customer B**                         | $
|**Customer C**                         | $
|**Customer D**                         | $
|**Customer E**                         | $
|                                       | $

P a g e |F-10

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

|                                 |       | **Six Months** |  |       | **Six Months** | 
|-------------------------------- | ----- | -------------- |  | ----- | -------------- | 
|                                 |       | **Ended**      |  |       | Ended          | 
|                                 |       | **July 31,**   |  |       | July 31,       | 
|                                 |       | **2009**       |  |       | 2008           | 
|                                 |       |                |  |       |                | 
|Sales by geographic destination: |       |                |  |       |                | 
|Europe                           | $     | 713,416        |  | **$** | 743,343        | 
|Canada                           | $     | 591,633        |  | **$** | 627,596        | 
|United States                    | $     | 381,782        |  | **$** | 872,103        | 
|Pacific Rim                      | $     | 297,705        |  | **$** | 77,350         | 
|Other                            | $     | 278,424        |  | **$** | 196,097        | 
|                                 | **$** | **2,262,960**  |  | **$** | **2,516,489**  | 

P a g e |F-11

---

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 2010 refers to the Company's fiscal year ended January 31, 2010. The following
discussion should be read in conjunction with the July 31, 2009 interim consolidated financial statements and notes thereto included elsewhere in this report. Operating results for the six months ended July 31, 2009 are
not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2010. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form
10-K for the fiscal year ended January 31, 2009. The Company's financial statements are prepared in accordance with United States generally accepted accounting principles. All amounts are in United States dollars, unless
otherwise denoted.

Overview

The Company is engaged in the research, development, manufacture and marketing of biotechnology-based products for the human pharmaceutical market, and 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 provides ferric hydroxide and hydrogenated dextran to Sparhawk pursuant to a definitive supply agreement.

Management Objectives for Fiscal 2010.

In fiscal year 2010, management is continuing to focus on the core products of Dextran Products that have historically been the backbone of the Company.  Opportunities to increase distribution chains
for existing Dextran products in overseas markets continue to be explored by management. New customers have also been identified in Europe. Expanding current market opportunities and the potential for new market penetration led management to make
plant refurbishments and the expansion of production capacity a priority with respect to the Company's manufacturing operations located in Toronto. The first step has been construction of new drying facilities to produce
increased quantities of higher quality product. These products have traditionally generated higher margins. Production of product utilizing this new equipment is planned following the completion of validation and the receipt of orders.

Research and development of the Company's human pharmaceutical products is coordinated at Dextran Products. Ushercell is a high molecular weight Cellulose Sulphate that was envisioned for topical vaginal use
primarily in the prevention of unplanned pregnancies, as well as the transmission of AIDS and other sexually transmitted diseases. Further work in this area has been suspended pending a final investigative report which is expected during fiscal
year 2010. The Company never received any financial gain from
this project, and as a result, there is no immediate or direct effect on sales
or revenues.

1

---

During the second quarter of
fiscal year 2010, the Company experienced a large writedown of work in progress
which was due to the expiration of the time limit for its viability. This
product would normally have been utilized by reprocessing with new materials,
but reduced powdered product orders during the year to date eliminated
this option. Had this writedown not occurred the Company would have
exceeded its net income budgets for the second quarter and year to date of
fiscal year 2010. Further writedowns of this type and magnitude are not expected
to occur in the remainder of fiscal 2010.

