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~~ Q

~~For~~ QUARTERLY ~~the~~REPORT ~~quarterly~~PURSUANT ~~period~~TO ~~ended~~SECTION 13 ~~July~~OR 15(d) ~~31,~~OF ~~2007~~ THE SECURITIES EXCHANGE ACT OF 1934

~~[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR~~ ~~15(d)~~For OFthe ~~THE~~quarterly ~~SECURITIES~~period ~~EXCHANGE~~ended ~~ACT~~July ~~OF 1934~~ 31, 2008

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

For the transition period from _________________________ to ____________________

Commission File Number 1-8366

POLYDEX PHARMACEUTICALS LIMITED (Exact Name of Registrant as Specified in Its Charter) Commonwealth of the Bahamas None (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 421 Comstock Road, Toronto, Ontario, Canada M1L 2H5 (Address of Principal Executive Offices) (Zip Code) Registrant’s Telephone Number, Including Area Code (416) 755-2231 Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

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

Large Accelerated Filer ___ Accelerated Filer ___ Non-Accelerated Filer X

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)

~~Indicate by check mark whether the~~ Registrant’s isTelephone aNumber, ~~shell~~Including Area ~~company~~ Code (as416) ~~defined in Rule 12b~~755-22231 ~~of the Exchange Act).~~ ~~Yes __ No X~~

~~Indicate the number of shares~~ ~~outstanding~~ Former ofName, ~~each~~Former ofAddress ~~the~~and ~~issuer’s~~Former Fiscal ~~classes of common shares~~Year, asif ofChanged ~~the~~Since ~~latest practicable~~Last ~~date.~~ Report

Common Shares, $.0167 Par Value		3,072,846
(Title of Class)		(Outstanding at August 31, 2007)

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.

POLYDEX PHARMACEUTICALS LIMITED
TABLE OF CONTENTS
PART I	FINANCIAL INFORMATION
Item 1	CONSOLIDATED FINANCIAL STATEMENTS
	(UNAUDITED)
	Consolidated Balance Sheets
	July 31, 2007 (Unaudited) and January 31, 2007 (Audited)	F-1
	Consolidated Statements of Operations
	and Comprehensive Income (Loss)
	Three months and six months ended July 31, 2007 and 2006 (Unaudited)	F-3
	Consolidated Statements of Shareholders’ Equity
	Six months ended July 31, 2007 and 2006 (Unaudited)	F-4
	Consolidated Statements of Cash Flows
	Six months ended July 31, 2007 and 2006 (Unaudited)	F-5
	Notes to Consolidated Financial Statements (Unaudited)	F-6
Item 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF
	FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1
Item 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES
	ABOUT MARKET RISK	14
Item 4	CONTROLS AND PROCEDURES	16
PART II	OTHER INFORMATION
Item 1	LEGAL PROCEEDINGS	17
Item 1A	RISK FACTORS	17
Item 2	UNREGISTERED SALES OF EQUITY SECURITIES AND
	USE OF PROCEEDS	17
Item 3	DEFAULTS UPON SENIOR SECURITIES	17
Item 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	17
Item 5	OTHER INFORMATION	17
Item 6	EXHIBITS	18
	Signatures and Certifications

Yes Q No £

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

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

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

Yes £ No Q

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

Common Shares, $.0167 Par Value	3,072,846
(Title of Class)	(Outstanding at August 31, 2008)

POLYDEX PHARMACEUTICALS LIMITED

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1	CONSOLIDATED FINANCIAL STATEMENTS
	(UNAUDITED)

	Consolidated Balance Sheets
	July 31, 2008 (Unaudited) and January 31, 2008 (Audited)	F-1

	Consolidated Statements of Operations
	and Comprehensive Income (Loss)
	Three months and six months ended July 31, 2008 and 2007 (Unaudited)	F-3

	Consolidated Statements of Shareholders’ Equity
	Six months ended July 31, 2008 and 2007 (Unaudited)	F-4

	Consolidated Statements of Cash Flows
	Six months ended July 31, 2008 and 2007 (Unaudited)	F-5

