**Table
          of Contents**





**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 October 31, 2006





o
            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
o





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





Large
      Accelerated Filer o Accelerated
      Filer o Non-Accelerated
      Filer x





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





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
            
            3,061,896
                shares(Title
                of Class)
            
            (Outstanding
                at December 14, 2006)







**Table
        of Contents**




**POLYDEX
      PHARMACEUTICALS LIMITED**





**TABLE
      OF CONTENTS**





**PART
                I FINANCIAL
                INFORMATION**Item
                1
            CONSOLIDATED
                FINANCIAL STATEMENTS(UNAUDITED)Consolidated
                Balance Sheets October 31, 2006 and
                January 31, 2006
            F-1Consolidated
                Statements of Operations and Comprehensive Income
                (Loss) Three months and Nine months ended October 31, 2006 and
                2005
            F-3Consolidated
                Statements of Shareholders’ Equity Nine months
                ended October 31, 2006 and 2005
            F-4Consolidated
                Statements of Cash Flows Nine months ended October
                31, 2006 and 2005
            F-5Notes
                to Consolidated Financial Statements
                (Unaudited)
            F-6Item
                2
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                AND RESULTS OF OPERATIONS
            4Item
                3
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK
            16Item
                4
            CONTROLS
                AND PROCEDURES
            18**PART
                II OTHER
                INFORMATION**Item
                1
            LEGAL
                PROCEEDINGS
            19Item
                1A
            RISK
                FACTORS
            19Item
                2
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS
            19Item
                3
            DEFAULTS
                UPON SENIOR SECURITIES
            19Item
                4
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY
                HOLDERS
            20Item
                5
            OTHER
                INFORMATION
            20Item
                6
            EXHIBITS
            21Signatures
                and Certifications
            22-23


-2-
 **Table
          of Contents**


**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 Company’s expectations or beliefs 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.


-3-
 **Table
            of Contents**




**PART
      I**


**FINANCIAL
      INFORMATION**





**Item
              1.**
            **Consolidated
                Financial Statements
                (unaudited).**




**POLYDEX
                  PHARMACEUTICALS LIMITED****SUBSIDIARIES**Consolidated
                  Balance Sheets(Expressed
                  in United States dollars)**October
                  31**
              
              **January
                  31****2006**
              
              **2006**(Unaudited)
              
              (Audited)**Assets**Current
                  assets:Cash
                  and cash equivalents (note 3)
              
              $
              1,603,330
              
              $
              971,451Trade
                  accounts receivable
              
              
              919,017
              
              
              744,720Interest
                  receivable
              
              
              —
              
              
              41,511Promissory
                  note receivable (note 7)
              
              
              —Inventories:Finished
                  goods
              
              
              1,317,418
              
              
              1,108,626Work
                  in process
              
              
              256,270
              
              
              285,422Raw
                  materials
              
              
              241,058
              
              
              155,4961,814,746
              
              
              1,549,544Prepaid
                  expenses and other current assets
              
              
              104,782
              
              
              129,362Total
                  current assets
              
              
              4,441,875
              
              
              3,436,588Property,
                  plant and equipment, net
              
              
              3,529,749
              
              
              3,280,724Patents
                  and intangible assets, net
              
              
              55,561
              
              
              61,591Assets
                  held for sale
              
              
              —
              
              
              4,390Investments
                  available for sale (note 4)
              
              
              1,742,375
              
              
              2,638,441Due
                  from shareholder
              
              
              459,311
              
              
              488,711$
              10,228,871
              
              $
              9,910,445


F-1
 **Table
            of Contents**




October
                  31
              
              January
                  312006
              
              2006(Unaudited)
              
              (Audited)**Liabilities
                  and Shareholders' Equity**Current
                  liabilities:Accounts
                  payable
              
              $
              595,171
              
              $
              574,270Accrued
                  liabilities
              
              
              247,363
              
              
              246,620Payroll
                  and related taxes payable
              
              
              92,673
              
              
              113,530Customer
                  deposits
              
              
              92,932
              
              
              92,932Income
                  taxes payable
              
              
              45,976
              
              
              44,877Current
                  portion of long-term debt
              
              
              34,000
              
              
              1,011Current
                  portion of capital lease obligations
              
              
              38,794
              
              
              168,430Current
                  portion of due to shareholder
              
              
              5,000
              
              
              4,597Total
                  current liabilities
              
              
              1,151,909
              
              
              1,246,267Long-term
                  debt
              
              
              402,219
              
              
              3,748Capital
                  lease obligations
              
              
              7,429
              
              
              16,108Due
                  to shareholder
              
              
              673,685
              
              
              671,322Deferred
                  income taxes
              
              
              197,719
              
              
              194,9381,281,052
              
              
              886,116Total
                  liabilities
              
              
              2,432,961
              
              
              2,132,383Shareholders'
                  equity:Capital
                  stockAuthorized:100,000
                  Class A preferred shares of $0.10 each899,400
                  Class B preferred shares of $0.0167 each10,000,000
                  common shares of $0.0167 eachIssued
                  and outstanding:899,400
                  Class B preferred shares
              
              
              15,010
              
              
              15,0103,061,896
                  common shares (January 31, 2006 - 3,058,896)
              
              
              51,003
              
              
              50,953Contributed
                  surplus
              
              
              23,444,369
              
              
              23,400,259Deficit
              
              
              (16,761,729
              )
              
              (16,633,410
              )Accumulated
                  other comprehensive income
              
              
              1,047,257
              
              
              945,2507,795,910
              
              
              7,778,062$
              10,228,871
              
              $
              9,910,445See
                  accompanying notes.




F-2
 **Table
            of Contents**




**POLYDEX
                  PHARMACEUTICALS LIMITED****SUBSIDIARIES**Consolidated
                  Statements of Operations and Comprehensive Income
                  (Loss) (Unaudited)(Expressed
                  in United States dollars)**Three
                  Months**
              
              **Three
                  Months**
              
              **Nine
                  Months**
              
              **Nine
                  Months****Ended**
              
              **Ended**
              
              **Ended**
              
              **Ended****October
                  31**
              
              **October
                  31**
              
              **October
                  31**
              
              **October
                  31****2006**
              
              **2005**
              
              **2006**
              
              **2005**Sales
              
              $
              1,366,190
              
              $
              1,062,075
              
              $
              $4,656,581
              
              $
              3,658,229Cost
                  of goods sold
              
              
              1,157,654
              
              
              989,275
              
              
              3,896,610
              
              
              3,336,086208,536
              
              
              72,800
              
              
              759,971
              
              
              322,143Expenses:General
                  and administrative
              
              
              277,974
              
              
              333,349
              
              
              950,480
              
              
              1,094,148Research
                  and development
              
              
              35,515
              
              
              89,955
              
              
              201,700
              
              
              148,858Selling
                  and promotion
              
              
              48,277
              
              
              25,966
              
              
              121,782
              
              
              80,801Interest
                  expense
              
              
              23,668
              
              
              20,891
              
              
              67,556
              
              
              60,808Depreciation
              
              
              10,345
              
              
              12,924
              
              
              37,533
              
              
              36,322Foreign
                  exchange (gain)
              
              
              176
              
              
              (5,576
              )
              
              (8,071
              )
              
              (15,366
              )Loss
                  (gain) on sale of assets
              
              
              —
              
              
              (57
              )
              
              (20
              )
              
              (3,703
              )Interest
                  and other income
              
              
              (39,438
              )
              
              (20,907
              )
              
              (482,670
              )
              
              (60,553
              )356,517
              
              
              456,545
              
              
              888,290
              
              
              1,341,315Income
                  (loss) before income taxes
              
              
              (147,981
              )
              
