UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2009

[   ]

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

For the transition period from
_________________________ to ____________________

Commission File Number 1-8366

|POLYDEX PHARMACEUTICALS LIMITED                                     
|--------------------------------------------------------------------
|(Exact Name of Registrant as Specified in Its
      Charter)        
|                                                                    
|Commonwealth of
      the Bahamas                                   
|(State or Other Jurisdiction of Incorporation or
      Organization)
|                                                                    
|                                                                    
|421 Comstock
      Road, Toronto, Ontario, Canada                   
|(Address of Principal Executive Offices)                            

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

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

Indicate by check whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X  No ____

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

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

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

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

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

|Common Shares, $.0167 Par Value | 3,072,846                         
|------------------------------- | ----------------------------------
|(Title of Class)                | (Outstanding at November 30, 2009)

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POLYDEX PHARMACEUTICALS LIMITED

TABLE OF CONTENTS

**PART I**
    FINANCIAL INFORMATIONItem 1
    CONSOLIDATED FINANCIAL
      STATEMENTS (UNAUDITED)Consolidated Balance Sheets October 31, 2009
      (Unaudited) and January 31, 2009 (Audited)
    F-1Consolidated Statements of
      Operations and Comprehensive Income (Loss) Three months and nine months
      ended October 31, 2009 and 2008 (Unaudited)
    F-3Consolidated Statements of Shareholders Equity
      Nine months ended October 31, 2009 and 2008 (Unaudited)
    F-4Consolidated Statements of Cash
      Flows Nine months ended October 31, 2009 and 2008 (Unaudited)
    F-5Notes to Consolidated Financial Statements
      (Unaudited)
    F-6Item 2
    MANAGEMENTS DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    1Item 3
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
      MARKET RISK
    12Item 4
    CONTROLS AND PROCEDURES
    14PART II
    OTHER INFORMATIONItem 1
    LEGAL PROCEEDINGS
    15Item 2
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE
      OF PROCEEDS
    15Item 3
    DEFAULTS UPON SENIOR SECURITIES
    15Item 4
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
    15Item 5
    OTHER INFORMATION
    15Item 6
    EXHIBITS
    16Signatures and Certifications
    17


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Cautionary Note Regarding Forward-Looking Statements

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

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

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PART I FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited).

POLYDEX PHARMACEUTICALS LIMITED

Item 1. Consolidated Financial Statements
(Unaudited)

Consolidated Balance Sheets(Expressed in United States
dollars)

|                                                |  |   | October 31  |  |   | January 31 | 
|----------------------------------------------- |  | - | ----------- |  | - | ---------- | 
|                                                |  |   | 2009        |  |   | 2009       | 
|                                                |  |   | (Unaudited) |  |   | (Audited)  | 
|Assets                                          |  |   |             |  |   |            | 
|Current assets:                                 |  |   |             |  |   |            | 
|Cash in banks                                   |  | $ | 41,719      |  | $ | 327,857    | 
|Investments available for sale (note 3)         |  |   | 451,030     |  |   | 381,457    | 
|Trade accounts receivable                       |  |   | 698,604     |  |   | 161,858    | 
|Inventories                                     |  |   |             |  |   |            | 
|Finished
      goods                            |  |   | 876,063     |  |   | 626,058    | 
|Work in progress                                |  |   | 95,199      |  |   | 135,966    | 
|Raw
      materials                             |  |   | 335,439     |  |   | 241,599    | 
|                                                |  |   | 1,306,701   |  |   | 1,003,623  | 
|Prepaid expenses
      and other current assets |  |   | 90,286      |  |   | 106,221    | 
|Total current assets                            |  |   | 2,588,340   |  |   | 1,981,016  | 
|Property, plant and
      equipment, net        |  |   | 4,321,922   |  |   | 4,057,959  | 
|Patents and intangible assets, net              |  |   | 31,441      |  |   | 37,471     | 
|Due from estate of former shareholder           |  |   | 257,470     |  |   | 257,470    | 
|                                                |  | $ | 7,199,173   |  | $ | 6,333,916  | 

See accompanying notes.

F-1

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POLYDEX PHARMACEUTICALS LIMITED

Consolidated Balance Sheets (Expressed in United States
dollars)

|                                             |   |             |  |   |            | 
|-------------------------------------------- | - | ----------- |  | - | ---------- | 
|                                             |   | October 31  |  |   | January 31 | 
|                                             |   | 2009        |  |   | 2009       | 
|                                             |   | (Unaudited) |  |   | (Audited)  | 
|Liabilities and
    Shareholders' Equity     |   |             |  |   |            | 
|Current liabilities:                         |   |             |  |   |            | 
|Bank indebtedness                            | $ | 207,967     |  | $ | --         | 
|Accounts payable                             |   | 734,661     |  |   | 150,965    | 
|Accrued liabilities                          |   | 435,393     |  |   | 296,538    | 
|Customer deposits                            |   | 92,932      |  |   | 92,932     | 
|Current portion of long-term debt            |   | 41,649      |  |   | 35,336     | 
|Current portion of capital lease obligations |   | 4,705       |  |   | 15,299     | 
|Current portion of due to shareholder        |   | 30,000      |  |   | 30,000     | 
|Total current liabilities                    |   | 1,547,307   |  |   | 621,070    | 
|Long-term debt                               |   | 298,708     |  |   | 291,305    | 
|Capital lease obligations                    |   | 20,136      |  |   | 20,902     | 
|Due to shareholder                           |   | 554,458     |  |   | 578,316    | 
|                                             |   | 873,302     |  |   | 890,523    | 
|Total liabilities                            |   | 2,420,609   |  |   | 1,511,593  | 



