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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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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 October 31, 2001

or

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

For the transition period from  to

Commission File Number 1-8366

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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

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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
the number of shares outstanding of each of the issuer's classes of common shares, as of the latest practicable date.

Common Shares, $.0167 Par Value

3,047,368 shares(Title of Class)

(Outstanding at December 11, 2001)


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POLYDEX PHARMACEUTICALS LIMITED
TABLE OF CONTENTS

|        |  |                                                                                                                                |  | Page
|------- |  | ------------------------------------------------------------------------------------------------------------------------------ |  | ----
|PART I  |  | FINANCIAL INFORMATION                                                                                                          |  |     
|Item 1  |  | CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets
October 31, 2001 and January 31, 2001                |  | 3   
|        |  | Consolidated Statements of Operations
Three months ended October 31, 2001 and 2000
Nine months ended October 31, 2001 and 2000 |  | 5   
|        |  | Consolidated Statements of Shareholders' Equity
and Comprehensive Income
Nine months ended October 31, 2001 and 2000           |  | 6   
|        |  | Consolidated Statements of Cash Flows
Nine months ended October 31, 2001 and 2000                                              |  | 7   
|        |  | Segmented Information
Three months ended October 31, 2001 and 2000
Nine months ended October 31, 2001 and 2000                 |  | 8   
|        |  | Notes to Consolidated Financial Statements (Unaudited)                                                                         |  | 9   
|Item 2  |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                          |  | 10  
|Item 3  |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK                                                                     |  | 14  
|PART II |  | OTHER INFORMATION                                                                                                              |  |     
|Item 6  |  | EXHIBITS AND REPORTS ON FORM 8-K                                                                                               |  | 16  
|        |  | Signatures                                                                                                                     |  | 17  

2

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PART I  FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (unaudited).

POLYDEX PHARMACEUTICALS LIMITED

Consolidated Balance Sheets
(Expressed in United States dollars)

|                                     |                                           | (Unaudited)
October 31,
2001 |            | January 31,
2001
|------------------------------------ | ----------------------------------------- | ---------------------------- | ---------- | ----------------
|Assets                               |                                           |                              |            |                 
|Current assets:                      |                                           |                              |            |                 
|                                     | Cash                                      |                              | $          | 327,233         
|                                     | Trade accounts receivable                 |                              |            | 1,123,143       
|                                     | Inventories:                              |                              |            |                 
|                                     |                                           | Finished goods               |            |                 
|                                     |                                           | Work in process              |            |                 
|                                     |                                           | Raw materials                |            |                 
|                                     |                                           |                              |            |                 
|                                     | Inventories                               |                              |            | 2,433,951       
|                                     | Prepaid expenses and other current assets |                              |            | 48,987          
|                                     |                                           |                              |            |                 
|                                     |                                           |                              | 3,933,314  |                 
|Property, plant and equipment, net   |                                           |                              | 4,667,755  |                 
|Patents, net                         |                                           |                              | 114,791    |                 
|Due from Sparhawk Laboratories, Inc. |                                           |                              | 131,640    |                 
|Due from shareholder                 |                                           |                              | 1,159,876  |                 
|Deferred income taxes                |                                           |                              | 648,876    |                 
|Other assets                         |                                           |                              | 18,449     |                 
|                                     |                                           |                              |            |                 
|                                     |                                           | $                            | 10,674,701 |                 
|                                     |                                           |                              |            |                 