              (383,745
              )
              
              (128,319
              )
              
              (1,019,172
              )Provision
                  for (recovery of) income taxes
              
              
              —
              
              
              (122,294
              )
              
              —
              
              
              (193,660
              )Net
                  income (loss) for the period
              
              
              (147,981
              )
              
              (261,451
              )
              $
              (128,319
              )
              
              (825,512
              )Unrealized
                  gain (loss) on investments available for sale
              
              
              (1,110
              )
              
              (36,044
              )
              
              (3,031
              )
              
              (31,790
              )Currency
                  translation adjustment
              
              
              56,314
              
              
              269,583
              
              
              105,038
              
              
              376,622Comprehensive
                  income (loss) for the period
              
              $
              (92,777
              )
              $
              (27,912
              )
              $
              (26,312
              )
              $
              (480,680
              )Per
                  share information:Earnings
                  (loss) per common share:Basic
              
              $
              (0.05
              )
              $
              (0.09
              )
              $
              $(0.04
              )
              $
              (0.27
              )Diluted
              
              $
              (0.05
              )
              $
              (0.09
              )
              $
              $(0.04
              )
              $
              (0.27
              )Weighted
                  average number of common shares used incomputing
                  net earnings per share for the period:Basic
              
              
              3,061,896
              
              
              3,052,296
              
              
              3,059,646
              
              
              3,052,296Diluted
              
              
              3,078,155
              
              
              3,052,296
              
              
              3,077,698
              
              
              3,052,296See
                  accompanying notes.




F-3
 **Table
            of Contents**




**POLYDEX
                    PHARMACEUTICALS LIMITED****SUBSIDIARIES**Consolidated
                    Statements of Shareholders' Equity
                    (Unaudited)(Expressed
                    in United States
                    dollars)


**Nine
                  Months**
              
              **Nine
                  Months****Ended**
              
              **Ended****October
                  31**
              
              **October
                  31****2006**
              
              **2005**Preferred
                  Shares:Balance,
                  beginning and end of period
              
              $
              15,010
              
              $
              15,010Common
                  Shares:Balance,
                  beginning of period
              
              $
              50,953
              
              $
              50,676Common
                  share options exercised
              
              
              50
              
              
              166Balance,
                  end of period
              
              $
              51,003
              
              $
              50,842Contributed
                  Surplus:Balance,
                  beginning of period
              
              $
              23,400,259
              
              $
              23,303,718Common
                  share options issued
              
              
              35,160
              
              
              —Common
                  share options exercised
              
              
              8,950
              
              
              52,334Balance,
                  end of period
              
              $
              23,444,369
              
              $
              23,356,052Deficit:Balance,
                  beginning of period
              
              $
              (16,633,410
              )
              $
              (15,144,357
              )Net
                  income (loss) for the period
              
              
              (128,319
              )
              
              (825,512
              )Balance,
                  end of period
              
              $
              (16,761,729
              )
              $
              (15,969,869
              )Accumulated
                  Other Comprehensive Income:Balance,
                  beginning of period
              
              $
              945,250
              
              $
              325,842Unrealized
                  loss on investments available for sale
              
              
              (3,031
              )
              
              (31,790
              )Currency
                  translation adjustment for the period
              
              
              105,038
              
              
              376,622Balance,
                  end of period
              
              $
              1,047,257
              
              $
              670,674See
                  accompanying notes.




F-4
 **Table
            of Contents**




**POLYDEX
                      PHARMACEUTICALS LIMITED****SUBSIDIARIES**Consolidated
                      Statements of Cash Flows
                      (Unaudited)(Expressed
                      in United States
                      dollars)


**Nine
                  Months**
              
              **Nine
                  Months****Ended**
              
              **Ended****October
                  31**
              
              **October
                  31****2006**
              
              **2005**Cash
                  provided by (used in):Operating
                  activities:Net
                  income (loss) for the period
              
              $
              (128,319
              )
              $
              (825,512
              )Add
                  (deduct) items not affecting cash:Depreciation
                  and amortization
              
              
              432,863
              
              
              401,980Imputed
                  interest on long-term debt
              
              
              —
              
              
              1,363Deferred
                  income taxes
              
              
              —
              
              
              (249,311
              )Amortization
                  of premium on investments available for sale
              
              
              475
              
              
              —Gain
                  on disposal of equipment
              
              
              (20
              )
              
              (3,703
              )Options
                  issued in exchange for services
              
              
              35,160
              
              
              —Net
                  change in non-cash working capital balancesrelated
                  to operations
              
              
              (350,322
              )
              
              329,902(10,163
              )
              
              (345,281
              )Investing
                  activities:Additions
                  to property, plant and equipment and patents
              
              
              (629,228
              )
              
              (269,940
              )Decrease
                  in due from shareholder
              
              
              29,400
              
              
              38,005Decrease
                  in accrued interest on investments
              
              
              41,511
              
              
              —Unrealized
                  gain (loss) on commercial paper available for sale
              
              
              345
              
              
              (479
              )Proceeds
                  (Acquisition) of investments available for sale
              
              
              922,080
              
              
              (361,426
              )Proceeds
                  from sale of equipment
              
              
              4,467
              
              
              3,703368,575
              
              
              (590,137
              )Financing
                  activities:Repayment
                  of long-term debt
              
              
              (13,792
              )
              
              (47,513
              )Repayment
                  of capital lease obligations
              
              
              (140,790
              )
              
              (119,340
              )Increase
                  (decrease) in due to shareholder
              
              
              2,766
              
              
              (5,051
              )Increase
                  in long-term bank indebtedness
              
              
              444,761
              
              
              —Exercise
                  of common share options
              
              
              9,000
              
              
              52,500301,945
              
              
              (119,404
              )Effect
                  of exchange rate changes on cash
              
              
              (28,478
              )
              
              108,331Increase
                  (decrease) in cash and cash equivalents
              
              
              631,879
              
              
              (946,491
              )Cash
                  and cash equivalents, beginning of period
              
              
              971,451
              
              
              2,401,051Cash
                  and cash equivalents, end of period
              
              $
              1,603,330
              
              $
              1,454,560Cash
                  and cash equivalents is comprised of the following:Cash
              
              $
              264,096
              
              $
              188,351Cash
                  equivalents
              
              
              1,339,234
              
              
              1,266,209$
              1,603,330
              
              $
              1,454,560See
                  accompanying notes.




F-5
 **Table
            of Contents**




**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 2006 Annual Report on Form
      10-K
      for the fiscal year ended January 31, 2006 as filed by Polydex Pharmaceuticals
      Limited (the “Company”) with the Securities and Exchange Commission. The
      unaudited interim consolidated financial statements as of October 31, 2006
      and
      2005 include all normal recurring adjustments which management considers
      necessary for a fair presentation. The results of operations for the interim
      periods presented are not necessarily indicative of the results that may be
      expected for the entire fiscal year. The interim consolidated financial
      statements include the accounts and transactions of the Company and its majority
      owned subsidiaries in which the Company has equal to or more than a 50%
      ownership interest and exercises control.





**2.**
            **Significant
                Accounting Policies:**





Basis
      of 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.