|Going concern (note 1)                                        |   |             |   |   |             |  
|------------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|Shareholders' equity:                                         |   |             |   |   |             |  
|Capital stock                                                 |   |             |   |   |             |  
|Authorized:                                                   |   |             |   |   |             |  
|100,000 Class A preferred shares of $0.10 each                |   |             |   |   |             |  
|899,400 Class B preferred shares of $0.0167 each              |   |             |   |   |             |  
|10,000,000 common shares of $0.0167 each                      |   |             |   |   |             |  
|Issued and outstanding:                                       |   |             |   |   |             |  
|899,400 Class B preferred shares (January 31, 2009 - 899,400) |   | 15,010      |   |   | 15,010      |  
|3,072,846 common shares (January 31, 2009 - 3,072,846)        |   | 51,185      |   |   | 51,185      |  
|Contributed surplus                                           |   | 23,527,576  |   |   | 23,527,576  |  
|Deficit                                                       |   | (20,144,785 | ) |   | (19,370,714 | )
|Accumulated other comprehensive income                        |   | 1,329,578   |   |   | 599,266     |  
|                                                              |   | 4,778,564   |   |   | 4,822,323   |  
|                                                              | $ | 7,199,173   |   | $ | 6,333,916   |  
|                                                              |   |             |   |   |             |  
|See accompanying notes.                                       |   |             |   |   |             |  

F-2

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POLYDEX PHARMACEUTICALS LIMITED

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

|                                                               |  | Three
      Months |   |  | Three
      Months |   |  | Nine Months |   |  | Nine Months |  
|-------------------------------------------------------------- |  | ------------------ | - |  | ------------------ | - |  | ----------- | - |  | ----------- | -
|                                                               |  | Ended              |   |  | Ended              |   |  | Ended       |   |  | Ended       |  
|                                                               |  | October 31         |   |  | October 31         |   |  | October 31  |   |  | October 31  |  
|                                                               |  | 2009               |   |  | 2008               |   |  | 2009        |   |  | 2008        |  
|                                                               |  | (Unaudited)        |   |  | (Unaudited)        |   |  | (Unaudited) |   |  | (Unaudited) |  
|Sales                                                          |  | 1,153,776          |   |  | 1,373,963          |   |  | 3,416,736   |   |  | 3,890,452   |  
|Cost of goods sold                                             |  | 1,076,250          |   |  | 1,574,676          |   |  | 3,331,095   |   |  | 3,635,263   |  
|Gross profit
      (loss)                                      |  | 77,526             |   |  | (200,713           | ) |  | 85,641      |   |  | 255,189     |  
|Expenses                                                       |  |                    |   |  |                    |   |  |             |   |  |             |  
|General and
      administrative                               |  | 245,517            |   |  | 247,503            |   |  | 674,120     |   |  | 786,811     |  
|Selling and promotion                                          |  | 13,928             |   |  | 19,204             |   |  | 41,354      |   |  | 51,141      |  
|Interest
      expense,net                                     |  | 13,808             |   |  | 17,401             |   |  | 41,002      |   |  | 52,404      |  
|Depreciation                                                   |  | 3,888              |   |  | 9,089              |   |  | 14,421      |   |  | 27,351      |  
|Research and
      development                                 |  | 1,140              |   |  | 4,474              |   |  | 3,460       |   |  | 32,521      |  
|Foreign exchange loss (gain)                                   |  | 17,824             |   |  | (72,648            | ) |  | 91,672      |   |  | (80,735     | )
|Interest and other expense (income)                            |  | (2,137             | ) |  | (8,899             | ) |  | (6,317      | ) |  | (2,310      | )
|Total expenses                                                 |  | 293,968            |   |  | 216,124            |   |  | 859,712     |   |  | 867,183     |  
|Loss before
      income taxes                                 |  | (216,442           | ) |  | (416,837           | ) |  | (774,071    | ) |  | (611,994    | )
|Provision (recovery) of income taxes                           |  | -                  |   |  | 1,843              |   |  | -           |   |  | (55,298     | )
|Net loss for the period                                        |  | (216,442           | ) |  | (418,680           | ) |  | (774,071    | ) |  | (556,696    | )
|Unrealized gain (loss) on
      investments available for sale |  | 4,664              |   |  | (2,414             | ) |  | 11,509      |   |  | 22,431      |  
|Currency translation adjustment                                |  | (25,524            | ) |  | (1,092,741         | ) |  | 718,803     |   |  | (1,245,454  | )
|Comprehensive loss for the period                              |  | (237,302           | ) |  | (1,513,835         | ) |  | (43,759     | ) |  | (1,779,719  | )
|Per share
      information:                                   |  |                    |   |  |                    |   |  |             |   |  |             |  
|Loss
      per common share:                                   |  |                    |   |  |                    |   |  |             |   |  |             |  
|Basic                                                          |  | (0.07              | ) |  | (0.14              | ) |  | (0.25       | ) |  | (0.18       | )
|Diluted                                                        |  | (0.07              | ) |  | (0.14              | ) |  | (0.25       | ) |  | (0.18       | )
|                                                               |  |                    |   |  |                    |   |  |             |   |  |             |  
|Weighted average
      number of common shares used in         |  |                    |   |  |                    |   |  |             |   |  |             |  
|computing net loss per share for the period:                   |  |                    |   |  |                    |   |  |             |   |  |             |  
|Basic                                                          |  | 3,072,846          |   |  | 3,072,846          |   |  | 3,072,846   |   |  | 3,072,846   |  
|Diluted                                                        |  | 3,072,846          |   |  | 3,072,846          |   |  | 3,072,846   |   |  | 3,072,846   |  
|                                                               |  |                    |   |  |                    |   |  |             |   |  |             |  
|                                                               |  |                    |   |  |                    |   |  |             |   |  |             |  
|See accompanying
      notes.                                  |  |                    |   |  |                    |   |  |             |   |  |             |  