3

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|                                     |                                              | (Unaudited)
October 31,
2001 |                                                                                                                                                                                 | January 31,
2001 |  
|------------------------------------ | -------------------------------------------- | ---------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | -
|Liabilities and Shareholders' Equity |                                              |                              |                                                                                                                                                                                 |                  |  
|Current liabilities:                 |                                              |                              |                                                                                                                                                                                 |                  |  
|                                     | Bank indebtedness                            |                              | $                                                                                                                                                                               | 154,231          |  
|                                     | Accounts payable                             |                              |                                                                                                                                                                                 | 1,148,025        |  
|                                     | Accrued liabilities                          |                              |                                                                                                                                                                                 | 627,818          |  
|                                     | Customer deposits received                   |                              |                                                                                                                                                                                 | 45,368           |  
|                                     | Income taxes payable                         |                              |                                                                                                                                                                                 | 68,056           |  
|                                     | Current portion of long-term debt            |                              |                                                                                                                                                                                 | 264,185          |  
|                                     | Current portion of capital lease obligations |                              |                                                                                                                                                                                 | 72,749           |  
|                                     |                                              |                              |                                                                                                                                                                                 |                  |  
|                                     |                                              |                              | 2,380,432                                                                                                                                                                       |                  |  
|Long-term debt                       |                                              |                              | 724,839                                                                                                                                                                         |                  |  
|Capital lease obligations            |                                              |                              | 384,175                                                                                                                                                                         |                  |  
|Due to shareholder                   |                                              |                              | 687,837                                                                                                                                                                         |                  |  
|                                     |                                              |                              |                                                                                                                                                                                 |                  |  
|Total liabilities                    |                                              |                              | 4,177,283                                                                                                                                                                       |                  |  
|Shareholders' equity:                |                                              |                              |                                                                                                                                                                                 |                  |  
|                                     | Capital stock                                |                              |                                                                                                                                                                                 |                  |  
|                                     |                                              | Authorized:                  |                                                                                                                                                                                 |                  |  
|                                     |                                              |                              | 100,000 Class A preferred shares, par value $0.10 per share
899,400 Class B preferred shares, par value $0.0167 per share
10,000,000 common shares, par value $0.0167 per share |                  |  
|                                     |                                              | Issued and outstanding:      |                                                                                                                                                                                 |                  |  
|                                     |                                              |                              | 899,400 Class B preferred shares                                                                                                                                                |                  |  
|                                     |                                              |                              | 3,047,603 common shares (20013,027,477)                                                                                                                                        |                  |  
|                                     | Contributed surplus                          |                              |                                                                                                                                                                                 | 23,224,128       |  
|                                     | Deficit                                      |                              |                                                                                                                                                                                 | (15,611,998      | )
|                                     | Accumulated other comprehensive income       |                              |                                                                                                                                                                                 | (1,180,156       | )
|                                     |                                              |                              |                                                                                                                                                                                 |                  |  
|                                     |                                              |                              | 6,497,418                                                                                                                                                                       |                  |  
|                                     |                                              |                              |                                                                                                                                                                                 |                  |  
|                                     |                                              | $                            | 10,674,701                                                                                                                                                                      |                  | $
|                                     |                                              |                              |                                                                                                                                                                                 |                  |  

4

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POLYDEX PHARMACEUTICALS LIMITED

Consolidated Statements of Operations (Unaudited)
(Expressed in United States dollars)