	Notes to Consolidated Financial Statements (Unaudited)	F-6

Item 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF
	FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1

Item 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES
	ABOUT MARKET RISK	11

Item 4	CONTROLS AND PROCEDURES	13

PART II OTHER INFORMATION

Item 1	LEGAL PROCEEDINGS	14

Item 2	UNREGISTERED SALES OF EQUITY SECURITIES AND
	USE OF PROCEEDS	14

Item 3	DEFAULTS UPON SENIOR SECURITIES	14

Item 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	14

Item 5	OTHER INFORMATION	14

Item 6	EXHIBITS	15

	Signatures and Certifications	16

Cautionary Note Regarding Forward-Looking Statements

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

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

PART I

FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited).

POLYDEX PHARMACEUTICALS LIMITED

POLYDEX PHARMACEUTICALS LIMITED

Consolidated Balance Sheets
(Expressed in United States dollars)

				July 31		January 31
				2008		2008
				(Unaudited)		(Audited)

Assets

Current assets:
	Cash and cash equivalents (note 3)		$	153,584	$	468,570
	Investments available for sale (note 4)			458,131		845,034
	Trade accounts receivable			951,381		611,975
	Inventories
		Finished goods		1,404,085		790,822
		Work in process		282,076		380,855
		Raw materials		314,780		178,813
				2,000,941		1,350,490

	Prepaid expenses and other current assets			108,565		116,172

Total current assets				3,672,602		3,392,241

Property, plant and equipment, net				5,654,438		6,041,348
Patents and intangible assets, net				41,491		45,511
Due from shareholder				294,412		284,170

			$	9,662,943	$	9,763,270

~~Consolidated Balance Sheets (Expressed in United States dollars)~~F-1

		~~July 31~~	July 31	~~January 31~~	January 31
		2007		2007
			2008		2008
		~~(Unaudited)~~	(Unaudited)	~~(Audited)~~	(Audited)
Assets
Liabilities and Shareholders' Equity
Current assets:
Current liabilities:
Cash and cash equivalents (note 3)	$	794,745	$	1,384,995
	Bank indebtedness	$	195,314	$	-
Trade accounts receivable		859,308		1,139,186
	Accounts payable		538,600		399,820
Inventories
	Accrued liabilities		242,896		320,096
Finished goods		905,997		792,128
	Payroll and related taxes payable		121,447		98,736
Work in process		403,211		364,338
	Customer deposits		92,932		92,932
Raw materials		220,903		182,391
	Current portion of long-term debt		41,455		41,544
		1,530,111		1,338,857
	Current portion of capital lease obligations		6,104		6,071
Prepaid expenses and other current assets		106,748		100,780
	Current portion of due to shareholder		30,000		30,000
Total current assets		3,290,912		3,963,818
Total current liabilities			1,268,748		989,199
Property, plant and equipment, net		5,615,216		4,308,337
Long-term debt			369,812		398,540
Patents and intangible assets, net		49,531		53,551
Capital lease obligations			3,551		6,734
Investments available for sale (note 4)		781,738		1,437,636
Due to shareholder			602,450		628,569
Due from shareholder		355,564		363,956
Deferred income taxes			-		55,962
	$	10,092,961	$	10,127,298
			975,813		1,089,805
Total liabilities			2,244,561		2,079,004
Shareholders' equity:
	Capital stock
	Authorized:
	100,000 Class A preferred shares of $0.10 each
	899,400 Class B preferred shares of $0.0167 each
	10,000,000 common shares of $0.0167 each
	Issued and outstanding:
	899,400 Class B preferred shares		15,010		15,010
	3,072,846 common shares (January 31, 2008 - 3,072,846)		51,185		51,185
	Contributed surplus		23,499,154		23,499,154
	Deficit		(17,917,260)		(17,779,244)
	Accumulated other comprehensive income		1,770,293		1,898,161
			7,418,382		7,684,266
		$	9,662,943	$	9,763,270

~~F-1~~See accompanying notes.