|Results of Operations |   |          |   |   |          |   |  |          |  |   |            |   |   |            |   |  |          | 
|--------------------- | - | -------- | - | - | -------- | - |  | -------- |  | - | ---------- | - | - | ---------- | - |  | -------- | 
|                      |   |          |   |   |          |   |  |          |  |   |            |   |   |            |   |  |          | 
|                      |   |          |   |   |          |   |  |          |  |   |            |   |   |            |   |  |          | 
|                      |   | Three    |   |   | Three    |   |  |          |  |   |            |   |   |            |   |  |          | 
|                      |   | Months   |   |   | Months   |   |  |          |  |   | Six Months |   |   | Six Months |   |  |          | 
|                      |   | Ended    |   |   | Ended    |   |  |          |  |   | Ended      |   |   | Ended      |   |  |          | 
|                      |   | July 31, |   |   | July 31, |   |  |          |  |   | July 31,   |   |   | July 31,   |   |  |          | 
|                      |   | 2009     |   |   | 2008     |   |  | Variance |  |   | 2009       |   |   | 2008       |   |  | Variance | 
|                      |   |          |   |   |          |   |  |          |  |   |            |   |   |            |   |  |          | 
|Net loss              | $ | (503,902 | ) | $ | (112,394 | ) |  | 348%     |  | $ | (557,629   | ) | $ | (138,016   | ) |  | 304%     | 
|                      |   |          |   |   |          |   |  |          |  |   |            |   |   |            |   |  |          | 
|Loss per Share        | $ | (0.17    | ) |   | $(0.04   | ) |  |          |  | $ | (0.18      | ) | $ | (0.04      | ) |  |          | 

**The increase in net loss
for the second quarter and year to date of fiscal year 2010, as compared to the
second quarter and year to date of fiscal year 2009, is a result of decreased
gross margins, foreign exchange losses and the absence of a deferred income tax
recovery which was recognized in the second quarter of fiscal year 2009. These
revenue reductions were partially offset by continued expense
reductions,** **especially in general and administration, selling
and** **promotion and depreciation.**

|      |   | Three     |  |   | Three     |  |  |          |  |   |            |  |   |            |  |  |           | 
|----- | - | --------- |  | - | --------- |  |  | -------- |  | - | ---------- |  | - | ---------- |  |  | --------- | 
|      |   | Months    |  |   | Months    |  |  |          |  |   | Six Months |  |   | Six Months |  |  |           | 
|      |   | Ended     |  |   | Ended     |  |  |          |  |   | Ended      |  |   | Ended      |  |  |           | 
|      |   | July 31,  |  |   | July 31,  |  |  |          |  |   | July 31,   |  |   | July 31,   |  |  |           | 
|      |   | 2009      |  |   | 2008      |  |  | Variance |  |   | 2009       |  |   | 2008       |  |  | Variance  | 
|      |   |           |  |   |           |  |  |          |  |   |            |  |   |            |  |  |           | 
|Sales | $ | 1,232,799 |  | $ | 1,296,704 |  |  | (5)%     |  | $ | 2,262,960  |  | $ | 2,516,489  |  |  | **(10)%** | 

The sales decrease for the
second quarter and year to date of fiscal year 2010 compared to the
second quarter and year to date of fiscal year 2009 was primarily due to
decreased demand, especially in the more profitable powdered products.

2

---

|                    |   | Three       |   |   | Three    |  |  |          |  |   |            |  |   |            |  |  |           | 
|------------------- | - | ----------- | - | - | -------- |  |  | -------- |  | - | ---------- |  | - | ---------- |  |  | --------- | 
|                    |   | Months      |   |   | Months   |  |  |          |  |   | Six Months |  |   | Six Months |  |  |           | 
|                    |   | Ended       |   |   | Ended    |  |  |          |  |   | Ended      |  |   | Ended      |  |  |           | 
|                    |   | July 31,    |   |   | July 31, |  |  |          |  |   | July 31,   |  |   | July 31,   |  |  |           | 
|                    |   | 2009        |   |   | 2008     |  |  | Variance |  |   | 2009       |  |   | 2008       |  |  | Variance  | 
|                    |   |             |   |   |          |  |  |          |  |   |            |  |   |            |  |  |           | 
|Gross profit (loss) | $ | (199,615    | ) | $ | 191,906  |  |  | (204)%   |  | $ | 8,115      |  | $ | 455,902    |  |  | **(98)%** | 
|                    |   |             |   |   |          |  |  |          |  |   |            |  |   |            |  |  |           | 
|Percentage of sales |   | **(15.8)%** |   |   | 14.8%    |  |  |          |  |   | 0.6%       |  |   | 18.1%      |  |  |           | 