|                                                                    |                                                  | Actual
Quarter Ended
October 31, 2001 |           | Actual
Quarter Ended
October 31, 2000 |      | Actual
Year to Date
October 31, 2001 |         | Actual
Year to Date
October 31, 2000 |          
|------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------- | --------- | ------------------------------------- | ---- | ------------------------------------ | ------- | ------------------------------------ | ---------
|Sales                                                               |                                                  | $                                     | 3,126,682 |                                       | $    | 4,053,774                            |         | $                                    | 9,072,062
|Cost of products sold                                               |                                                  |                                       | 2,317,241 |                                       |      | 3,027,483                            |         |                                      | 6,964,689
|                                                                    |                                                  |                                       |           |                                       |      |                                      |         |                                      |          
|                                                                    |                                                  |                                       | 809,441   |                                       |      | 1,026,291                            |         |                                      | 2,107,373
|Other Revenue                                                       |                                                  |                                       |          |                                       |      | 182,400                              |         |                                      |         
|Expenses:                                                           |                                                  |                                       |           |                                       |      |                                      |         |                                      |          
|                                                                    | General and administrative                       |                                       |           | 447,618                               |      |                                      | 408,630 |                                      |          
|                                                                    | Depreciation                                     |                                       |           | 134,542                               |      |                                      | 149,494 |                                      |          
|                                                                    | Research and development                         |                                       |           | 87,442                                |      |                                      | 348,635 |                                      |          
|                                                                    | Interest expense                                 |                                       |           | 50,778                                |      |                                      | 73,915  |                                      |          
|                                                                    | Selling and promotion                            |                                       |           | 40,568                                |      |                                      | 40,447  |                                      |          
|                                                                    | Amortization                                     |                                       |           | 5,546                                 |      |                                      | 5,546   |                                      |          
|                                                                    |                                                  |                                       |           |                                       |      |                                      |         |                                      |          
|                                                                    |                                                  |                                       | 766,494   |                                       |      | 1,026,667                            |         |                                      | 2,243,065
|                                                                    |                                                  |                                       |           |                                       |      |                                      |         |                                      |          
|Income (loss) from operations                                       |                                                  |                                       | 42,947    |                                       |      | 182,024                              |         |                                      | (135,692 
|Other income (loss):                                                |                                                  |                                       |           |                                       |      |                                      |         |                                      |          
|                                                                    | Gain (loss) on sale of equipment                 |                                       |           | 187                                   |      |                                      |        |                                      |          
|                                                                    | Interest and other                               |                                       |           | 67,299                                |      |                                      | 5,004   |                                      |          
|                                                                    |                                                  |                                       |           |                                       |      |                                      |         |                                      |          
|                                                                    |                                                  |                                       | 67,486    |                                       |      | 5,004                                |         |                                      | 117,657  
|                                                                    |                                                  |                                       |           |                                       |      |                                      |         |                                      |          
|Income (loss) before the undernoted                                 |                                                  |                                       | 110,433   |                                       |      | 187,028                              |         |                                      | (18,035  
|Provision for income taxes                                          |                                                  |                                       | 110,384   |                                       |      | 124,727                              |         |                                      | 196,315  
|                                                                    |                                                  |                                       |           |                                       |      |                                      |         |                                      |          
|Net income (loss) for the period                                    |                                                  | $                                     | 49        |                                       | $    | 62,301                               |         | $                                    | (214,350 
|                                                                    |                                                  |                                       |           |                                       |      |                                      |         |                                      |          
|Per share information:                                              |                                                  |                                       |           |                                       |      |                                      |         |                                      |          
|                                                                    | Earnings (loss) per common share for the period: |                                       |           |                                       |      |                                      |         |                                      |          
|                                                                    |                                                  | Basic                                 |           | $                                     | 0.00 |                                      | $       | 0.02                                 |          
|                                                                    |                                                  | Diluted                               |           | $                                     | 0.00 |                                      | $       | 0.02                                 |          
|                                                                    |                                                  |                                       |           |                                       |      |                                      |         |                                      |          
|Weighted average number of common shares outstanding for the period |                                                  |                                       | 3,037,540 |                                       |      | 3,030,717                            |         |                                      | 3,032,509
|                                                                    |                                                  |                                       |           |                                       |      |                                      |         |                                      |          

5

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POLYDEX PHARMACEUTICALS LIMITED

Consolidated Statements of Shareholders' Equity and Comprehensive Income (Unaudited)
(Expressed in United States dollars)

|                                        |                                                | Year to Date
October 31,
2001 |          | Year to Date
October 31,
2000 |  
|--------------------------------------- | ---------------------------------------------- | ----------------------------- | -------- | ----------------------------- | -
|Preferred Shares:                       |                                                |                               |          |                               |  
|                                        | Balance, beginning of period                   |                               | $        | 15,010                        |  
|                                        | Private placement of preferred shares          |                               |          |                              |  
|                                        |                                                |                               |          |                               |  
|                                        | Balance, end of period                         |                               | $        | 15,010                        |  
|                                        |                                                |                               |          |                               |  
|Common Shares:                          |                                                |                               |          |                               |  
|                                        | Balance, beginning of period                   |                               | $        | 50,434                        |  
|                                        | Common share options exercised                 |                               |          |                              |  
|                                        |                                                |                               |          |                               |  
|Balance, end of period                  |                                                | $                             | 50,434   |                               | $
|                                        |                                                |                               |          |                               |  
|Contributed Surplus:                    |                                                |                               |          |                               |  
|                                        | Balance, beginning of period                   |                               | $        | 23,221,104                    |  
|                                        | Common share options exercised                 |                               |          |                              |  
|                                        | Common share options granted                   |                               |          | 3,024                         |  
|                                        |                                                |                               |          |                               |  
|                                        | Balance, end of period                         |                               | $        | 23,224,128                    |  
|                                        |                                                |                               |          |                               |  
|Deficit:                                |                                                |                               |          |                               |  
|                                        | Balance, beginning of period                   |                               | $        | (15,397,648                   | )
|                                        | Net loss for the period                        |                               |          | (214,350                      | )
|                                        |                                                |                               |          |                               |  
|                                        | Balance, end of period                         |                               | $        | (15,611,998                   | )
|                                        |                                                |                               |          |                               |  
|Accumulated Other Comprehensive Income: |                                                |                               |          |                               |  
|                                        | Balance, beginning of period                   |                               | $        | (895,265                      | )
|                                        | Currency translation adjustment for the period |                               |          | (284,891                      | )
|                                        |                                                |                               |          |                               |  
|                                        | Balance, end of period                         |                               | $        | (1,180,156                    | )
|                                        |                                                |                               |          |                               |  
|Comprehensive Income for the period:    |                                                |                               |          |                               |  
|                                        | Net loss for the period                        |                               | $        | (214,350                      | )
|                                        | Currency translation adjustment for the period |                               |          | (284,891                      | )
|                                        |                                                |                               |          |                               |  
|                                        |                                                | $                             | (499,241 | )                             | $
|                                        |                                                |                               |          |                               |  