F-3

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|POLYDEX PHARMACEUTICALS
      LIMITED                   |   |             |   |   |             |  
|------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                        |   |             |   |   |             |  
|Consolidated Statements of
      Shareholders' Equity   |   |             |   |   |             |  
|(Expressed in United States
      dollars)              |   |             |   |   |             |  
|                                                        |   |             |   |   |             |  
|                                                        |   | Nine Months |   |   | Nine Months |  
|                                                        |   | Ended       |   |   | Ended       |  
|                                                        |   | October 31  |   |   | October 31  |  
|                                                        |   | 2009        |   |   | 2008        |  
|                                                        |   | (Unaudited) |   |   | (Unaudited) |  
|Preferred
      Shares:                                 |   |             |   |   |             |  
|Balance, beginning and end of period                    | $ | 15,010      |   | $ | 15,010      |  
|Common Shares:                                          |   |             |   |   |             |  
|Balance, beginning and end of period                    | $ | 51,185      |   | $ | 51,185      |  
|Contributed
      Surplus:                              |   |             |   |   |             |  
|Balance, beginning and end of period                    | $ | 23,527,576  |   | $ | 23,499,154  |  
|Deficit:                                                |   |             |   |   |             |  
|Balance, beginning of period                            | $ | (19,370,714 | ) | $ | (17,779,244 | )
|Net loss for the period                                 |   | (774,071    | ) |   | (556,696    | )
|Balance, end of period                                  | $ | (20,144,785 | ) | $ | (18,335,940 | )
|Accumulated
      Other Comprehensive Income:           |   |             |   |   |             |  
|Balance, beginning of period                            | $ | 599,266     |   | $ | 1,898,161   |  
|Unrealized gain on investments
      available for sale |   | 11,509      |   |   | 22,431      |  
|Currency translation adjustment for the period          |   | 718,803     |   |   | (1,245,454  | )
|Balance, end of period                                  | $ | 1,329,578   |   | $ | 675,138     |  
|                                                        |   |             |   |   |             |  
|See accompanying
      notes.                           |   |             |   |   |             |  

F-4

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POLYDEX PHARMACEUTICALS LIMITED

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

|                                                                            | Nine Months | Nine Months
|--------------------------------------------------------------------------- | ----------- | -----------
|                                                                            | Ended       | Ended      
|                                                                            | October 31  | October 31 
|                                                                            | 2009        | 2008       
|                                                                            | (Unaudited) | (Unaudited)
|Cash provided by (used in):                                                 |             |            
|Operating activities:                                                       |             |            
|Net loss for the period                                                     | (774,071)   | (556,696)  
|Add (deduct) items not affecting cash:                                      |             |            
|Depreciation and amortization                                               | 324,830     | 433,849    
|Interest on shareholder loan                                                | -           | (15,063)   
|Loss on investments available for sale                                      | -           | 31,644     
|Loss
      on foreign exchange contract                                     | -           | 26,097     
|Net change in non-cash working
      capital balances related to operations | 148         | (721,993)  
|Cash used in operating activities                                           | (449,093)   | (802,162)  
|Investing activities:                                                       |             |            
|Additions to property, plant and equipment                                  | (52,110)    | (80,163)   
|Decrease in due from shareholder                                            | -           | 16,500     
|Proceeds (acquisition) of investments available for sale                    | (7,114)     | 382,407    
|Cash provided
      by (used in) investing activities                       | (59,224)    | 318,744    
|Financing activities:                                                       |             |            
|Repayment of long-term debt                                                 | (28,681)    | (29,470)   
|Repayment of capital lease obligations                                      | (15,518)    | (3,892)    
|Decrease in due to shareholder                                              | (23,858)    | (40,130)   
|Increase in bank indebtedness                                               | 207,967     | 157,742    
|Cash provided
      by financing activities                                 | 139,910     | 84,250     
|Effect of exchange rate changes                                             | 82,269      | (55,774)   
|Net decrease in cash and cash equivalents                                   | (286,138)   | (454,942)  
|Cash and cash equivalents, beginning of year                                | 327,857     | 468,570    
|Cash and cash
      equivalents, end of year                                | 41,719      | 13,628     
|Cash and cash equivalents is comprised of
      the following:              |             |            
|Cash                                                                        | 41,719      | 13,628     
|                                                                            |             |            
|See accompanying notes.                                                     |             |            

F-5

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.Basis of Presentation:

The information contained in the interim consolidated financial
statements is condensed from that which would appear in annual consolidated
financial statements. The interim consolidated financial statements included
herein should be read in conjunction with the audited financial statements, and
notes thereto, and other financial information contained in the 2009 Annual
Report on Form 10-K for the fiscal year ended January 31, 2009 as filed by
Polydex Pharmaceuticals Limited (the Company) with the Securities and Exchange
Commission. The unaudited interim consolidated financial statements as of
October 31, 2009 and 2008 include all normal recurring adjustments which
management considers necessary for a fair presentation. The results of
operations for the interim periods presented are not necessarily indicative of
the results that may be expected for the entire fiscal year. The interim
consolidated financial statements include the accounts and transactions of the
Company and its majority owned subsidiaries in which the Company has equal to or
more than a 50% ownership interest and exercises control.

Management has reviewed sugsequent events, and there were no
material subsequent events since December 11, 2009 that would require recogntion
or note disclosures in these financial statements.