Investments
      available for sale


Investments
      available for sale consist of medium-term fixed income instruments, mutual
      funds
      and trust income 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.  F-6
 **Table
            of Contents**


Property,
      plant and equipment and patents and intangible assets


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




Buildings 15
      years


Machinery
      and equipment 3
      to 10
      years





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





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





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





Revenue
      recognition


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





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





Shipping
      and handling costs


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





Research
      and development


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


F-7
 **Table
            of Contents**




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 3,061,896 for the three months ended October
      31,
      2006 (October 31, 2005 - 3,052,296). Diluted earnings (loss) per common share
      is
      computed using the weighted average number of common shares outstanding adjusted
      for the incremental shares, using the treasury stock method, attributed to
      outstanding options to purchase common stock. Incremental shares of nil at
      October 31, 2006 and October 31, 2005 were used in the calculation of diluted
      earnings (loss) per common share in the second quarters, as their effect was
      anti-dilutive. Options to purchase common shares of 35,175 were included in
      the
      computation of diluted earnings per share as at October 31, 2006. Options to
      purchase common shares of 46,300 at October 31, 2005 were not included in the
      computation of diluted earnings (loss) per common share because their effect
      was
      anti-dilutive.





**3.**
            **Cash
                and Cash Equivalents:**





Cash
      and
      cash equivalents consist of the following:




**October
                  31**
              
              **January
                  31****2006**
              
              **2006**Cash
              
              $
              264,096
              
              $
              236,422Short-term
                  deposits
              
              
              1,339,234
              
              
              735,029$
              1,603,330
              
              $
              971,451


Short-term
      deposits in the amount of Cdn. $1,496,034 bear interest at 4.0% to 4.06%
      maturing on November 15 and December 6, 2006. Short-term deposits consist of
      commercial paper and are available for sale and are stated at fair market value,
      based on quoted market prices. An unrealized gain of Cdn. $388 has been included
      in accumulated other comprehensive income.




**4.**
            **Investments
                Available For Sale:**





Investments
      available for sale consist of the following:




**October
                  31**
              
              **January
                  31****2006**
              
              **2006**Canadian
                  medium-term fixed income instruments
              
              $
              1,078,559
              
              $
              2,064,492Canadian
                  income trust units and mutual funds
              
              $
              663,816
              
              $
              573,949$
              1,742,375
              
              $
              2,638,441





Canadian
      medium-term fixed income instruments have maturity dates extending from four
      months to one year and interest rates ranging from 2.86% to 4.04%. Investments
      available for sale are  F-8
 **Table
            of Contents**


stated
      at
      fair market value, based on quoted market prices. An unrealized loss of Cdn.
      $38,935 has been included in accumulated other comprehensive
      income.





**5.**
            **Commitments
                and Contingencies:**





During
      September 2004, the Company entered into an agreement with a research
      organization to conduct a pilot clinical study on the use of cellulose sulphate
      for the treatment of bacterial vaginosis. The Company is committed to make
      a
      payment of $20,056 upon the completion of the clinical study, which is expected
      to occur during the fourth quarter of fiscal year 2007. In March of 2006 the
      Company entered into an agreement for the monitoring of the clinical trial,
      and
      is expecting to make payments in the fourth quarter of fiscal year 2007 in
      the
      amount of $31,986.





As
      part
      of the Company’s plans for refurbishment of its manufacturing operations, the
      Company entered into agreements for plant renovations, including facilities
      for
      the new spray dryer facility, including related electrical enhancements, in
      the
      amount of Cdn. $1,389,894. Payments for these contracts are expected to occur
      in
      the fourth quarter of fiscal year 2007 and in the first quarter of fiscal year
      2008.




**6.**
            **Stock-based
                Employee Compensation:**





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





All
      options granted have terms of five years and vest immediately. At October 31,
      2006, the Company had 42,675 options outstanding at exercise prices ranging
      from
      $2.50 to $10.01 and a weighted average exercise price of $5.27. The options,
      which are immediately exercisable and expire on dates between January 31, 2007
      and July 31, 2011, 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. During the nine months ended
      October 31, 2006, 7,500 common share stock options were granted to employees
      and
      non-employees of the Company. These options were valued at $35,160 and were
      charged to general and administrative expense, in accordance with SFAS 123.
      The
      fair value of these options was estimated at the date of grant using the
      Black-Scholes option pricing model with the following assumptions: risk-free
      interest rate of 5.04%; dividend yield of nil; volatility factor of the expected
      market price of the Company’s common stock of 0.644, and an expected life of the
      options of five years. No stock-based employee compensation expense was recorded
      during the period from February 1, 2005 to October 31, 2005, because there
      were
      no options granted during that period.





**7.**
            **Promissory
                Note Receivable:**




In
      1992,
      Veterinary Laboratories, Inc. ["Vet Labs"], an indirect subsidiary of the
      Company, and Sparhawk Laboratories, Inc. ["Sparhawk"] entered into the Vet
      Labs
      - Sparhawk Joint Venture [the "Joint Venture"] for the manufacture and sale
      of
      veterinary pharmaceutical products. Vet Labs and


F-9
 **Table
            of Contents**




Sparhawk
      each owned 50% of the Joint Venture. The Company controlled the Joint Venture
      through its control of the Joint Venture Policy Committee and therefore
      consolidated its assets, liabilities, revenue and expenses in these consolidated
      financial statements until March 4, 2004. The Company had funded the Joint
      Venture's losses since 1992 and, accordingly, has recorded 100% of these
      cumulative losses in the consolidated financial statements.





On
      January 13, 2004, the Company entered into an Asset Purchase Agreement with
      Sparhawk. Pursuant to this Asset Purchase Agreement, the Company agreed to
      sell
      the finished product veterinary pharmaceutical business, including substantially
      all of the assets of Vet Labs, to Sparhawk for $5,500,000 in cash. Effective
      March 4, 2004, this sale was completed. Simultaneously, on March 4, 2004,
      Chemdex, Inc. ["Chemdex"], a wholly-owned subsidiary of the Company, advanced
      $350,000 to Sparhawk in exchange for a promissory note bearing interest at
      13%
      per annum and a warrant to purchase 4% of the equity of Sparhawk for no
      additional consideration. The promissory note was due in full on March 4, 2009.
      Interest was payable annually on the anniversary date, but could be deferred
      and
      added to the principal balance of the promissory note each year at Sparhawk's
      discretion. At April 30, 2006 interest of $6,482 (2005 - nil) was accrued and
      reported as interest receivable on the balance sheet. On May 31, 2006, payment
      in full for principal and interest was received. The warrant expired at the
      earlier of payment in full of the promissory note or 10 years from date of
      issue. The warrant became exercisable the day after the fifth anniversary from
      the date of issue, and therefore expired before it could be exercised. Pursuant
      to a definitive supply agreement [the "Supply Agreement"] entered into on March
      4, 2004, Chemdex agreed to supply ferric hydroxide and hydrogenated dextran
      solution to Sparhawk on an exclusive basis in the United States for 10 years.
      Chemdex also granted to Sparhawk an exclusive license to use the drug master
      file to manufacture 10% bulk Iron Dextran for veterinary use, and the use of
      certain equipment during the 10-year period of the Supply Agreement.





The
      sale
      resulted in a gain of $2,209,471, of which $1,859,471 was recognized in the
      consolidated statements of operations and $350,000 was deferred. The deferred
      gain of $350,000 related to the promissory note receivable from Sparhawk as
      Sparhawk was thinly capitalized and highly leveraged. Since payment in full
      on
      the promissory note was received on May 31, 2006, the deferred gain of $350,000
      was recognized at April 30, 2006 and included in other income on the statement
      of operations.




**8.**
            **Segmented
                Information:**





All
      operations are carried out through Dextran Products Limited ("Dextran") in
      Canada and through Chemdex in the United States. Each of Dextran and Chemdex
      operated as separate strategic business units offering different products,
      until
      the sale of the finished product veterinary pharmaceutical business on March
      4,
      2004 *[note
      7]* .
      Until
      March 4, 2004, each subsidiary comprised 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.