6

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POLYDEX PHARMACEUTICALS LIMITED

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

|                            |                                                        | October 31, 2001                                 |          | October 31, 2000 |        
|--------------------------- | ------------------------------------------------------ | ------------------------------------------------ | -------- | ---------------- | -------
|Cash provided by (used in): |                                                        |                                                  |          |                  |        
|Operating activities:       |                                                        |                                                  |          |                  |        
|                            | Net loss for the period                                |                                                  | $        | (214,350         | )      
|                            | Add (deduct) items not affecting cash:                 |                                                  |          |                  |        
|                            |                                                        | Depreciation and amortization                    |          |                  | 411,392
|                            |                                                        | Imputed interest on long-term debt               |          |                  | 44,847 
|                            |                                                        | Deferred income taxes                            |          |                  | 108,374
|                            |                                                        | Loss on sale of equipment                        |          |                  | 27,444 
|                            |                                                        | Options issued in exchange for services provided |          |                  | 3,024  
|                            | Change in non-cash operating working capital           |                                                  |          | (7,681           | )      
|                            |                                                        |                                                  |          |                  |        
|                            |                                                        |                                                  | 373,050  |                  |        
|                            |                                                        |                                                  |          |                  |        
|Investing activities:       |                                                        |                                                  |          |                  |        
|                            | Additions to property, plant and equipment and patents |                                                  |          | (306,882         | )      
|                            | Repayment of due from shareholder, net                 |                                                  |          | 91,324           |        
|                            | Repayment from Sparhawk Laboratories, Inc.             |                                                  |          | 6,607            |        
|                            | Proceeds from sale of equipment                        |                                                  |          | 110,000          |        
|                            |                                                        |                                                  |          |                  |        
|                            |                                                        |                                                  | (98,951  | )                |        
|                            |                                                        |                                                  |          |                  |        
|Financing activities:       |                                                        |                                                  |          |                  |        
|                            | Proceeds from long-term debt                           |                                                  |          |                 |        
|                            | Repayment of long-term debt                            |                                                  |          | (286,990         | )      
|                            | Repayment of capital lease obligations                 |                                                  |          | (109,261         | )      
|                            | Increase (decrease) in due to shareholder              |                                                  |          | (34,385          | )      
|                            | Increase in bank indebtedness                          |                                                  |          | 154,231          |        
|                            | Exercise of common share options                       |                                                  |          |                 |        
|                            |                                                        |                                                  |          |                  |        
|                            |                                                        |                                                  | (276,405 | )                |        
|                            | Effect of exchange rate changes on cash                |                                                  |          | (73,663          | )      
|                            |                                                        |                                                  |          |                  |        
|Decrease in cash position   |                                                        |                                                  | (75,970  | )                |        
|Cash, beginning of period   |                                                        |                                                  | 403,203  |                  |        
|                            |                                                        |                                                  |          |                  |        
|Cash, end of period         |                                                        | $                                                | 327,233  |                  | $      
|                            |                                                        |                                                  |          |                  |        

7

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POLYDEX PHARMACEUTICALS LIMITED

Segmented Information (Unaudited)
(Expressed in United States dollars)

All operations are carried out through Dextran Products Limited ("Dextran") in Canada and through Chemdex, Inc. ("Chemdex") in the United States. The
operations of Chemdex represent the veterinary products business and the operations are carried out through its wholly-owned subsidiary, Veterinary Laboratories, Inc. Each of Dextran and Chemdex
operates as a strategic business unit offering different products. Each subsidiary comprises a reportable segment as follows:

| |  | Dextran             |  | manufactures and sells bulk quantities of Dextran and several of its derivatives to large pharmaceutical companies throughout the world.                                                                                
| |  | -------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Veterinary products |  | manufactures and sells veterinary pharmaceutical products and specialty chemicals in the United States. The primary customers are distributors and private labelers, who in turn sell to the end-user of these
products.