Going Concern

These consolidated financial statements have been prepared on
going concern basis which assumes that the Company will be able to realize
assets and discharge liabilities in the normal course of business for the
foreseeable future, For the fiscal year ended January 31, 2009, the Company
generated a consolidated net loss of $1,591,470 (October 31, 2009-$774,071;
January 31, 2008-$885,211) and realized a negative cash flow from operating
activities of $251,128 (October 31, 2009-$449,093; January 31, 2008-$297,899).
There was an accumulated deficit of $19,370,714 (October 31, 2009-$20,144,785;
January 31, 2008 - $17,779,244) The Company, through its wholly owned subsidiary
Dextran Products Limited, was also in violation of its debt service loan
covenant related to the bank term loan of $324,893 (Cdn$398,481) (October 31,
2009-$338,608; Cdn$366,340), on which the Company subsequently received a waiver
from its bank. The Company had positive working capital of $1,359,946 as at
January 31, 2009 (October 31, 2009-$1,041,033; January 31, 2008 - $2,403,042).

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

- Continued close monitoring of direct cost areas, including raw material
  pricing, and tight control of plant hours of work.
- Increased focus on productivity related to plant operations
- Cost monitoring relating to administrative and overhead expenses,
  including administrative wages, insurance, and reporting costs.
- Increased efforts to reduce exposure to negative foreign exchange
  fluctuations.

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

P a g e |F-6

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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

2.Significant Accounting Policies:

Basis of consolidation

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

Use of estimates

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

Cash and cash equivalents

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

Inventories

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

Investments available for sale

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

P a g e |F-7

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 earned.

P a g e |F-8

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Foreign currency translation

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

Stock options

The Company follows Statement of FASB ASC Topic 718 Accounting for Stock-Based Compensation,
according to which compensation expense is recognized on the date of grant, based on
the fair value of the options granted.

Foreign exchange contracts

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

Earnings (loss) per common share

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

P a g e |F-9

---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

3.     Investments Available for Sale:

Investments available for sale consist of the following:

|                                      |   | October 31 |  |   | January 31 | 
|------------------------------------- | - | ---------- |  | - | ---------- | 
|                                      |   | 2009       |  |   | 2009       | 
|                                      |   |            |  |   |            | 
|Canadian short-term fixed income fund | $ | 245,429    |  | $ | 205,934    | 
|Global fixed
      income bond fund   | $ | 205,601    |  | $ | 175,523    | 
|                                      | $ | 451,030    |  | $ | 381,457    | 

Canadian short-term fixed income bond fund is currently
yielding 2.74% . The Global fixed income bond fund is currently yielding
approximately 2.41% . Investments available for sale are stated at fair market
value, based on quoted market prices. An unrealized gain of $11,509 has been
included in accumulated other comprehensive income.

4.     Commitments and Contingencies:

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

5.     Stock-based Employee Compensation:

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

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

The Company uses the fair value method in accordance with FASB
ASC Topic 718 to account for awards of stock-based employee compensation. No stock-based
employee compensation expense was recorded during the period from February 1,
2009 to October 31, 2009, because there were no options granted during this
period. Similarly, no stock-based employee compensation expense was recorded
during the period from February 1, 2009 to October 31, 2009, because there were
no options granted during that period.

P a g e |F-10

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

6.     Segmented Information:

|                                       |   | Nine Months |  |   | Nine Months | 
|-------------------------------------- | - | ----------- |  | - | ----------- | 
|                                       |   | Ended       |  |   | Ended       | 
|                                       |   | October 31, |  |   | October 31, | 
|                                       |   | 2009        |  |   | 2008        | 
|                                       |   |             |  |   |             | 
|Total revenue by significant customer: |   |             |  |   |             | 
|Customer
      A                       | $ | 808,151     |  | $ | 746,620     | 
|Customer B                             | $ | 805,615     |  | $ | 735,078     | 
|Customer
      C                       | $ | 352,078     |  | $ | 674,550     | 
|Customer D                             | $ | 220,160     |  | $ | ---         | 
|Customer
      E                       | $ | 68,350      |  | $ | 53,960      | 
|Customer F                             | $ | ---         |  | $ | ---         | 
|                                       | $ | 2,254,354   |  | $ | 2,210,208   | 

|                                 |   | Nine Months |  |   | Nine Months | 
|-------------------------------- | - | ----------- |  | - | ----------- | 
|                                 |   | Ended       |  |   | Ended       | 
|                                 |   | October 31, |  |   | October 31, | 
|                                 |   | 2009        |  |   | 2008        | 
|                                 |   |             |  |   |             | 
|Sales by geographic destination: |   |             |  |   |             | 
|Europe                           | $ | 1,116,438   |  | $ | 1,040,771   | 
|Canada                           | $ | 829,630     |  | $ | 767,592     | 
|United
      States              | $ | 693,329     |  | $ | 1,329,247   | 
|Pacific Rim                      | $ | 408,115     |  | $ | 354,510     | 
|Other                            | $ | 369,224     |  | $ | 398,332     | 
|                                 | $ | 3,416,736   |  | $ | 3,890,452   | 

P a g e |F-11

---

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

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

Overview

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

The manufacture and sale of bulk
quantities of dextran and derivative products for sale to large pharmaceutical
companies throughout the world is conducted through Dextran Products in Canada,
and Chemdex in the United States. On March 4,2004, Chemdex 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.

Management Objectives for Fiscal 2010.