F-10
 **Table
          of Contents**




Chemdex
              -
            manufactured
                and sold veterinary pharmaceutical products and specialty chemicals
                in the
                United States. The primary customers were distributors and private
                labelers, who in turn sold to the end user of the
                products.




After
      March 4, 2004, Chemdex only sells bulk quantities of a specific dextran
      derivative to Sparhawk under the Supply Agreement, as described in *note
      7* .
      Management has since determined that Polydex Pharmaceuticals does not operate
      differing segments, and that providing such information would not be informative
      to readers of these financial statements. The comparative information from
      the
      prior period has therefore been restated to conform to this basis of
      reporting.




**Nine
                  Months**
                **Ended**
                **October
                  31**
                **2006**
              
              **Nine
                  Months**
                **Ended**
                **October
                  31**
                **2005****Total
                  revenue by significant customer:**Customer
                  A
              
              $
              975,253
              
              $
              859,462Customer
                  B
              
              $
              586,239
              
              $
              452,820Customer
                  C
              
              $
              539,442
              
              $
              336,000Customer
                  D
              
              $
              429,680
              
              $
              345,800


**Nine
                  Months**
                **Ended**
                **October
                  31**
                **2006**
              
              **Nine
                  Months**
                **Ended**
                **October
                  31**
                **2005****Sales
                  by geographic destination:**Europe
              
              $
              1,950,368
              
              $
              1,535,900Other
              
              $
              793,738
              
              $
              415,262United
                  States
              
              $
              780,007
              
              $
              869,561Canada
              
              $
              695,786
              
              $
              367,798Pacific
                  Rim
              
              $
              436,682
              
              $
              469,708$
              4,656,581
              
              $
              3,658,229




F-11
 **Table
          of Contents**




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





*The
      Company’s fiscal year ends on January 31* *st* *of
      each year.  In this report, fiscal year 2007 refers to the Company’s fiscal
      year ended January 31, 2007.  The following discussion should be read in
      conjunction with the October 31, 2006 interim consolidated financial statements
      and notes thereto included elsewhere in this report. Operating results for
      the
      nine months ended October 31, 2006 are not necessarily indicative of the results
      that may be expected for the fiscal year ending January 31, 2007. 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, 2006.*   *The
      Company’s financial statements are prepared in accordance with United States
      generally accepted accounting principles.  All amounts are in United States
      dollars, unless otherwise denoted.*




**Overview**




The
      Company is engaged in the research, development, manufacture and marketing
      of
      biotechnology-based products for the human pharmaceutical market, and also
      manufactures bulk pharmaceutical intermediates for the worldwide veterinary
      pharmaceutical industry.  The Company conducts its business operations
      through its 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
      a Canadian subsidiary, Dextran Products, 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 2007* . 
      In fiscal year 2007, management intends to continue 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 certain overseas markets, such as India, China and Russia continue
      to be explored by management. Expanding current market opportunities and the
      potential for new market penetration has led management to make plant
      refurbishments and the expansion of production capacity a priority for fiscal
      year 2007 with respect to the Company’s manufacturing operations located in
      Toronto. **** A
      building permit has been approved and construction of new drying facilities
      started in the third quarter. It will continue through the fourth quarter and
      into the next fiscal year with the unit being operational in fiscal
      2008.




Research
      and development of the Company’s human pharmaceutical products is coordinated at
      Dextran Products.  Ushercell, the Company’s leading human pharmaceutical
      compound, is a high molecular weight Cellulose Sulphate envisioned for topical
      vaginal use primarily in the prevention of transmission of AIDS and other
      sexually transmitted diseases, as well as unplanned pregnancies.  Multiple
      clinical trials have been completed, and additional trials have commenced or
      are
      being actively planned, to evaluate various aspects of the use of Cellulose
      Sulphate as a contraceptive gel with antiviral capabilities.  The Company
      is exploring the use of Ushercell as a treatment for Bacterial Vaginosis (BV),
      the most common vaginal disorder among reproductive-age women.  If
      effective, BV treatment may present an opportunity for commercial  -4-
 **Table
            of Contents**


viability
      of Ushercell in advance of the completion of the much lengthier required testing
      for its use as an antiviral or contraceptive gel.





***Chemdex,
      Vet Labs and the Joint Venture Business***




During
      approximately one month of the 2005 fiscal year, the Company also engaged in
      the
      finished product veterinary pharmaceutical business through its United States
      subsidiary Chemdex, which, in turn, conducted its operations through its
      subsidiary, Vet Labs. On December 1, 1992, Vet Labs and Sparhawk Laboratories
      Inc. entered into a Joint Venture for the purpose of manufacturing and selling
      veterinary pharmaceutical products. On January 13, 2004, the Company, Chemdex
      and Vet Labs entered into an Asset Purchase Agreement with Sparhawk pursuant
      to
      which the Company agreed to sell its finished product veterinary pharmaceutical
      business, including substantially all of the assets of Vet Labs and its
      ownership interest in the Joint Venture, to Sparhawk for $5,500,000 in cash.
      The
      sale was completed on March 4, 2004. Simultaneously with the closing, Chemdex
      advanced $350,000 to Sparhawk in exchange for an unsecured subordinated
      promissory note bearing interest at 13% per annum and a warrant to purchase
      4%
      of the equity of Sparhawk. The promissory note was payable in full on March
      4,
      2009. Interest was payable annually, but could be deferred and added to the
      principal balance of the promissory note each year at Sparhawk’s discretion. At
      April 30, 2006, interest of $6,482 (2005 - nil) was accrued and reported as
      interest receivable on the balance sheet. On May 31, 2006, payment in full
      for
      principal and interest was received. The warrant expired at the earlier of
      payment in full of the promissory note or March 4, 2014 and therefore expired
      before it could be exercised. Chemdex also entered into a supply agreement
      with
      Sparhawk to supply ferric hydroxide and hydrogenated dextran solution to
      Sparhawk on an exclusive basis in the United States for 10 years.




**Results
      of Operations**




**Three
                  Months**
                **Ended**
                **October
                  31,**
                **2006**
              
              **Three
                  Months**
                **Ended**
                **October
                  31,**
                **2005**
              
              **Variance**
              
              **Nine
                  Months**
                **Ended**
                **October
                  31,**
                **2006**
              
              **Nine
                  Months**
                **Ended**
                **October
                  31,**
                **2005**
              
              **Variance****Net
                  income (loss)**
              
              $
              (147,981
              )
              $
              (261,451
              )
              
              43
              %
              $
              (128,319
              )
              $
              (825,512
              )
              
              84
              %**Earnings
                  (loss) per share**
              
              $
              (0.05
              )
              $
              (0.09
              )
              
              —
              
              $
              (0.04
              )
              $
              (0.27
              )
              
              —





The
      decrease in net loss for the third quarter of fiscal year 2007 ended October
      31,
      2006 compared to the net loss for the second quarter in fiscal year 2006 is
      due
      primarily to the increase in sales and gross margins, and the decrease in
      expenses in the quarter. The
      decrease in year to date net loss for fiscal year 2007 as compared to the year
      to date net loss for fiscal 2006 is a result of increased sales and gross
      margins, the decrease in expenses, and recognition of the deferred gain on
      the
      promissory note related to the sale of the veterinary products assets to
      Sparhawk (Note 7.).