|                               |                                                  | Quarter Ended
October 31,
2001 |   | Quarter Ended
October 31,
2000 |  | Year to Date
October 31,
2001 |           | Year to Date
October 31,
2000
|------------------------------ | ------------------------------------------------ | ------------------------------ | - | ------------------------------ |  | ----------------------------- | --------- | -----------------------------
|Sales:                         |                                                  |                                |   |                                |  |                               |           |                              
|                               | Dextran                                          |                                | $ | 1,142,717                      |  | $                             | 1,295,709 |                              
|                               | Veterinary products                              |                                |   | 2,021,178                      |  |                               | 2,886,175 |                              
|                               |                                                  |                                |   |                                |  |                               |           |                              
|                               | Total segment sales                              |                                |   | 3,163,895                      |  |                               | 4,181,884 |                              
|                               | Less: intercompany sales elimination             |                                |   | 37,213                         |  |                               | 128,110   |                              
|                               |                                                  |                                |   |                                |  |                               |           |                              
|                               | Total consolidated sales                         |                                | $ | 3,126,682                      |  | $                             | 4,053,774 |                              
|                               |                                                  |                                |   |                                |  |                               |           |                              
|Income (loss) from operations: |                                                  |                                |   |                                |  |                               |           |                              
|                               | Dextran                                          |                                | $ | 211,260                        |  | $                             | 118,097   |                              
|                               | Veterinary products                              |                                |   | 3,045                          |  |                               | 357,310   |                              
|                               |                                                  |                                |   |                                |  |                               |           |                              
|                               | Total income from operations from segments       |                                |   | 214,305                        |  |                               | 475,407   |                              
|                               | Less: Unallocated corporate expenses             |                                |   | 171,358                        |  |                               | 293,383   |                              
|                               |                                                  |                                |   |                                |  |                               |           |                              
|                               | Total consolidated income (loss) from operations |                                | $ | 42,947                         |  | $                             | 182,024   |                              
|                               |                                                  |                                |   |                                |  |                               |           |                              
|Assets:                        |                                                  |                                |   |                                |  |                               |           |                              
|                               | Dextran                                          |                                |   |                                |  |                               |           |                              
|                               | Veterinary products                              |                                |   |                                |  |                               |           |                              
|                               |                                                  |                                |   |                                |  |                               |           |                              
|                               | Total assets from segments                       |                                |   |                                |  |                               |           |                              
|                               | Corporate assets                                 |                                |   |                                |  |                               |           |                              
|                               |                                                  |                                |   |                                |  |                               |           |                              
|                               | Total consolidated assets                        |                                |   |                                |  |                               |           |                              
|                               |                                                  |                                |   |                                |  |                               |           |                              

8

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1.  Basis of Presentation:

The information contained in the interim consolidated financial statements is condensed from that which would appear in the annual consolidated financial
statements. Accordingly, the interim consolidated financial statements included herein should be read in conjunction with the January 31, 2001 Annual Report on Form 10-K
filed by Polydex Pharmaceuticals Limited (the "Company"). The unaudited interim consolidated financial statements as of October 31, 2001 and 2000 include all normal recurring adjustments which
management considers necessary for a fair presentation. The results of operations for the interim periods 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 more than a 50% ownership interest and
exercises control.

9

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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 therefore fiscal year 2002 refers to the Company's year ended January 31, 2002. The following
discussion should be read in conjunction with the financial statements and notes thereto included elsewhere in this report.

(a) Results of Operations

The operations of the Company are carried on through Dextran Products Limited ("Dextran Products") in Canada and through Chemdex, Inc. ("Chemdex") in
the United States. The operations of Chemdex are carried on through its wholly-owned subsidiary, Veterinary Laboratories, Inc. ("Vet Labs"). Each of Dextran Products and Vet Labs operates as a
strategic business unit. Dextran Products manufactures and sells bulk quantities of Dextran and several of its derivatives to large pharmaceutical companies throughout the world. Vet Labs manufactures
and sells veterinary pharmaceutical products and specialty chemicals in the United States. The primary customers are distributors and private labelers, who in turn sell to the end-user of
these products.