The decrease in gross margin
for the second quarter and the year to date of fiscal year 2010 compared to the
second quarter and year to date of fiscal year 2009 is primarily due to two factors. First, as mentioned above, the Company experienced a slight
decline in overall sales, but the most significant decline was in the
sales of powdered product, which have much higher margins than our liquid
products. Second, the Company incurred a large writedown of work in progress inventory. This resulted from this inventory having reached its
expiry date and therefore was not able to be reprocessed into saleable finished
product. These revenue reductions were partially offset by reductions in
direct cost of sales such as plant labor, utilities, repairs and sludge
removal. The Company also benefitted from a decrease in depreciation resulting
from the impairment provision during the fourth quarter of fiscal year
2009, as well as the decreased value of the Canadian dollar compared to
the same periods of fiscal year 2009.

|                                                        |   | Three    |  |   | Three    |  |  |          |  |   |            |  |  |            |  |  |           | 
|------------------------------------------------------- | - | -------- |  | - | -------- |  |  | -------- |  | - | ---------- |  |  | ---------- |  |  | --------- | 
|                                                        |   | Months   |  |   | Months   |  |  |          |  |   | Six Months |  |  | Six Months |  |  |           | 
|                                                        |   | Ended    |  |   | Ended    |  |  |          |  |   | Ended      |  |  | Ended      |  |  |           | 
|                                                        |   | July 31, |  |   | July 31, |  |  |          |  |   | July 31,   |  |  | July 31,   |  |  |           | 
|                                                        |   | 2009     |  |   | 2008     |  |  | Variance |  |   | 2009       |  |  | 2008       |  |  | Variance  | 
|Selling, promotion, general and administrative expenses | $ | 228,107  |  | $ | 299,791  |  |  | (24)%    |  | $ | 456,029    |  |  | $571,245   |  |  | **(20)%** | 

The decrease during the second
quarter and year to date of fiscal year 2010 in selling, promotion, general and
administrative expenses is primarily due to a general decrease in the expenses of the Company resulting from cost control initiatives by
management, aided by the decreased value of the Canadian dollar compared
to the corresponding periods of fiscal 2009. These reductions included
management travel, annual reporting costs, legal costs and other office expenses.

|                                           |   | Three    |  |   | Three    |  |  |           |  |   |            |  |   |            |  |  |           | 
|------------------------------------------ | - | -------- |  | - | -------- |  |  | --------- |  | - | ---------- |  | - | ---------- |  |  | --------- | 
|                                           |   | Months   |  |   | Months   |  |  |           |  |   | Six Months |  |   | Six Months |  |  |           | 
|                                           |   | Ended    |  |   | Ended    |  |  |           |  |   | Ended      |  |   | Ended      |  |  |           | 
|                                           |   | July 31, |  |   | July 31, |  |  |           |  |   | July 31,   |  |   | July 31,   |  |  |           | 
|                                           |   | 2009     |  |   | 2008     |  |  | Variance  |  |   | 2009       |  |   | 2008       |  |  | Variance  | 
|Research and
      developmentexpenditures | $ | 1,213    |  | $ | 23,263   |  |  | **(95)%** |  | $ | 2,320      |  | $ | 28,047     |  |  | **(92)%** | 

The reduction in research and development for the second
quarter and year to date of fiscal year 2010 compared to the same periods
in fiscal year 2009 resulted from the cessation of all aspects of the Ushercell
project. Certain expenses pertaining to the Company's portfolio of patents are continuing. A report is due out in the fourth
quarter of fiscal year 2010 which may clarify some aspects of the halted Phase
III clinical trial.