July 31 January 31
2007 2007
(Unaudited) (Audited)
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 721,298 $ 1,213,518
Accrued liabilities 231,799 188,869
Payroll and related taxes payable 64,917 49,624
Customer deposits 92,932 92,757
Current portion of long-term debt 37,340 32,957
Current portion of capital lease obligations 5,423 4,657
Current portion of due to shareholder 7,000 6,000
Total current liabilities 1,160,709 1,588,382
Long-term debt 395,359 374,624
Capital lease obligations 9,268 10,902
Due to shareholder 667,926 673,309
Deferred income taxes 134,754 121,767
1,207,307 1,180,602
Total liabilities 2,368,016 2,768,984
Shareholders’ equity:
Capital stock
Authorized:
100,000 Class A preferred shares of $0.10 each
899,400 Class B preferred shares of $0.0167 each
10,000,000 common shares of $0.0167 each
Issued and outstanding:
899,400 Class B preferred shares 15,010 15,010
3,072,846 common shares (January 31, 2007 - 3,072,846) 51,185 51,185
Contributed surplus 23,483,659 23,483,659
Deficit (17,256,624) (16,894,033)
Accumulated other comprehensive income 1,431,715 702,493
7,724,945 7,358,314
$ 10,092,961 $ 10,127,298
See accompanying notes.
F-2

~~F-2~~POLYDEX PHARMACEUTICALS LIMITED Consolidated Statements of Operations and Comprehensive Income (Loss) (Expressed in United States dollars)

~~POLYDEX~~Three ~~PHARMACEUTICALS LIMITED~~Months

~~Consolidated~~Three ~~Statements of Operations and Comprehensive Income (Loss) (Unaudited) (Expressed in United States dollars)~~Months

Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
July 31 July 31 July 31 July 31
2007 2006 2007 2006
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Sales $ 1,504,365 $ 1,856,718 $ 2,851,498 $ 3,290,391
Cost of goods sold 1,405,262 1,625,305 2,543,434 2,738,956
99,103 231,413 308,064 551,435
Expenses:
General and administrative 294,955 333,944 569,188 672,506
Research and development 54,520 72,484 75,847 166,185
Selling and promotion 27,081 45,918 51,174 73,505
Interest expense 25,008 24,390 49,844 43,888
Depreciation 9,685 13,774 19,556 27,188
Foreign exchange (gain) loss 18,365 (8,120) 45,586 (8,247)
Loss (gain) on sale of assets - 3,486 - (20)
Cash surrender value of life insurance (77,073) (77,073)
Interest and other income (25,085) (34,649) (63,467) (443,232)
327,456 451,227 670,655 531,773
Income (loss) before income taxes (228,353) (219,814) (362,591) 19,662
Provision for (recovery of) income taxes - - - -
Net income (loss) for the period (228,353) (219,814) (362,591) 19,662
Unrealized gain (loss) on investments available for sale 3,332 7,450 397 (1,921)
Currency translation adjustment 296,573 -91,841 728,825 48,724
Comprehensive income (loss) for the period $ 71,552 $ -304,205 $ 366,631 $ 66,465
Per share information:
Earnings (loss) per common share:
Basic $ (0.07) $ (0.07) $ (0.12) $ 0.01
Diluted $ (0.07) $ (0.07) $ (0.12) $ 0.01
Weighted average number of common shares used in computing net earnings per share for the period:
Basic 3,072,846 3,060,396 3,072,846 3,059,646
Diluted 3,072,846 3,060,396 3,072,846 3,078,472
See accompanying notes.
Six Months

~~F-3~~Six Months

~~POLYDEX PHARMACEUTICALS LIMITED~~Ended

~~Consolidated Statements of Shareholders’ Equity (Expressed in United States dollars)~~Ended