Net
income for the third quarter ended October 31, 2001 amounted to $49 or $0 per share as compared to net income of $62,301 or $0.02 per share for the third quarter ended
October 31, 2000. This decline in results is attributable to the decline in sales and operating profits at Vet Labs during the quarter. Last year Vet Labs had a strong third quarter, but the
slowing United States economy and the surplus of beef resulted in significantly decreased sales in the third quarter of this year.

During
the third quarter ended October 31, 2001, the Registrant's income from operations amounted to $42,947 or $0.01 per share, as compared to income from operations of
$182,024 or $0.06 per share for the third quarter of fiscal 2001, ending October 31, 2000. This decline in results is primarily due to a decrease in operating profits at Vet Labs of $354,265
offset by an increase in operating profits at Dextran Products of $93,163 and a reduction of corporate expenses of $122,025. The increase in operating profits at Dextran Products is primarily
attributable to the increase in margins and the decreased research and development expenses as compared to the same quarter last year. The decrease in operating profits at Vet Labs is primarily
attributable to a large decrease in sales and margins during the quarter as compared to the same quarter last year.

Sales
volume for the third quarter of fiscal 2002 decreased from $4,053,774 to $3,126,682, representing a decrease of $927,092 or 23%. Vet Labs experienced a quarter over quarter
decrease in sales of $864,997 or 30% due to significantly decreased sales in the injectable product line. Injectable Iron Dextran and the vitamin products have experienced the largest declines in the
injectable product line. Injectable Iron Dextran sales are down due to customer overstocking at the distribution level and the market penetration of a competing 200mg Iron Injection product into the
Vet Labs historic 100mg markets. Sales of all injectable products, including the vitamin products, are down due to reduced demand for beef and the reduction in cattle prices. The slowdown in the
United States economy has resulted in reduced business and pleasure travel and reduced restaurant spending, particularly at the high end. This has resulted in a surplus of beef. Farmers have reacted
by reducing cattle herds, which reduces the demand for injectable products.

Sales
at Dextran Products decreased by $152,992 or 12% as compared to the same quarter in fiscal 2001. This decrease in sales at Dextran Products is primarily due to a longer than
normal summer maintenance shutdown in the third quarter of fiscal 2002. In fiscal 2002, the summer maintenance shutdown was almost three weeks long, as opposed to the typical two-week
period, to allow for additional equipment maintenance and repairs. Maintenance and repairs were successfully completed. In fiscal 2001, the summer maintenance shutdown was only one week long because
certain maintenance was performed in the fourth quarter of fiscal 2000 during the plant shutdown for equipment installation.

10

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Gross margins increased from 25% in the third quarter of fiscal 2001 to 26% in the third quarter of fiscal 2002. Dextran Products' quarter over quarter gross margin increased from 31%
in the third quarter of fiscal 2001 to 46% during the third quarter of fiscal 2002. Vet Labs' gross margin decreased from 22% in the third quarter of fiscal 2001 to 13% in the third quarter of fiscal
2002. The margin
increase at Dextran Products is primarily a result of the significant decrease in the value of the Canadian dollar relative to the United States dollar. Dextran Products' sales are primarily
denominated in United States dollars while the majority of the cost of sales is incurred in Canadian dollars. The margin decrease at Vet Labs is a result of the decreased sales in the injectables
product line. This is the higher margin product line. The lower than normal sales resulted in higher average costs for fixed manufacturing overheads, as the fixed costs did not change.

Management
expects sales and margins to continue at approximately current levels at Dextran Products. Management expects sales levels in the fourth quarter of fiscal 2002 at Vet Labs
to be below the sales levels in the fourth quarter of fiscal 2001 because of the continuing decline in the United States economy. The events of September 11 have resulted in further reducing
travel which impacts restaurant spending. The full effects of this decline in travel will likely be felt in the fourth quarter of fiscal 2002 and the first quarter of fiscal 2003. Management expects
to see a turnaround commencing in the second quarter of fiscal 2003 when the general economic conditions in the United States are expected to begin improving.

General
and administrative expenses in the third quarter of fiscal 2002 increased by $38,988 or 10% from the third quarter of fiscal 2001 due primarily to increases in professional
fees at Vet Labs. Year to date general and administrative expenses, in fiscal 2002, are relatively consistent with the level of expenses incurred in the same period in fiscal 2001. Depreciation and
amortization in the third quarter of fiscal 2002 decreased by $14,952 or 10% from the third quarter of fiscal 2001 due primarily to the reduced capital expenditures and certain equipment becoming
fully depreciated. Selling and promotion expenses in the third quarter of fiscal 2002 were consistent with the same period in the prior year.