3

---

The Company is concentrating its efforts internally on
developing new derivatives of its existing products in order to exploit
other marketing possibilities.

|                                                    |   | Three    |  |   | Three    |  |  |          |  |   |            |  |   |            |  |  |           | 
|--------------------------------------------------- | - | -------- |  | - | -------- |  |  | -------- |  | - | ---------- |  | - | ---------- |  |  | --------- | 
|                                                    |   | Months   |  |   | Months   |  |  |          |  |   | Six Months |  |   | Six Months |  |  |           | 
|                                                    |   | Ended    |  |   | Ended    |  |  |          |  |   | Ended      |  |   | Ended      |  |  |           | 
|                                                    |   | July 31, |  |   | July 31, |  |  |          |  |   | July 31,   |  |   | July 31,   |  |  |           | 
|                                                    |   | 2009     |  |   | 2008     |  |  | Variance |  |   | 2009       |  |   | 2008       |  |  | Variance  | 
|**Depreciation
      and** **amortization expense** | $ | 92,392   |  | $ | 151,100  |  |  | (39)%    |  | $ | 220,640    |  | $ | 303,570    |  |  | **(27)%** | 

The decrease in depreciation and amortization expense for
the second quarter and year to date of fiscal year 2010 compared to the second
quarter and year to date of fiscal year 2009 is primarily a result of the
impairment write down that occurred in the fourth quarter of fiscal year 2009. This provision resulted in lowered values for the Company's plant
and equipment, which in turn has decreased the Company's ongoing
depreciation charges. The decrease is also partially due to the decreased value
of the Canadian dollar during the current quarter and year to date of fiscal
year 2010. Significant asset acquisitions related to the plant refurbishment
have not been put into service and are therefore not yet being depreciated.

|                 |   | Three    |  |   | Three    |  |  |           |  |   |            |  |   |            |  |  |          | 
|---------------- | - | -------- |  | - | -------- |  |  | --------- |  | - | ---------- |  | - | ---------- |  |  | -------- | 
|                 |   | Months   |  |   | Months   |  |  |           |  |   | Six Months |  |   | Six Months |  |  |          | 
|                 |   | Ended    |  |   | Ended    |  |  |           |  |   | Ended      |  |   | Ended      |  |  |          | 
|                 |   | July 31, |  |   | July 31, |  |  |           |  |   | July 31,   |  |   | July 31,   |  |  |          | 
|                 |   | 2009     |  |   | 2008     |  |  | Variance  |  |   | 2009       |  |   | 2008       |  |  | Variance | 
|Interest expense | $ | 14,052   |  | $ | 15,781   |  |  | **(11)%** |  | $ | 27,194     |  | $ | 35,003     |  |  | (22)%    | 

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

|                                       |   | Three    |  |   | Three    |   |  |          |  |   |            |  |   |            |   |  |          | 
|-------------------------------------- | - | -------- |  | - | -------- | - |  | -------- |  | - | ---------- |  | - | ---------- | - |  | -------- | 
|                                       |   | Months   |  |   | Months   |   |  |          |  |   | Six Months |  |   | Six Months |   |  |          | 
|                                       |   | Ended    |  |   | Ended    |   |  |          |  |   | Ended      |  |   | Ended      |   |  |          | 
|                                       |   | July 31, |  |   | July 31, |   |  |          |  |   | July 31,   |  |   | July 31,   |   |  |          | 
|                                       |   | 2009     |  |   | 2008     |   |  | Variance |  |   | 2009       |  |   | 2008       |   |  | Variance | 
|**Foreign exchange
      (gain) loss** | $ | 57,728   |  | $ | (7,456   | ) |  | 874%     |  | $ | 73,848     |  | $ | (8,087     | ) |  | 1013%    | 