-5-
 **Table
          of Contents**




**Three
                Months Ended**
              **October
                31,**
              **2006**
            
            **Three
                Months Ended**
              **October
                31,**
              **2005**
            
            **Variance**
            
            **Nine
                Months Ended**
              **October
                31,**
              **2006**
            
            **Nine
                Months Ended**
              **October
                31,**
              **2005**
            
            **Variance****Sales**
            
            $
            1,366,190
            
            $
            1,062,075
            
            
            29
            %
            $
            4,656,581
            
            $
            3,658,229
            
            
            27
            %




The
      sales
      increase in the third quarter and year to date of fiscal year 2007 was
      attributable to pricing increases and increased demand from existing customers.
      The sales decrease in the third quarter of fiscal year 2006 from $1,205,859
      in
      fiscal year 2005 was due to pricing, the timing of shipments, and the extended
      plant maintenance shutdown.




**Three
                Months Ended**
              **October
                31,**
              **2006**
            
            **Three
                Months**
              **Ended**
              **October
                31,**
              **2005**
            
            **Variance**
            
            **Nine
                Months Ended**
              **October
                31,**
              **2006**
            
            **Nine
                Months**
              **Ended**
              **October
                31,**
              **2005**
            
            **Variance****Gross
                profit**
            
            $
            208,536
            
            $
            72,800
            
            
            186
            %
            $
            759,971
            
            $
            322,143
            
            
            136
            %Percentage
                of sales
            
            
            15.3
            %
            
            6.9
            %
            
            
            
            
            16.3
            %
            
            8.8
            %




The
      third
      quarter and year to date of fiscal year 2007 increase in gross profit is a
      result of the increase in sales due to price increases and customer demand
      noted
      above, combined with ongoing control of direct costs by management.  The
      decrease in gross profit percentage during the third quarter and year to date
      of
      fiscal year 2006 from $99,960 and $1,224,989 for the three months and year
      to
      date respectively in fiscal year 2005 was a result of lower sales volumes,
      increased costs of raw materials, and the rise of the Canadian dollar relative
      to the United States dollar. In addition, significant equipment repair costs
      were incurred during the third quarter of fiscal year 2006 due to the extended
      plant maintenance shutdown.




**Three
                Months Ended**
              **October
                31,**
              **2006**
            
            **Three
                Months Ended**
              **October
                31,**
              **2005**
            
            **Variance**
            
            **Nine
                Months Ended**
              **October
                31,**
              **2006**
            
            **Nine
                Months Ended**
              **October
                31,**
              **2005**
            
            **Variance****Selling,
                promotion,**
              **general
                and****administrative
                expenses**
            
            $
            326,251
            
            $
            359,315
            
            
            (9
            )%
            $
            1,072,262
            
            $
            1,174,949
            
            
            (9
            )%




The
      decrease during the third quarter of fiscal year 2007 in selling, promotion,
      general and administrative expenses is primarily due to a reduction in
      regulatory and reporting costs, including the elimination of last year’s costs
      related to repatriation. These decreases were partially offset by increased
      promotion costs associated with the Frost & Sullivan North American
      Microbicidal Technologie Product of the Year award, and management promotional
      activities involving overseas customers and suppliers. The decrease during
      the
      year to date of fiscal year 2007 is also due to the death benefit accrual
      payable to the estate of the former vice-chairman of the Company established
      in
      the first quarter of fiscal 2006.


-6-
 **Table
          of Contents**




**Research
                and****development**
            
            **Three
                Months Ended**
              **October
                31,**
              **2006**
            
            **Three
                Months Ended**
              **October
                31,**
              **2005**
            
            **Variance**
            
            **Nine
                Months Ended**
              **October
                31,**
              **2006**
            
            **Nine
                Months Ended**
              **October
                31,**
              **2005**
            
            **Variance**Research
                and development expenditures
            
            $
            35,515
            
            $
            89,955
            
            
            (61
            )%
            $
            201,700
            
            $
            148,858
            
            
            35
            %




The
      increase in research and development expenses during the year to date of fiscal
      year 2007 is a result of significant legal expenditures related to various
      patent applications worldwide and continued work on the cellulose sulphate
      project, including consulting fees and further costs of a pilot clinical study
      on the use of cellulose sulphate for the treatment of bacterial vaginosis.
      Both
      of these costs decreased in the third quarter of fiscal year 2007 compared
      to
      the third quarter of fiscal year 2006.




The
      clinical study mentioned above is related to an alternate use of cellulose
      sulphate and is therefore outside the scope of funding provided by the Company’s
      research and development partners for the investigation of this product as
      a
      contraceptive gel with antiviral properties. Expenses for this clinical study
      are expected to decrease during the remainder of fiscal year 2007. It is likely
      that further clinical studies or expenses will be incurred in fiscal year 2008.





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




Significant
      funding from research and development partners, including third party public
      and/or private sector groups, for the current phase of the project investigating
      the use of cellulose sulphate as a contraceptive gel with antiviral properties
      project is expected to continue at necessary levels for the foreseeable
      future.  The Company’s total research and development expenditures are
      expected to increase in fiscal year 2007 over fiscal year 2006 due to additional
      product development activities the Company expects to perform and fund outside
      of its partnership relationships.




**Three
                Months Ended**
              **October
                31,**
              **2006**
            
            **Three
                Months Ended**
              **October
                31,**
              **2005**
            
            **Variance**
            
            **Nine
                Months Ended**
              **October
                31,**
              **2006**
            
            **Nine
                Months Ended**
              **October
                31,**
              **2005**
            
            **Variance****Depreciation
                and amortization expense**
            
            $
            138,083
            
            $
            139,220
            
            
            (1
            )%
            $
            432,863
            
            $
            401,980
            
            
            8
            %





Depreciation
      and amortization was consistent for the third quarter of fiscal year 2007
      compared with the third quarter of fiscal year 2006. The increase in expense
      in
      the year to date of fiscal year 2007 is primarily attributable to the increase
      in the value of the Canadian dollar as compared to the United States
      dollar.  -7-
 **Table
            of Contents**




**Three
                Months Ended**
              **October
                31,**
              **2006**
            
            **Three
                Months**
              **Ended**
              **October
                31,**
              **2005**
            
            **Variance**
            
            **Nine
                Months**
              **Ended**
              **October
                31,**
              **2006**
            
            **Nine
                Months**
              **Ended**
              **October
                31,**
              **2005**
            
            **Variance****Interest
                expense**
            
            $
            23,668
            
            $
            20,891
            
            
            13
            %
            $
            67,556
            
            $
            60,808
            
            
            11
            %




The
      increase in interest expense in the third quarter and year to date of fiscal
      year 2007 is primarily attributable to the interest on the capital equipment
      loan obtained in May 2006, as well as the rise in value of the Canadian dollar
      relative to the United States dollar. This is partially offset by the decrease
      in other long-term debt and capital lease obligations.




**Three
                Months**
              **Ended**
              **October
                31,**
              **2006**
            
            **Three
                Months**
              **Ended**
              **October
                31,**
              **2005**
            
            **Variance**
            
            **Nine
                Months**
              **Ended**
              **October
                31,**
              **2006**
            
            **Nine
                Months**
              **Ended**
              **October
                31,**
              **2005**
            
            **Variance****Foreign
                exchange loss (gain)**
            
            $
            176
            
            $
            (5,576
            )
            
            103
            %
            $
            (8,071
            )
            $
            (15,366
            )
            
            (47
            )%





A
      small
      foreign exchange loss was realized at Dextran Products during the third quarter
      of fiscal year 2007 because the value of the Canadian dollar did not fluctuate
      significantly compared to the United States dollar during the period, while
      the
      year to date gain reflects the increase in the Canadian dollar in the first
      two
      quarters of fiscal 2006. In
      addition, as at October 31, 2006 the Company had a net asset exposure to the
      United States dollar because its United States dollar denominated accounts
      receivable exceeded its inter-company payables denominated in United States
      dollars.