Due
to sustained funding by research and development partners, research and development costs in the third quarter of fiscal 2002 decreased by $294,905 or 85% as compared to the third
quarter of fiscal 2001. Although funding from all sources for these research and development projects will continue, the Company's portion of these costs will not need to be increased for the
remainder of the year.

Research
and development, in conjunction with the Consortium for Industrial Collaboration in Contraceptive Research (CICCR) and the Rush Medical Center in Chicago, relating to
Cellulose Sulfate gel is progressing. Pre-IND tests have indicated that this gel holds great promise as a topical prophylactic for sexually transmitted diseases, including AIDS, and as a
contraceptive. Two Phase I human clinical trials to test the safety and tolerance of this gel were successfully completed. These trials were funded by CICCR. The project team is moving ahead to put
the supply chain in place for long-term toxicology and further clinical trials. Management expects funding to continue from CICCR for this project.

The
Company licensed the cystic fibrosis product, Usherdex, to BCY Lifesciences of Vancouver, British Columbia. Under this license agreement, BCY Lifesciences will provide funding for
research and development and will pay a royalty to the Company based on sales and sublicensing revenue in return for the exclusive right to sublicense, manufacture, distribute and sell the product or
products developed. BCY Lifesciences filed an Investigative New Drug application in Canada to seek approval to conduct a Phase I clinical trial, during the second quarter of fiscal 2002. BCY
Lifesciences is completing
preparations for the Phase I clinical trial. In anticipation of successful Phase I human clinical testing, BCY Lifesciences is already planning to commence Phase II clinical trials in the first half
of fiscal 2003.

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Interest expense in the third quarter of fiscal 2002 decreased by $23,137 or 31% as compared to the third quarter in fiscal 2001 due to the repayment of long-term debt and
capital lease obligations. In addition, interest expense, during the third quarter of fiscal 2002, includes imputed interest on both the share value guarantee payable, resulting from the acquisition
of Vet Labs in 1992, and the lawsuit settlement payable, totaling $13,457.

Interest
and other income in the third quarter of fiscal 2002 increased by $62,295 or 1,245% as compared to the third quarter of fiscal 2001 due to the foreign exchange gain realized
by Dextran Products.

The
Foot and Mouth disease problem in Europe appears to be of little impact to the Company. Dextran Products continues to be in contact with its agents overseas and to date the
problem does not seem to have had a noticeable impact. Feedback from Asia, Europe and the United States shows limited effect to date. The impact of the Foot and Mouth disease problem has also had
minimal impact on Vet Labs. Additionally, the mad cow disease problem in Europe has had minimal impact on the Company.

The
raw material supplier of Pentobarbital used in euthanasia product, for Vet Labs, appears to have resolved their regulatory problems with their production. Vet Labs began to
receive shipments of Pentobarbital during the quarter allowing for production of euthanasia product. Management expects future sales of these products to return to normal historic levels. Sales of
euthanasia products in the third quarter of fiscal 2002 amounted to $56,960, as compared to no sales in the third quarter of fiscal 2001.

Operating
results for the third quarter ended October 31, 2001 are not necessarily indicative of the results that may be expected for the year ended January 31, 2002.
For further information, refer to the consolidated statements and footnotes thereto included in the Registrant's annual report on Form 10-K for the year ended January 31,
2001.

(b) Liquidity and Capital Resources

The Registrant, in the third quarter of fiscal 2002, generated cash flow from operations of $411,416 compared to cash flow from operations of $19,039 in the
third quarter of fiscal 2001. This increase of $392,377 or 2,061% is primarily attributable to the decrease in non-cash working capital during the quarter. The decrease in
non-cash working capital levels, during the third quarter of 2002, resulted from decreases in trade accounts receivable.

At
October 31, 2001, the Company had trade accounts receivable of $1,123,143 and $2,433,951 in inventory compared to $1,406,074 and $2,340,395, respectively, at July 31,
2001. The decrease in trade accounts receivable during the third quarter of fiscal 2002 was due to timing of sales and collections at quarter-end. The inventory levels were increased at
Dextran Products during the third quarter of fiscal 2002 in anticipation of sales volume in the fourth quarter. Inventory levels at Vet Labs were decreased due to the lower sales volumes experienced
in fiscal 2002.