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

4

---

|                                          |   | Three    |   |   | Three    |  |  |          |  |   |            |   |   |            |  |  |          | 
|----------------------------------------- | - | -------- | - | - | -------- |  |  | -------- |  | - | ---------- | - | - | ---------- |  |  | -------- | 
|                                          |   | Months   |   |   | Months   |  |  |          |  |   | Six Months |   |   | Six Months |  |  |          | 
|                                          |   | Ended    |   |   | Ended    |  |  |          |  |   | Ended      |   |   | Ended      |  |  |          | 
|                                          |   | July 31, |   |   | July 31, |  |  |          |  |   | July 31,   |   |   | July 31,   |  |  |          | 
|                                          |   | 2009     |   |   | 2008     |  |  | Variance |  |   | 2009       |   |   | 2008       |  |  | Variance | 
|Interest and other
      expense (income) | $ | (2,469   | ) | $ | 20,961   |  |  | 112%     |  | $ | (4,180     | ) | $ | 6,589      |  |  | 163%     | 

The improvement in interest and other income in the second
quarter and year to date of fiscal year 2010 is primarily due to
recognition of the loss on investments, in the second quarter of fiscal year
2009, that had been carried in accumulated and other comprehensive
income.

|                                       |  | Three    |  |   | Three    |   |  |          |  |  |            |  |   |            |   |  |          | 
|-------------------------------------- |  | -------- |  | - | -------- | - |  | -------- |  |  | ---------- |  | - | ---------- | - |  | -------- | 
|                                       |  | Months   |  |   | Months   |   |  |          |  |  | Six Months |  |   | Six Months |   |  |          | 
|                                       |  | Ended    |  |   | Ended    |   |  |          |  |  | Ended      |  |   | Ended      |   |  |          | 
|                                       |  | July 31, |  |   | July 31, |   |  |          |  |  | July 31,   |  |   | July 31,   |   |  |          | 
|                                       |  | 2009     |  |   | 2008     |   |  | Variance |  |  | 2009       |  |   | 2008       |   |  | Variance | 
|Provision for(recovery of) incometaxes |  | -        |  | $ | (57,141  | ) |  | -        |  |  | -          |  | $ | (57,141    | ) |  | -        | 

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

Liquidity and Capital Resources

As of July 31, 2009, the Company had cash of $201,361,
compared to $327,857 at January 31, 2009. In the second quarter of fiscal
year 2010, the Company utilized cash of $128,413 in its operating
activities, compared to utilizing cash of $268,040 for the second quarter of
fiscal year 2009. The decrease in cash utilized from operations during the
second quarter of fiscal year 2010 was primarily due to the increase in accounts
payable and accrued liabilities from January 31, 2009. Depreciation continues to
be a large non-cash expense of the Company.

The Company's working capital increased slightly from the
year ended January 31, 2009 of $1,135,946 to $1,185,130 as at July 31, 2009,
while the working capital ratio of 1.81 to 1 as of July 31, 2009, declined
compared to 3.19 to 1 as of January 31, 2009.

Management expects the primary source of its future capital
needs to be a combination of company earnings, cash on hand and
borrowings.

As of July 31, 2009, the Company had accounts receivable of
$841,347 and inventory of $1,069,263, compared to $161,858 and
$1,003,623, respectively at January 31, 2009 and $951,381 and $2,000,941
respectively at July 31, 2008. The increase in accounts receivable is due to the very low amount of receivables as at January 31, 2009 that resulted from the plant shutdown in the fourth quarter of fiscal year 2009, while inventory remained consistent with the low level as at January 31, 2009 due to the
write off of expired work in progress inventory during the second quarter of fiscal year 2010.

5

---

At July 31, 2009, the Company had accounts payable of $684,724 compared to $150,965 at January 31, 2009 and $538,600 at July 31, 2008. The increase in accounts payable was also due to the
very low amount of payables as at January 31, 2009 that was also due to the plant shutdown in the fourth quarter of fiscal year 2009.

During the second quarter of fiscal year 2010, capital expenditures totaled $22,288, which were consistent with the capital expenditures of $22,881 in the second quarter of fiscal year 2009.
Since construction costs relating to the plant refurbishment were substantially completed during the first quarter of fiscal year 2009, capital expenditures are expected to remain at low levels during the remainder of fiscal year 2010.