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

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

|1 |P a g e
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The Companys profitability for
the third quarter and the year to date was negatively impacted by a sales mix
that did not include expected shipments of powdered product, which provides
higher gross margin than its liquid products. Lowered powder sales were also a
contributing factor that led to the large writedown of work in progress that
occurred in the second quarter of fiscal year 2010. Management has devoted
effort to improve the profitability of liquid product, and recent improvements
to production processes are already showing positive results. Management has
also taken steps to reduce the effect of negative currency changes on the
Companys profitability, which should also be evident going forward. This is a
difficult area which is not always well received by our customers, but
management will continue to pursue this wherever possible.

Results of Operations

Three
    
    
    Three
    
    
    
    
    
    Nine
    
    
    NineMonths
    
    
    Months
    
    
    
    
    
    Months
    
    
    MonthsEnded
    
    
    Ended
    
    
    
    
    
    Ended
    
    
    EndedOctober 31,
    
    
    October 31,
    
    
    
    
    
    October 31,
    
    
    October 31,2009
    
    
    2008
    
    
    Variance
    
    
    2009
    
    
    2008
    
    
    VarianceNet loss
    $
    (216,442
    )
    $
    (418,680
    )
    
    48%
    
    $
    (774,071
    )
    $
    (556,696
    )
    
    (39)%Loss per Share
    $
    (0.07
    )
    $
    (0.14
    )
    
    
    
    $
    (0.25
    )
    $
    (0.18
    )


The reduction in the net loss for
the third quarter of fiscal year 2010, as compared to the third quarter of
fiscal year 2009, is primarily a result of improved gross margins. The increased
loss in the year to date of fiscal year 2010 as compared to 2009 is due
primarily to the decrease in sales and gross margin, as mentioned below.

Three
    
    
    Three
    
    
    
    
    
    Nine
    
    
    NineMonths
    
    
    Months
    
    
    
    
    
    Months
    
    
    MonthsEnded
    
    
    Ended
    
    
    
    
    
    Ended
    
    
    EndedOctober 31,
    
    
    October 31,
    
    
    
    
    
    October 31,
    
    
    October 31,2009
    
    
    2008
    
    
    Variance
    
    
    2009
    
    
    2008
    
    
    VarianceSales
    $
    1,153,776
    
    $
    1,373,963
    
    
    (16)%
    
    $
    3,416,736
    
    $
    3,890,452
    
    
    (12)%


Sales for the third quarter and
year to date of fiscal year 2010 decreased primarily as a result of lower sales
through our United States subsidiary, Chemdex, Inc. Overall year to date sales,
including those through Chemdex, Inc., are lower than prior years due to
decreased demand from customers affected by the depressed hog markets, and the
general slowdown in the world economy.

|2 |P a g e
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Three
    
    
    Three
    
    
    
    
    
    Nine
    
    
    NineMonths
    
    
    Months
    
    
    
    
    
    Months
    
    
    MonthsEnded
    
    
    Ended
    
    
    
    
    
    Ended
    
    
    EndedOctober 31,
    
    
    October 31,
    
    
    
    
    
    October 31,
    
    
    October 31,2009
    
    
    2008
    
    
    Variance
    
    
    2009
    
    
    2008
    
    
    VarianceGross profit
    $
    77,526
    
    $
    (200,713
    )
    
    139%
    
    $
    85,641
    
    $
    255,189
    
    
    (66
    )%Percentage of sales
    
    6.7%
    
    
    (14.6
    )%
    
    
    
    
    2.5%
    
    
    6.6%


The significant increase in gross
margin for the third quarter of fiscal year 2010 is primarily due to production
related factors that occurred in the third quarter of fiscal year 2009,
including an equipment breakdown that resulted in the loss of an expensive raw
material, the reworking of a number of batches of powdered product, and the
write off of unsatisfactory product, all of which adversely affected gross
profit in that quarter. These problems did not occur in the third quarter of
fiscal year 2010. However the lower gross profit in the year to date of fiscal
year 2010 compared to the year to date of fiscal year 2009 is primarily
attributable to several factors. First, though overall sales declined 12%, the
most significant decline has been in the sales of powdered product, which have
much higher margins than our liquid products. Second, in the second quarter of
fiscal year 2010, the Company experienced a large writedown of work in progress
inventory that had reached its expiry date.

Three
    
    
    Three
    
    
    
    
    
    Nine
    
    
    NineMonths
    
    
    Months
    
    
    
    
    
    Months
    
    
    MonthsEnded
    
    
    Ended
    
    
    
    
    
    Ended
    
    
    EndedOctober 31,
    
    
    October 31,
    
    
    
    
    
    October 31,
    
    
    October 31,2009
    
    
    2008
    
    
    Variance
    
    
    2009
    
    
    2008
    
    
    VarianceSelling, promotion,general
      and administrative expenses
    $
    259,445
    
    $
    266,707
    
    
    (3
    )%
    $
    715,474
    
    $
    837,952
    
    
    (15
    )%


The decrease during the third
quarter and year to date of fiscal year 2010 in selling, promotion, general and
administrative expenses is primarily due to a general decrease in the expenses
of the Company, as well as the reduction in value of the Canadian dollar
experienced in the year to date of fiscal year 2009. These reductions included
legal, insurance, consulting and reporting costs, and are a result of the
continued focus by management to minimize these costs.