Six Six
Months Months
Ended Ended
July 31 July 31
2007 2006
(Unaudited) (Unaudited)
Preferred Shares:
Balance, beginning and end of period $ 15,010 $ 15,010
Common Shares:
Balance, beginning of period 51,185 50,953
Common share options exercised - 50
Balance, end of period $ 51,185 $ 51,003
Contributed Surplus:
Balance, beginning of period 23,483,659 23,400,259
Common share options issued - 35,160
Common share options exercised - 8,950
Balance, end of period $ 23,483,659 $ 23,444,369
Deficit:
Balance, beginning of period $ (16,894,033) $ (16,633,410)
Net income (loss) for the period (362,591) 19,662
Balance, end of period $ (17,256,624) $ (16,613,748)
Accumulated Other Comprehensive Income:
Balance, beginning of period $ 702,493 $ 945,250
Unrealized gain (loss) on investments available for sale 397 (1,921)
Currency translation adjustment for the period 728,825 48,724
Balance, end of period $ 1,431,715 $ 992,053
See accompanying notes.
Ended

~~F-4~~Ended

~~POLYDEX~~July ~~PHARMACEUTICALS LIMITED~~31

~~Consolidated~~July ~~Statements of Cash Flows (Unaudited) (Expressed in United States dollars)~~31

Six Six
Months Months
Ended Ended
July 31 July 31
2007 2006
(Unaudited) (Unaudited)
Cash provided by (used in):
Operating activities:
Net income (loss) for the period $ (362,591) $ 19,662
Add (deduct) items not affecting cash:
Depreciation and amortization 270,685 294,600
Amortization of premium on investments available for sale - 473
Gain on disposal of equipment - (20)
Options issued in exchange for services - 35,160
Net change in non-cash working capital balances related to operations (229,660) (205,267)
`
(321,566) 144,608
Investing activities:
Additions to property, plant and equipment and patents (1,089,321) (437,060)
Decrease in due from shareholder 8,392 29,400
Decrease in accrued interest on investments 3,232 12,932
Unrealized gain on commercial paper available for sale 1,335 309
Proceeds of investments available for sale 774,989 769,869
Proceeds from sale of equipment - 4,450
(301,373) 379,900
Financing activities:
Repayment of long-term debt (17,193) (5,645)
Repayment of capital lease obligations (2,418) (92,459)
Increase (decrease) in due to shareholder (4,383) 1,175
Increase in long-term bank indebtedness - 442,987
Exercise of common share options - 9,000
(23,994) 355,058
Effect of exchange rate changes on cash 56,684 (4,878)
Increase (decrease) in cash and cash equivalents (590,250) 874,688
Cash and cash equivalents, beginning of period 1,384,995 971,451
Cash and cash equivalents, end of period $ 794,745 $ 1,846,139
Cash and cash equivalents is comprised of the following:
Cash $ 240,523 $ 694,062
Short-term deposits 554,222 1,152,077
$ 794,745 $ 1,846,139
See accompanying notes.
July 31

~~F-5~~July 31

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~ 2008

1.2008

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 2007 Annual Report on Form 10-K for the fiscal year ended January 31, 2007 as filed by Polydex Pharmaceuticals Limited (the "Company") with the Securities and Exchange Commission. The unaudited interim consolidated financial statements as of July 31, 2007 and 2006 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. 2008

2.2007

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. (Unaudited)

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. (Unaudited)

~~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.~~ (Unaudited)

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. (Unaudited)

Sales

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 $

~~Page |F-~~1,296,704

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~ $

(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.1,504,365

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~~ 2,516,489

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 asset2, ~~an impairment loss is recognized for the difference between estimated fair value and carrying value.~~ 851,498

Cost of goods sold

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. 1,104,798

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 contract1, ~~either upon shipment of product or upon receipt by the customer.~~ 405,262

~~Product sold in bulk quantities is tested~~2, ~~prior to release for shipment~~060, 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. 587

~~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.~~ 2,543,434

~~Research and development Research and development costs are expensed as incurred and are stated net of investment tax credits earned.~~ 191,906

~~Page |F-~~99,103

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~ 455,902

Foreign currency translation The functional currency of the Company’s Canadian operations has been determined to be the Canadian dollar. All asset and liability accounts of the Company except capital stock have been translated into United States dollars using the current exchange rates at the interim consolidated balance sheet dates. Capital stock is recorded at historical rates. Revenue and expense items are translated using the average exchange rates for the year. The resulting gains and losses have been reported separately as accumulated other comprehensive income within shareholders’ equity. 308,064