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 second quarter and year to date of fiscal year 2009. This currency translation adjustment arises from the translation of Dextran Products' financial statements to U.S.
dollars.

Dextran Products slightly exceeded its Cdn. $250,000 (U.S. $216,900) operating line of credit limit at July 31, 2009, resulting in actual utilization of Cdn $ 254,000 (U.S. $235,731), compared to none
as at January 31, 2009. This line of credit bears interest at the Canadian banks' prime lending rate plus 1.00% (July 31, 2009 -3.25%; July 31, 2008 - 5.75%; January 31, 2009 - 4.00%) . 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. $433,801) 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.

The decrease in long-term debt and capital lease obligations from January 31, 2009 is due to repayments during the period.

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

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

6

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Related Party Transactions

In August 1997, the Company loaned the late Thomas C. Usher, its Vice-Chairman, Director of Research and Development, a member of its Board of Directors and the beneficial owner of greater than 5% of the outstanding
common shares of the Company, $691,500 at an interest rate equal to the prime rate of Toronto Dominion Bank plus 1.50% (the "Loan"). The Loan was used to partially fund a $1,000,000 payment to the State of Florida in order to allow Thomas C. Usher to regain possession of 430,000 Common Shares of the Company then held by the State as collateral security relating to the liquidation of insurance companies formerly owned by Thomas C. Usher. Repayment of the Loan is
accomplished by periodic payments and, in the past, bonus payments, if any, granted to Thomas C. Usher as an employee of the Company. The amount outstanding under the Loan as of July 31, 2009 was $306,845, as compared to $299,716 at January 31, 2009, including accrued interest. The Company has taken a cumulative provision of $330,619 against accrued interest on this loan at July 31, 2009 ($323,490 at January 31, 2009). Obligations with respect to the Loan
transferred to the estate of Thomas C. Usher upon his death in February 2005.

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

As of July 31, 2009, 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
$87,575 at July 31, 2009, based on the closing price of the Company's common shares on the OTC Bulletin Board on July 31, 2009. The Company intends to continue to hold the remaining pledged assets as collateral until the amounts owing
discussed above are repaid.

The Company had a commitment to pay an amount equal to one year's salary, $110,000, to Thomas C. Usher's estate. The amount owing on this commitment as at July 31, 2009 is $35,703.

The Company also has an outstanding loan payable to Ruth Usher, a former director and the widow of Thomas C. Usher.  The amount due from the Company pursuant to this loan decreased to $592,403 at
July 31, 2009 from $608,293 at January 31, 2009 due to monthly payments by the Company, less interest charges.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

7

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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
are set forth in Note 2 to the interim consolidated financial statements and include the use of estimates of allowance for doubtful accounts, the useful lives of assets and the realizability of deferred tax assets. The Company's
accounting policies with respect to the Sparhawk 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

Revenue results 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.

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, and
an impairment provision. Useful life is the period over which the asset is expected to contribute to the Company's future cash flows. A significant change in estimated useful lives could have a material impact on the results of operations. The
Company reviews the recoverability of its long-lived assets, including buildings, equipment and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be
recoverable. The assessment of possible impairment is based on the Company's ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to make estimates of these cash flows related
to long-lived assets as well as other fair value determinations.

8

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Deferred Tax Assets

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

Changes in Accounting Policies

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

9

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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 payables. 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 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 |  |  |         |  |  |         | 
|--------------------------- |  | ---------------------- |  |  | ------- |  |  | ------- | 
|                            |  |                        |  |  |         |  |  |         | 
|                            |  | 7/31/09                |  |  | 7/31/10 |  |  | 7/31/11 | 
|                            |  |                        |  |  |         |  |  |         | 
|Assets:                     |  |                        |  |  |         |  |  |         | 
|Short-terminvestments:      |  |                        |  |  |         |  |  |         | 
|Fixed rate
      ($Cdn)     |  | 412,719                |  |  |        |  |  |        | 
|Average
      interest rate |  | 2.84%                  |  |  |        |  |  |        | 
|Liabilities:                |  |                        |  |  |         |  |  |         | 
|Long-term debt:             |  |                        |  |  |         |  |  |         | 
|Fixed rate
      ($Cdn)     |  | 45,239                 |  |  | 46,843  |  |  | 50,447  | 
|Average
      interest rate |  | 9.10%                  |  |  | 9.16%   |  |  | 9.17%   | 