Three
    
    
    Three
    
    
    
    
    
    Nine
    
    
    NineMonths
    
    
    Months
    
    
    
    
    
    Months
    
    
    MonthsEnded
    
    
    Ended
    
    
    
    
    
    Ended
    
    
    EndedOctober 31,
    
    
    October 31,
    
    
    
    
    
    October 31,
    
    
    October 31,2009
    
    
    2008
    
    
    Variance
    
    
    2009
    
    
    2008
    
    
    VarianceResearch and developmentexpenditures
    $
    1,140
    
    $
    4,474
    
    
    (75
    )%
    $
    3,460
    
    $
    32,521
    
    
    (89
    )%


Research and development
expenditures continue to be reduced throughout the third quarter and year to
date of fiscal year 2010 compared to the same periods for fiscal year 2009, as a
result of the cessation of activities related to the Phase III clinical trials
for Ushercell announced in January 2007. Included in the research and
development expenditures for the nine months of fiscal year 2009 are legal
expenses related to maintaining protection for the Companys various existing
patents.

|3 |P a g e
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|                                     |   | Three       |  |   | Three       |  |  |          |    |   | Nine        |  |   | Nine        |  |  |          |   
|------------------------------------ | - | ----------- |  | - | ----------- |  |  | -------- | -- | - | ----------- |  | - | ----------- |  |  | -------- | --
|                                     |   | Months      |  |   | Months      |  |  |          |    |   | Months      |  |   | Months      |  |  |          |   
|                                     |   | Ended       |  |   | Ended       |  |  |          |    |   | Ended       |  |   | Ended       |  |  |          |   
|                                     |   | October 31, |  |   | October 31, |  |  |          |    |   | October 31, |  |   | October 31, |  |  |          |   
|                                     |   | 2009        |  |   | 2008        |  |  | Variance |    |   | 2009        |  |   | 2008        |  |  | Variance |   
|Depreciation andamortization expense | $ | 104,190     |  | $ | 130,279     |  |  | (20      | )% | $ | 324,830     |  | $ | 433,849     |  |  | (25      | )%

The decrease in depreciation and
amortization expense is a result of several factors. First, capital expenditures
decreased in the third quarter and year to date of fiscal year 2010 compared to
the third quarter and year to date of fiscal year 2009. Second, the impairment
write down that occurred in the fourth quarter of fiscal year 2009 resulted in
lowered values for the Companys plant and equipment, which in turn has
decreased ongoing depreciation charges. Third, lower depreciation also resulted
from the decreased value of the Canadian dollar during fiscal year 2010.
Significant asset acquisitions related to the plant refurbishment have not been
put into service and are therefore not yet being depreciated.

|                 |   | Three       |  |   | Three       |  |  |          |    |   | Nine        |  |   | Nine        |  |  |          |   
|---------------- | - | ----------- |  | - | ----------- |  |  | -------- | -- | - | ----------- |  | - | ----------- |  |  | -------- | --
|                 |   | Months      |  |   | Months      |  |  |          |    |   | Months      |  |   | Months      |  |  |          |   
|                 |   | Ended       |  |   | Ended       |  |  |          |    |   | Ended       |  |   | Ended       |  |  |          |   
|                 |   | October 31, |  |   | October 31, |  |  |          |    |   | October 31, |  |   | October 31, |  |  |          |   
|                 |   | 2009        |  |   | 2008        |  |  | Variance |    |   | 2009        |  |   | 2008        |  |  | Variance |   
|Interest Expense | $ | 13,808      |  | $ | 17,401      |  |  | (21      | )% | $ | 41,002      |  | $ | 52,404      |  |  | (22      | )%

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

|4 |P a g e
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|                             |   | Three       |  |   | Three       |   |  |          |  |   | Nine        |  |   | Nine        |   |  |          | 
|---------------------------- | - | ----------- |  | - | ----------- | - |  | -------- |  | - | ----------- |  | - | ----------- | - |  | -------- | 
|                             |   | Months      |  |   | Months      |   |  |          |  |   | Months      |  |   | Months      |   |  |          | 
|                             |   | Ended       |  |   | Ended       |   |  |          |  |   | Ended       |  |   | Ended       |   |  |          | 
|                             |   | October 31, |  |   | October 31, |   |  |          |  |   | October 31, |  |   | October 31, |   |  |          | 
|                             |   | 2009        |  |   | 2008        |   |  | Variance |  |   | 2009        |  |   | 2008        |   |  | Variance | 
|Foreign exchange (gain) loss | $ | 17,824      |  | $ | (72,648     | ) |  | 125%     |  | $ | 91,672      |  | $ | (80,735     | ) |  | 214%     | 

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

|                          |   | Three       |   |   | Three       |   |  |          |    |   | Nine        |   |   | Nine        |   |  |          | 
|------------------------- | - | ----------- | - | - | ----------- | - |  | -------- | -- | - | ----------- | - | - | ----------- | - |  | -------- | 
|                          |   | Months      |   |   | Months      |   |  |          |    |   | Months      |   |   | Months      |   |  |          | 
|                          |   | Ended       |   |   | Ended       |   |  |          |    |   | Ended       |   |   | Ended       |   |  |          | 
|                          |   | October 31, |   |   | October 31, |   |  |          |    |   | October 31, |   |   | October 31, |   |  |          | 
|                          |   | 2009        |   |   | 2008        |   |  | Variance |    |   | 2009        |   |   | 2008        |   |  | Variance | 
|Interest and other income | $ | (2,137      | ) | $ | (8,899      | ) |  | (76      | )% | $ | (6,317      | ) | $ | (2,310      | ) |  | 173%     | 

The loss in interest and other
income in the third quarter of fiscal year 2010 is primarily due to the increase
in value of the US dollar compared to the Canadian dollar during this period. A
decrease in the value of the Canadian dollar, compared to the United States
dollar, translates to a lesser amount being shown in these financial statements.
The decrease in interest and other income in the year to date of fiscal year
2010 compared to the year to date of fiscal year 2009 is due to the increased
value of the US dollar compared to the Canadian dollar throughout this period as
mentioned above, as well as the reduction in the investments available for sale
that occurred during the year to date of fiscal year 2009.