**Three
                Months**
              **Ended**
              **October
                31,**
              **2006**
            
            **Three
                Months**
              **Ended**
              **October
                31,**
              **2005**
            
            **Variance**
            
            **Nine
                months**
              **Ended**
              **October
                31,**
              **2006**
            
            **Nine
                Months**
              **Ended**
              **October
                31,**
              **2005**
            
            **Variance****Other
                income**
            
            $
            39,438
            
            $
            20,907
            
            
            89
            %
            $
            482,670
            
            $
            60,553
            
            
            697
            %




The
      increase in other income in the third quarter of fiscal year 2007 is primarily
      related to the timing of investment gains. The significant increase in the
      year
      to date for fiscal year 2007 is due to recognition of the deferred gain on
      the
      promissory note from Sparhawk (Note 7.) in the first quarter of fiscal year
      2007.


-8-
 **Table
          of Contents**




**Three
                Months**
              **Ended**
              **October
                31,**
              **2006**
            
            **Three
                Months**
              **Ended**
              **October
                31,**
              **2005**
            
            **Variance**
            
            **Nine
                Months**
              **Ended**
              **October
                31,**
              **2006**
            
            **Nine
                Months**
              **Ended**
              **October
                31,**
              **2005**
            
            **Variance****Provision
                for (recovery of) income taxes**
            
            
            —
            
            $
            (122,294
            )
            
            100
            %
            
            —
            
            $
            (193,660
            )
            
            100
            %





The
      tax
      provision of nil for the third quarter and year to date of fiscal year 2007
      resulted from the 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.





The
      decrease in tax provision for the third quarter and year to date of fiscal
      year
      2006 is a result of a decrease in taxable income. Dextran Products suffered
      tax
      losses during the first, second and third quarters of fiscal year 2006 resulting
      in a tax recovery.




**Liquidity
      and Capital Resources**




As
      of
      October 31, 2006, the Company had cash and cash equivalents of $1,603,330,
      compared to cash and cash equivalents of $971,451 at January 31, 2006.  In
      the third quarter of fiscal year 2007, the Company expended cash of $154,771
      in
      its operating activities, compared to expending $251,032 for the third quarter
      of fiscal year 2006. The decrease in cash expended from
      operations during the nine months ended October 31, 2006 of fiscal 2007 as
      compared to the same period of fiscal 2006 is primarily due to the
      increased sales and gross margins and the collection of the deferred gain from
      Sparhawk (Note 7.) that occurred during this period. The use of cash for the
      nine months ended October 31, 2005 was primarily due to the loss for the period,
      partially offset by reductions in trade receivables, inventory and trade
      payables. Although significant cash was utilized for investing activities
      related to new equipment, cash was also generated in the second quarter of
      fiscal 2007 through new long term bank financing. In addition, cash equivalents
      benefited from the significant decline in investments available for sale.
      Depreciation and amortization continue to be large non-cash expenses of the
      Company.




The
      Company had $3,289,966 of working capital and a current ratio of 3.9 to 1 as
      of
      October 31, 2006, compared to $2,190,321 and 2.8 to 1 as of January 31,
      2006.




Management
      expects the primary source of its future capital needs to be a combination
      of
      company earning s,
      existing cash reserves and borrowings.  The Company believes that, based
      upon the current levels of revenues and spending, its existing working capital
      resources will be sufficient to support continuing operations for the
      foreseeable future.




At
      October 31, 2006, the Company had accounts receivable of $919,017 and inventory
      of $1,814,746, compared to $744,720 and $1,549,544 respectively, at January
      31,
      2006 and $726,361 and $1,360,019 respectively,  at
      October 31, 2005.  The decrease in accounts receivable during the nine
      months ended October 31, 2006 **** is
      due to
      the timing of payments during the period **.** Accounts
      receivable and inventory levels at October 31, 2005 were lower due to decreased
      sales for the third quarter.




At
      October 31, 2006, the Company had accounts payable of $595,171 compared to
      $574,270 at January 31, 2006 and $511,421  at
      October 31, 2005.  The increase in accounts payable was due to timing of
      supplier payments.   -9-
 **Table
            of Contents**




During
      the third quarter of fiscal year 2007, capital expenditures were $192,168 as
      compared to $182,398 in the third quarter of fiscal year 2006.  The
      majority of capital expenditures were for production equipment at the Dextran
      Products plant in Toronto during the year to date of fiscal 2007. Management
      intends to continue its plant refurbishment and expansion plans during the
      remainder of fiscal year 2007, and expects capital expenditures to increase
      during this period. In October 2006, the Company signed agreements totaling
      Cdn
      $1,389,894 for plant refurbishments including new spray dryer
      facilities.




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.  This
      currency translation adjustment arises from the translation of Dextran Products’
financial statements to U.S. dollars.




Dextran
      Products has a Cdn. $1,250,000 (U.S. $1,113,000) line of credit, of which none
      was utilized at October 31, 2006 and at January 31, 2006. This line of credit
      bears interest at the Canadian banks’ prime lending rate plus 0.50% (October 31,
      2006 - 6.00%; January 31, 2006 - 5.25%).  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. This 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.




The
      increase in long term debt during the year to date of fiscal year 2007 is due
      to
      Dextran Products obtaining a long-term loan of Cdn. $500,000 (U.S. $445,196)
      for
      the purchase of capital equipment related to the planned plant refurbishments.





The
      decrease in other long-term debt and capital lease obligations from January
      31,
      2006 is due to continuing payments by the Company.  The majority of the
      other long-term debt and capital lease obligations are due within one
      year.




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 and changing prices has
      had a material effect on its operations or financial results at any time in
      the
      last three years.




**Related
      Party Transactions**




In
      August
      1997, the Company loaned the late Thomas C. Usher, its Vice-Chairman, Director
      of Research and Development, a member of its Board of Directors and the
      beneficial owner of greater than 5% of the outstanding common shares of the
      Company, $691,500 at an interest rate equal to the prime rate of Toronto
      Dominion Bank plus 1.50% (the “Loan”).  The Loan was used to partially fund
      a $1,000,000 payment to the State of Florida in order to allow Thomas C. Usher
      to regain possession of 430,000 Common Shares of the Company then held by the
      State as collateral security relating to the liquidation of insurance companies
      formerly owned by Thomas C. Usher.  Repayment of the Loan is accomplished
      by periodic payments and through offsets by the Company against royalty payments
      due Thomas C. Usher pursuant to  -10-
 **Table
            of Contents**


intellectual
      property license agreements. The amount outstanding under the Loan as of October
      31, 2006 was $317,414 as compared to $323,972 at January 31, 2006, including
      accrued interest.  The Company has taken a cumulative provision of $315,702
      against accrued interest on the Loan at October 31, 2006, compared to a
      cumulative provision of $292,860 at January 31, 2006.




In
      August
      1999, Thomas C. Usher personally assumed all of the assets and liabilities
      of
      Novadex Corp., including the balance of receivables (the “Receivables”) due to
      the Company from Novadex Corp.  The Receivables have no specific repayment
      terms.  The total outstanding amount of the Receivables as of October 31,
      2006 and January 31, 2006 was $207,599.  Thomas C. Usher also owed $250,000
      to a subsidiary of the Company, Novadex International Limited, as of October
      31,
      2006, pursuant to a non-interest bearing loan with no specific repayment
      terms.  The outstanding amount of this loan has not changed from January
      31, 2006. The amounts continue to remain owing from the estate of Thomas C.
      Usher.