10

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Interest Rate Sensitivity

The Company has interest earning assets consisting of
investment grade short-term commercial paper and medium-term fixed income
instruments. A significant portion of the Company's debt is at fixed rates. The
variable rate debt represents the shareholder loan payable, which is partially
offset by the shareholder loan receivable. Both of these financial instruments
carry the same interest rate. As such, the Company has no significant
risk exposure to changes in interest rates.

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

|                            | Expected Maturity Date |         |  |  |         |  |  |        
|--------------------------- | ---------------------- | ------- |  |  | ------- |  |  | -------
|                            |                        |         |  |  |         |  |  |        
|                            |                        | 7/31/09 |  |  | 7/31/10 |  |  | 7/31/11
|                            |                        |         |  |  |         |  |  |        
|Assets:                     |                        |         |  |  |         |  |  |        
|Short-term investments:     |                        |         |  |  |         |  |  |        
|Fixed rate ($Cdn)           |                        | 412,719 |  |  |        |  |  |       
|Average interest
      rate |                        | 2.84%   |  |  |        |  |  |       
|Notes receivable:           |                        |         |  |  |         |  |  |        
|Variable rate
      ($US)   |                        | 21,425  |  |  | 22,443  |  |  | 23,509 
|Average interest
      rate |                        | 4.75%   |  |  | 4.75 %  |  |  | 4.75 % 
|Liabilities:                |                        |         |  |  |         |  |  |        
|Long-term debt:             |                        |         |  |  |         |  |  |        
|Fixed rate ($Cdn)           |                        | 45,329  |  |  | 46,843  |  |  | 50,447 
|Average
      interest rate |                        | 9.10%   |  |  | 9.16%   |  |  | 9.17%  
|**Variable rate** ($US)     |                        | 31,681  |  |  | 33,374  |  |  | 34,960 
|Average interest
      rate |                        | 4.75%   |  |  | 4.75%   |  |  | 4.75%  

11

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Item 4.

Controls and Procedures.

The Company completed an evaluation as of the end of the period covered by this report under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of its disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures cannot be relied upon to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and
reported as and when required to ensure that information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. Therefore disclosure controls and procedures were not effective for the
3 months and year to date ended July 31, 2009.

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

12

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PART IIOTHER 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.

At the July 10, 2009 Annual General Meeting of the Members
      of the Company, the vote of the Members entitled to
      notice of, and to vote at, the 2009 Annual General
      Meeting was as follows:

Election
            of Board MembersVotes CastFor
            Against
            AbstainGeorge G. Usher
            2,138,759
            156,277
            777,810Ratification of Appointment of Schwartz Levitsky Feldman LLPas Independent Registered Accounting FirmVotes CastFor
            Against
            Abstain2,180,328
            37,801
            777,809


Item 5.

Other Information

Not
      applicable.

13

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Item 6.

Exhibits and Reports on Form 8-K.

|(a) | Exhibits
|--- | --------
|    |         
|    | 31.1    
|    |         
|    | 31.2    
|    |         
|    | 32.1    
|    |         
|    | 32.2    

14

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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: September 14, 2009

POLYDEX PHARMACEUTICALS LIMITED
(Registrant) 
By /s/ George G. Usher
George G. Usher, Chairman, President and 
Chief Executive Officer 
(Principal Executive Officer)

By /s/ John A. Luce 
John A. Luce, Chief Financial Officer
(Principal Financial Officer)



15

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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

16

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