|                                              |  | Three       |  |  | Three       |  |  |          |  |  | Nine        |  |   | Nine        |   |  |          | 
|--------------------------------------------- |  | ----------- |  |  | ----------- |  |  | -------- |  |  | ----------- |  | - | ----------- | - |  | -------- | 
|                                              |  | Months      |  |  | Months      |  |  |          |  |  | Months      |  |   | Months      |   |  |          | 
|                                              |  | Ended       |  |  | Ended       |  |  |          |  |  | Ended       |  |   | Ended       |   |  |          | 
|                                              |  | October 31, |  |  | October 31, |  |  |          |  |  | October 31, |  |   | October 31, |   |  |          | 
|                                              |  | 2009        |  |  | 2008        |  |  | Variance |  |  | 2009        |  |   | 2008        |   |  | Variance | 
|Provision for(recovery of)
      income taxes |  | ---         |  |  | 1,843       |  |  | 100%     |  |  | ---         |  | $ | (55,298     | ) |  | 100%     | 

|5 |P a g e
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The tax recovery for the year to date of fiscal year 2009 resulted from the reversal of the deferred tax provision previously carried as an other liability on the balance sheet, and which was no longer
required due to the availability of the Companys carryforward of unused tax losses, and tax credits arising from unused research and development expenditures. The tax provision for the third quarter of fiscal year 2009 was due to tax payments
related to Chemdex. The Canadian operations continue to have significant research and development tax pools to offset current taxes payable.

Liquidity and Capital Resources

As of October 31, 2009, the Company had cash and cash equivalents of $41,719, compared to cash and cash equivalents of $327,857 at January 31, 2009, and $13,628 at October 31, 2008. In the third quarter of
fiscal year 2010 the Company utilized cash of $94,884 in its operating activities, compared to $53,967 for the third quarter of fiscal year 2009. The decrease in cash from operations during the third quarter of fiscal year 2009 was due to
the loss from operations during the period. Depreciation continues to be a large non-cash expense of the Company.

The Companys working capital decreased to $1,041,033 and a working capital ratio of 1.67 to 1 as of October 31, 2009, compared to $1,359,946 and 3.19 to 1 as of January 31, 2009.

As of October 31, 2009, the Company had accounts receivable of $698,604 and inventory of $1,306,701, compared to $161,858 and $1,003,623 respectively at January 31, 2009 and $887,476 and
$1,401,630 respectively at October 31, 2008. The increase in accounts receivable and inventory is due to the very low amount of receivables and inventory as at January 31, 2009 that resulted from the plant shutdown in the fourth quarter of
fiscal year 2009 and the timing of customer payments.

At October 31, 2009, the Company had accounts payable of $734,661 compared to $150,965 at January 31, 2008 and $375,304 at October 31, 2007. The increase in accounts payable was due to the very low amount of
payables as at January 31, 2009, which was also due to the plant shutdown in the fourth quarter of fiscal year 2009 and the timing of supplier payments.

During the third quarter of fiscal year 2009, capital expenditures totaled $8,886 as compared to $52,250 in the third quarter of fiscal year 2009. It is managements intention to maintain a minimal level of
capital expenditures to the extent possible.

The change in accumulated other comprehensive income of the Company is primarily attributable to the currency translation adjustment of Dextran Products. Dextran Products functional currency is the Canadian
dollar, which has depreciated compared to the United States dollar during the third quarter of fiscal year 2010. This currency translation adjustment arises from the translation of Dextran Products financial statements to U.S. dollars.

Dextran Products has a Cdn. $250,000 (U.S. $231,075) operating line of credit, of which Cdn. $225,000 (U.S.$207,967) was utilized at October 31, 2009, and nil January 31, 2009. This line of credit bears
interest at the Canadian banks prime lending rate at plus 1.00% (October 31, 2009  3.25%; October 31, 2008  5.00%; January 31, 2009 
4.00%) . The line of credit is used periodically by the Company to cover
temporary short-term Canadian dollar cash needs. For these short-term cash
needs, the interest expense on the credit line is typically less than the
transaction costs incurred in selling investments. In May 2006 a fixed rate term
loan of Cdn. $500,000 (U.S. $442,713) was obtained to fund capital purchases.
The interest rate is 6.95% until 2011. Bank indebtedness is collateralized by a
general security agreement over the Companys assets and a collateral mortgage
of Cdn. $500,000 on the Dextran Products building in Toronto.

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The increase in long-term debt
from January 31, 2009 is due to the increase in the value of the Canadian
dollar. Repayments during the period have actually decreased long-term debt and
capital leases in accordance with their repayment terms.

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

Related Party Transactions

In August 1997, the Company
loaned the late Thomas C. Usher, its Vice-Chairman, Director of Research and
Development, a member of its Board of Directors and the beneficial owner of
greater than 5% of the outstanding common shares of the Company, $691,500 at an
interest rate equal to the prime rate of Toronto Dominion Bank plus 1.50% (the
Loan). The Loan was used to partially fund a $1,000,000 payment to the State
of Florida in order to allow Thomas C. Usher to regain possession of 430,000
Common Shares of the Company then held by the State as collateral security
relating to the liquidation of insurance companies formerly owned by Thomas C.
Usher. Repayment of the Loan is accomplished by periodic payments and, in the
past, bonus payments, if any, granted to Thomas C. Usher as an employee of the
Company. The amount outstanding under the Loan as of October 31, 2009 was
$310,534, as compared to $299,716 at January 31, 2009, including accrued
interest. The Company has taken a cumulative provision of $334,308 against
accrued interest on this loan at October 31, 2009 ($323,490 as at January 31,
2009). Obligations with respect to the Loan transferred to the estate of Thomas
C. Usher upon his death in February 2005.