As
      of
      October 31, 2006, Thomas C. Usher, now through his estate, had pledged 304,909
      common shares of the Company as security for these amounts owing to the
      Company.  These common shares had a market value of $2,394,115 at October
      31, 2006, based on the closing price of the Company’s common shares on the
      NASDAQ Capital Market on October 31, 2006. The Company intends to continue
      to
      hold the pledged assets as collateral until the amounts owing discussed above
      are repaid.





The
      Company had a commitment to pay an amount equal to one year’s salary, $110,000,
      to Thomas C. Usher’s estate. The amount owing on this commitment as at October
      31, 2006 was $46,046.





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 increased to $678,660 at October 31, 2006 from $675,919 at January
      31,
      2006 due to interest charges exceeding monthly payments by the
      Company.




**Off-Balance
      Sheet Arrangements**




The
      Company has no off-balance sheet arrangements.


-11-
 **Table
          of Contents**




**Tabular
      Disclosure of Contractual Obligations**




As
      of
      October 31 2006, future minimum cash payments due under contractual obligations,
      including, among others, the Dextran Products line of credit, the long-term
      capital equipment bank loan, the loan payable to Ruth Usher, the long-term
      debt
      obligation in connection with the Chemdex redemption, research and development
      agreements and capital lease agreements, are as follows:





**Payment
                due by period****Contractual
                Obligations**
            
            **Total**
            
            **Less
                than**
              **1
                year**
            
            **1
                - 3**
              **years**
            
            **3
                - 5**
              **years**
            
            **More
                than**
              **5
                years**Long-term
                debt obligations (1)
            
            $
            1,229,407
            
            $
            139,952
            
            $
            279,888
            
            $
            276,120
            
            $
            533,447Capital
                lease obligations (2)
            
            
            46,398
            
            
            35,162
            
            
            11,236
            
            
            —
            
            
            —Operating
                Lease obligations (3)
            
            
            4,014
            
            
            573
            
            
            1,147
            
            
            1,147
            
            
            1,147Purchase
                obligations (4)
            
            
            1,289,593
            
            
            1,289,593
            
            
            —
            
            
            —
            
            
            —Revolving
                loans (5)
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
            
            $
            2,569,412
            
            $
            1,465,280
            
            $
            292,271
            
            $
            277,267
            
            $
            534,594







1.
            Consists
                of:




(a)
            Note
                payable in quarterly payments of Cdn. $419 (US $342), bearing interest
                at
                10.43% and maturing December 2009;
                and




(b)
            Amounts
                due to shareholder which bear interest at the U.S. bank prime lending
                rate
                plus 1.5%, with required minimum monthly payments, including interest,
                of
                $5,000; and





(c)
            Equipment
                purchase term loan of Cdn. $485,348 (US $432,150) repayable to a
                Canadian
                bank in monthly payments of Cdn. $5,792 including interest at 6.95%,
                maturing May 2011.





2.
            Consists
                of capital lease obligations for:




(a)
            Production
                equipment of Cdn. $28,920 (US $25,750) repayable in monthly installments,
                bearing interest at 9% and maturing November
                2006;




(b)
            Production
                equipment of Cdn. $3,360 (US $2,992) repayable in monthly installments,
                bearing interest at 7.59% and maturing November 2006;
                and




(d)
            Office
                equipment of Cdn. $19,829 (US $17,656) repayable in quarterly
                installments, bearing interest at 10.43% and maturing December
                2009.




-12-
 **Table
          of Contents**




3.
            Consists
                of operating lease obligations for office equipment requiring quarterly
                payments of Cdn. $161 (US $143).




4.
            Consists
                of:




(a)
            Purchase
                obligations of $52,042 for research and development services payable
                as
                specified milestones are achieved.




(b)
            Purchase
                obligation of $1,237,551 for construction of the spray dryer facility
                as
                part of the plant refurbishment project.





5.
            Consists
                of Canadian operating line of credit bearing interest at the Canadian
                banks’ prime lending rate plus 0.50%, repayable upon
                demand.




**Critical
      Accounting Policies**




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




Since
      March 4, 2004, all revenue is from sales of bulk manufactured products and
      is
      recognized when title and risk of ownership of products pass to the
      customer.  Title and risk of ownership pass to the customer pursuant to the
      applicable sales contract, either upon shipment of product or upon receipt
      by
      the customer.  Since returns are rare and generally not accepted,
      management has not made provision for returns.  In addition, product sold
      in bulk quantities is tested, prior to release for shipment, to ensure that
      it
      meets customer specifications, and in many cases, customers receive samples
      for
      their own testing.  Approval is obtained from the customer prior to
      shipping.


-13-
 **Table
          of Contents**




***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 credit worthiness of individual customers
      and past payment history to determine the allowance for doubtful accounts. 
Since the majority of sales at Dextran Products are export, Dextran Products
      maintains credit insurance through a crown corporation for the majority of
      its
      customers receivables. There has been no allowance for doubtful accounts during
      the past two fiscal years.




***Long-Lived
      Assets***




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




***Deferred
      Tax Assets***




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




***The
      Joint Venture***




In
      1992,
      Vet Labs and Sparhawk entered into the Joint Venture for the manufacture and
      sale of veterinary pharmaceutical products. Vet Labs and Sparhawk each owned
      50%
      of the Joint Venture during its operation. The Joint Venture was governed by
      the
      Agreement for the Operation of Veterinary Laboratories, Inc.’s Lenexa Facility
      and Sparhawk Lab of KC as a Joint Venture, dated December 1, 1992, by and among
      Sparhawk, Chemdex and Vet Labs (the “Joint Venture Agreement”).





Pursuant
      to the Joint Venture Agreement, the Joint Venture Policy Committee was
      responsible for the overall management of the Joint Venture, including the
      direction and control of the persons designated with the daily management
      responsibilities of the Joint Venture, and the general supervision of the
      management and conduct of the affairs of the Joint Venture. The
      Policy  -14-
 **Table
            of Contents**


Committee
      consisted of five members, three of which were selected by Vet Labs and two
      of
      which were selected by Sparhawk. Decisions of the Policy Committee required
      a
      simple majority vote.





Because
      the Company controlled the operating, financing and investing decisions of
      the
      Joint Venture through Vet Labs’ control of the Policy Committee, it consolidated
      the Joint Venture’s assets, liabilities, revenue and expenses in the Company’s
      financial statements. The Company has funded the Joint Venture’s cumulative
      losses since 1992 and, accordingly, has recorded 100% of these losses in the
      consolidated financial statements.





On
      January 13, 2004, the Company, Chemdex and Vet Labs entered into an Asset
      Purchase Agreement with Sparhawk. Pursuant to the Asset Purchase Agreement,
      the
      Company agreed to sell substantially all of the assets of Vet Labs, including
      its interest in the Joint Venture, to Sparhawk for $5,500,000 in cash. Effective
      March 4, 2004, this sale was completed, and a gain of $1,859,471 was recognized.
      Simultaneously with the closing, Chemdex advanced $350,000 to Sparhawk in
      exchange for an unsecured subordinated promissory note bearing interest at
      13%
      per annum and a warrant to purchase 4% of the equity of Sparhawk. The promissory
      note was payable in full on March 4, 2009. On May 31, 2006, payment in full
      for
      principal and interest was received. Interest was payable annually, but could
      be
      deferred and added to the principal balance of the promissory note each year
      at
      Sparhawk’s discretion. The warrant expired at the earlier of payment in full of
      the promissory note or March 4, 2014 and therefore expired before it could
      be
      exercised. Chemdex also entered into a supply agreement with Sparhawk to supply
      ferric hydroxide and hydrogenated dextran solution to Sparhawk on an exclusive
      basis in the United States for 10 years. In connection with the sale, the
      litigation involving the Joint Venture, *Sparhawk
      Laboratories, Inc. v. Veterinary Laboratories, Inc., et al* ,
      Case
      No. 02CV07426, County of Johnson, State of Kansas, was settled, and a Motion
      of
      Approval of Settlement and Stipulation of Dismissal with Prejudice was filed
      with the Court on March 4, 2004.