There
were no significant changes in financing or investing activities and there were no significant capital expenditures during the third quarter of 2002.

The
reduction in the accumulated other comprehensive income, of $189,553 during the third quarter of fiscal 2002, is entirely attributable to the currency translation adjustment of
Dextran Products. Dextran Products' functional currency is the Canadian dollar. This currency translation adjustment arises from the translation of Dextran Products' financial statements to U.S.
dollars.

Dextran
Products has a CDN$750,000 (US$500,000) line of credit, of which $81,931 was utilized at October 31, 2001. Management anticipates using the credit line for the purposes
of funding a portion of the costs associated with the refurbishment of the Toronto facility. The Vet LabsSparhawk Joint

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Venture has a $75,000 line of credit to fund operations, of which $72,300 was utilized at October 31, 2001. Vet Labs has a loan commitment for $400,000 to be used for building construction.
Management is not planning any construction at Vet Labs during fiscal 2002, and therefore does not expect to borrow any funds under this loan commitment during fiscal 2002.

Management
expects the primary source of its future capital needs to be a combination of company earnings and borrowings. The Company, at present, does not have any material
commitments for capital expenditures, although management intends to continue the plant refurbishment at Dextran Products.

No
changes in accounting principles or their application have been implemented in the reporting period that would have a material effect on reported income. Changes in the relative
values of the
Canadian dollar and the U.S. 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 and changing prices on its operations are material.

Long-term Objectives

At the beginning of the year, two critical long-term objectives were identified.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q, including the Management's Discussion and Analysis of Financial Condition and Results of Operations, contains various
"forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which
represent the Company's expectations or beliefs concerning future events, including, but not limited to statements regarding management's expectations of regulatory approval and the commencement of
sales. In addition, statements containing expressions such as "believes", "anticipates", "plans" or "expects" used in this Form 10-Q, the Company's Annual Report, and the Company's
periodic reports on Forms 10-K and 10-Q previously filed with the Securities and Exchange Commission are intended to identify forward-looking statements. The Company cautions
that these and similar statements in this Form 10-Q, the Company's Annual Report, and in previously filed periodic reports including reports filed on Forms 10-K and
10-Q are further qualified by important factors that could cause actual results to differ materially from those in 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, FDA approval and market acceptance of the Company's products, none of which can be assured.

The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with 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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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Polydex Pharmaceuticals Limited
October 31, 2001
Interest Rate Sensitivity

The
table below provides 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 Company does not have a material exposure to interest rate risk.

The
table presents principal cash flows and related weighted average interest rates by expected maturity dates.

|                      |  | Expected Maturity Date
|--------------------- |  | ----------------------
|
|
|Assets:               |  |                       
|Notes receivable:     |  |                       
|Variable rate ($US)   |  | 46,017                
|Average interest rate |  | 7.00                  
|Liabilities:          |  |                       
|Long-term debt:       |  |                       
|Fixed rate ($US)      |  | 49,817                
|Average interest rate |  | 9.31                  
|Fixed rate ($CDN)     |  | 183,768               
|Average interest rate |  | 9.03                  
|Variable rate ($US)   |  | 28,829                
|Average interest rate |  | 7.00                  

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Polydex Pharmaceuticals Limited
October 31, 2001
Exchange Rate Sensitivity

The table below provides information about the Company's financial instruments that are sensitive to changes in foreign currency exchange rates. All financial
instruments are held for other than trading purposes. The Company's major exposure to exchange rate risk is that the Canadian dollar rises dramatically in relation to the U.S. dollar and that this
significantly reduces the gross margin experienced at Dextran Products. Management monitors the margin at Dextran to ensure that an acceptable margin level is maintained. Management has the ability,
to some extent, to adjust sales prices to maintain an acceptable margin level.

The
table presents principal cash flows and related weighted average interest rates by expected maturity dates.

|                      |  | Expected Maturity Date
|--------------------- |  | ----------------------
|
|
|Liabilities:          |  |                       
|Long-term debt:       |  |                       
|Fixed rate ($CDN)     |  | 183,768               
|Average interest rate |  | 9.03                  

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PART II  OTHER INFORMATION

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





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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 14, 2001

| |  | POLYDEX PHARMACEUTICALS LIMITED
(Registrant)
| |  | --------------------------------------------
| |  | By:                                         
| |  | By:                                         

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