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

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As of October 31, 2009, Thomas C. Usher, now through his estate, had pledged 243,263 common shares of the Company as security for these amounts owing to the Company. These common shares had a market value of $85,575
at October 31, 2009, based on the closing price of the Companys common shares as quoted on the OTC Bulletin Board on October 31, 2009. The Company intends to continue to hold the remaining pledged assets as collateral until the amounts owing
discussed above are repaid.

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

The Company also has an outstanding loan payable to Ruth Usher, a former director and the widow of Thomas C. Usher.  The amount due from the Company pursuant to this loan decreased to $584,434 at October 31, 2009
from $608,293 at January 31, 2009 due to monthly payments by the Company, less interest charges.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

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, and are described in more detail in Note 2 to the interim consolidated financial statements and below.

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

Revenue Recognition

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

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Allowance for Doubtful Accounts

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

Long-Lived Assets

Long-lived assets are stated at cost, less accumulated depreciation or amortization computed using the straight-line method based on their estimated useful lives ranging from three to fifteen years. Useful life is the
period over which the asset is expected to contribute to the Companys future cash flows. A significant change in estimated useful lives could have a material impact on the results of operations. The Company reviews the recoverability of its
long-lived assets, including buildings, equipment and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on
the Companys ability to recoverthe carrying value of the asset from the expected future pre-tax cash flows (undiscounted andwithout interest charges) of the related operations. If these cash flows are less than thecarrying value of such asset, an impairment loss is recognized for the difference betweenestimated fair value and carrying value. The measurement of impairment requires management tomake estimates of these cash flows related to
long-lived assets as well as other fair valuedeterminations.

Deferred Tax Assets

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

Changes in Accounting Policies

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

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Item 3. Quantitative and Qualitative Disclosures About
Market Risk

Exchange Rate Sensitivity

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

While the majority of the sales of Dextran Products, the
Companys Canadian operation, are denominated in U.S. 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 U.S. dollar, the carrying value of the
assets and liabilities of Dextran Products as stated in U.S. dollars increases.
A rise in the Canadian dollar relative to the U.S. 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 U.S. dollar because it has a net asset exposure to the U.S.
dollar resulting from accounts receivables denominated in United States dollars
exceeding U.S. dollar denominated accounts payable and customer deposits.
Similarly, a decline in the Canadian dollar relative to the U.S. dollar results
in a foreign exchange gain and increased gross margins and net income at Dextran
Products.

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

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

Expected Maturity DateFair10/31/10
    
    
    10/31/11
    
    
    10/31/12
    
    
    10/31/13
    
    
    10/31/14
    
    
    Thereafter
    
    
    Total
    
    
    Value(US$ Equivalent)Assets:Short-term investments:Fixed rate ($Cdn)
    
    439,689
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    439,689
    
    
    451,029Average interest rate
    
    2.58%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.58%Liabilities:Long-term debt:Fixed rate ($Cdn)
    
    45,190
    
    
    48,700
    
    
    52,446
    
    
    56,492
    
    
    54,983
    
    
    92,027
    
    
    349,839
    
    
    322,143Average interest rate
    
    9.16%
    
    
    9.16%
    
    
    9.17%
    
    
    9.18%
    
    
    9.105%
    
    
    9.00%
    
    
    9.12%


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Interest Rate Sensitivity

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

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

Expected Maturity DateFair10/31/10
    
    
    10/31/11
    
    
    10/31/12
    
    
    10/31/13
    
    
    10/31/14
    
    
    Thereafter
    
    
    Total
    
    
    Value(US$ Equivalent)Assets:Short-term investments:Fixed rate ($Cdn)
    
    439,689
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    439,689
    
    
    451,029Average interest rate
    
    2.58%
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.58%Notes receivable:Variable rate ($US)
    
    22,813
    
    
    22,508
    
    
    23,578
    
    
    24,698
    
    
    25,871
    
    
    187,378
    
    
    306,845
    
    
    306,845Average
      interest rate
    
    4.75%
    
    
    4.75%
    
    
    4.75%
    
    
    4.75%
    
    
    4.75%
    
    
    4.75%
    
    
    4.75%Liabilities:Long-term debt:Fixed rate ($Cdn)
    
    45,190
    
    
    48,700
    
    
    52,446
    
    
    56,492
    
    
    54,983
    
    
    92,027
    
    
    349,839
    
    
    322,143Average
      interest rate
    
    9.16%
    
    
    9.16%
    
    
    9.17%
    
    
    9.18%
    
    
    9.05%
    
    
    9.00%
    
    
    9.12%Variable rate ($US)
    
    32,239
    
    
    33,771
    
    
    35,375
    
    
    37,055
    
    
    38,815
    
    
    407,179
    
    
    584,435
    
    
    584,435Average
      interest rate
    
    4.75%
    
    
    4.75%
    
    
    4.75%
    
    
    4.75%
    
    
    4.75%
    
    
    4.75%
    
    
    4.75%


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Item 4. Controls and Procedures.

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

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

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PART IIOTHER INFORMATION

|Item
      **1.** | Legal Proceedings                                                 
|----------------- | ------------------------------------------------------------------
|                  | The Company is not a
      party to any pending legal proceedings.
|Item
      **2.** | Unregistered Sales of Equity
      Securities and Use of Proceeds 
|                  | Not applicable.                                                   
|Item
      **3.** | Defaults Upon Senior
      Securities                             
|                  | Not applicable.                                                   
|Item
      **4.** | Submission of Matters to a
      Vote of Security Holders.        
|                  | None                                                              
|Item
      **5.** | Other Information                                                 
|                  | None.                                                             

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

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

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SIGNATURES

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

Date: December 14, 2009

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


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Exhibit Index

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

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