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





**Changes
      in Accounting Policies**




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


-15-
 **Table
            of Contents**




**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk.**





**Exchange
      Rate Sensitivity**





The
      Company’s operations consist of manufacturing activities in the United States
      and 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 as at October 31, 2006 it has
      a net
      asset exposure to the United States dollar resulting its large United States
      dollar denominated trade receivables. 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****1/31/07**
            
            **1/31/08**
            
            **1/31/09**
            
            **1/31/10**
            
            **1/31/11**
            
            **Thereafter**
            
            **Total**
            
            **Fair 
                Value****(US$
                Equivalent)****Assets:**Short-term
                investments:Fixed
                rate ($Cdn)
            1,376,577
            
            —
            
            —
            
            —
            
            —
            
            —
            
            1,376,577
            
            1,052,399Average
                interest rate
            3.90
            %
            —
            
            —
            
            —
            
            —
            
            —
            
            3.90
            %Marketable
                securities:Fixed
                rate ($Cdn)
            1,204,845
            
            —
            
            —
            
            —
            
            —
            
            —
            
            1,204,845
            
            1,336,513Average
                interest rate
            3.42
            %
            —
            
            —
            
            —
            
            —
            
            —
            
            3.42
            %**Liabilities:**Long-term
                debt:Fixed
                rate ($Cdn)
            192,898
            
            39,495
            
            45,487
            
            42,930
            
            47,219
            
            275,162
            
            643,193
            
            634,492Average
                interest rate
            8.81
            %
            7.48
            %
            7.69
            %
            7.31
            %
            7.39
            
            6.95
            
            7.61
            %





-16-
 **Table
            of Contents**




**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****1/31/07**
            
            **1/31/08**
            
            **1/31/09**
            
            **1/31/10**
            
            **1/31/11**
            
            **Thereafter**
            
            **Total**
            
            **Fair 
                Value****(US$
                Equivalent)****Assets:**Short-term
                investments:Fixed
                rate ($Cdn)
            1,376,577
            
            —
            
            —
            
            —
            
            —
            
            —
            
            1,376,577
            
            1,052,399Average
                interest rate
            3.90
            %
            —
            
            —
            
            —
            
            —
            
            —
            
            3.90
            %Marketable
                securities:Fixed
                rate ($Cdn)
            1,204,845
            
            —
            
            —
            
            —
            
            —
            
            —
            
            1,204,845
            
            1,336,513Average
                interest rate
            3.42
            %
            —
            
            —
            
            —
            
            —
            
            —
            
            3.42
            %Notes
                receivable:Variable
                rate ($US)
            57,452
            
            63,054
            
            69,201
            
            75,948
            
            73,236
            
            —
            
            338,892
            
            338,892Average
                interest rate
            9.75
            %
            9.75
            %
            9.75
            %
            9.75
            %
            9.75
            %
            —
            
            9.75
            %**Liabilities:**Long-term
                debt:Fixed
                rate ($Cdn)
            192,898
            
            39,495
            
            45,487
            
            42,930
            
            47,219
            
            275,162
            
            643,193
            
            634,492Average
                interest rate
            8.81
            %
            7.48
            %
            7.69
            %
            7.31
            %
            7.39
            %
            6.95
            %
            7.61
            %Variable
                rate ($US)
            60,000
            
            60,000
            
            60,000
            
            60,000
            
            60,000
            
            711,622
            
            1,011,623
            
            1,011,623Average
                interest rate
            9.25
            %
            9.25
            %
            9.25
            %
            9.25
            %
            9.25
            %
            9.25
            
            9.25
            %




-17-
 **Table
          of Contents**




**Item
      4. Controls and Procedures.**





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





There
      have been no changes in the Company’s internal control over financial reporting
      identified in connection with the evaluation discussed above that occurred
      in
      the Company’s last fiscal quarter that has materially affected, or is reasonably
      likely to materially affect, the Company’s internal control over financial
      reporting.  -18-
 **Table
            of Contents**


**PART
      II**


**OTHER
      INFORMATION**





**Item
                1.**
            **Legal
                Proceedings.**The
                Company is not a party to any pending legal
                proceedings.**Item
                1A.**
            **Risk
                Factors.**There
                have been no material changes to the Risk Factors previously disclosed
                in
                the Company’s 10-K for the fiscal year ended January 31, 2006 and the
                Company's 10-Q for the quarter ended July 31, 2006.**Item
                2.**
            **Unregistered
                Sales of Equity Securities and Use of
                Proceeds.**Not
                applicable.**Item
                3.**
            **Defaults
                Upon Senior Securities.**Not
                applicable.




-19-
 **Table
          of Contents**




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





(a)
            The
                2006 Annual General Meeting of the Members was held on July 7,
                2006.





(c)
            No
                matters were voted upon at the 2006 Annual Meeting of the Members
                other
                than (i) the election of Mr. George G. Usher as a director of the
                Company
                to hold office for a three-year term expiring at the Annual General
                Meeting of the Members held in 2009 or until successors are duly
                elected
                and qualified, and (ii)the
                ratification of the appointment ofSchwartz
                Levitsky Feldman LLPas
                the independent registered accounting firm of the Company.
                The tabulation of votes in person or by proxy at the Annual Meeting
                with
                respect to such matters are as
                follows:





Proposal
      1 - Election of George G. Usher:





Class
            
            Votes
                For
            
            Votes
                Against
            
            Abstentions
                and
              Non-VotesCommon
                Shares Class B
            
            
            2,390,698
            
            
            119,449
            
            
            548,749Preferred
                Shares
            
            
            1,798,800(1
            )
            
            —
            
            
            —





(1)
            Class
                B Preferred Shares are entitled to two (2) votes per
                share.




Proposal
      2 - Ratification of Independent Registered Accounting Firm:





Class
            
            Votes
                For
            
            Votes
                Against
            
            Abstentions
                and
              Non-VotesCommon
                Shares Class B
            
            
            2,393,558
            
            
            112,104
            
            
            553,234Preferred
              Shares
            
            
            1,798,800(1
            )
            
            —
            
            
            —





(1)
            Class
                B Preferred Shares are entitled to two (2) votes per
                share.





(d)
            Not
                applicable.




**Item
                5.**
              ****Other
                  Information.****  Not
                applicable.


-20-
 **Table
          of Contents**




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


(a)
            Exhibits





3.1
            Memorandum
                of Association of Polydex Pharmaceuticals Limited, as amended to
                date
                (filed as Exhibit 3.1 to the Annual Report on Form 10-K filed April
                30,
                1997, and incorporated herein by
                reference)





3.2
            Articles
                of Association of Polydex Pharmaceuticals Limited, as amended to
                date
                (filed as Exhibit 3.2 to the Quarterly Report on Form 10-Q filed
                September
                13, 1999, and incorporated herein by
                reference)





31.1
            Certification
                of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities
                Exchange Act of 1934





31.2
            Certification
                of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities
                Exchange Act of 1934





32.1
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002





32.2
            Certification
                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002




-21-
 **Table
          of Contents**




**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, 2006




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)


-22-
 **Table
          of Contents**




**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




-23-