Expenses:

~~Stock~~General ~~options~~and 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. administrative

~~Earnings (loss) per common share Basic earnings (loss) per common share is computed using the weighted average number of common shares outstanding of 3~~281,072,846 for the three months ended July 31, 2007 (2006 - 3,060,396). Diluted earnings (loss) per common share is computed using the weighted average number of common shares outstanding adjusted for the incremental shares, using the treasury stock method, attributed to outstanding options to purchase common stock. Incremental shares of nil at July 31, 2007 and July 31, 2006 were used in the calculation of diluted earnings (loss) per common share, as their effect was anti-dilutive. Options to purchase common shares of nil were included in the computation of diluted earnings per share as at July 31, 2007. Options to purchase common shares of 35,175 at July 31, 2006 were included in the computation of diluted earnings (loss) per common share. 833

3.294,955

~~Cash and cash equivalents consist of the following:~~ 539,308

		July 31		January 31
		2007		2007
Cash	$	240,523	$	382,419
Short-term deposit		554,222		1,002,576
	$	794,745	$	1,384,995

569,188

~~Short-term~~Interest deposit in the amount of Cdn. $590,008 bears interest at 4.39% and mature on September 14, 2007. 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 loss of $8,313 has been included in accumulated other comprehensive income. expense

~~Page |F-~~15,781

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~ 25,008

4.35,003

~~Investments available for sale consist of the following:~~ 49,844

		July 31		January 31
		2007		2007
Canadian medium-term fixed income fund	$	314,902	$	636,024
Canadian income trust units and mutual funds	$	466,836	$	801,612
	$	781,738	$	1,437,636

Selling and promotion

~~Canadian medium-term fixed income fund has maturity dates extending from one to two years and a yield of approximately 4.9%. Investments available for sale are stated at fair market value~~17, ~~based on quoted market prices. An unrealized gain of $8,710 has been included in accumulated other comprehensive income.~~ 958

5.27,081

~~The Company is committed to make a payment of $21~~31,556 upon the completion of the final report of the bacterial vaginosis clinical study, begun in September 2004, which is expected to occur during fiscal year 2008. In March 2006, the Company entered into an agreement for the monitoring of the bacterial vaginosis clinical trial. A payment of $26,563 was made in the second quarter of fiscal year 2008, and a final payment is expected to made in fiscal year 2008 in the amount of $5,423. 937

~~As at July 31~~51, 2007, the Company had commitments of $45,081 for capital expenditures related to the plant refurbishment at Dextran Products in Toronto, and is expecting to make payment on these refurbishments in fiscal year 2008. 174

6.Research and development

~~The Company maintains an incentive share option plan for management personnel for options to purchase up to 1~~23,~~000,000 common shares. The Company also issues options to certain consultants for services provided to the Company.~~ 263

~~All options granted have terms of five years and vest immediately. At July 31~~54, 2007, the Company had 37,725 options outstanding at exercise prices ranging from $2.50 to $10.01 and a weighted average exercise price of $5.64. The options, which are immediately exercisable and expire on dates between January 31, 2008 and January 31, 2012, entitle the holder of an option to acquire one common share of the Company. 520

The Company uses the fair value method in accordance with SFAS 123 to account for awards of stock-based employee compensation. No stock-based employee compensation expense was recorded during the period from February 128, 2007 to July 31, 2007, because there were no options granted during this period. During the three months ended July 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. 047

~~Page |F-~~75,847

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~ Depreciation

7.9,101

~~In 1992~~9, Veterinary Laboratories, Inc. ["Vet Labs"] 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 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. 685

~~On January 13~~18, 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. The warrant expired at the earlier of payment in full of the promissory note or 10 years from 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. Pursuant to definitive agreements, the Company made representations, warranties and indemnities and agreed to a full release of all claims against Sparhawk arising from litigation. Similarly, Sparhawk agreed to a full release of all claims against the Company arising from the Joint Venture litigation. 262

~~The sale resulted in a gain of $2~~19,209,471, 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. 556

~~Page~~Foreign ~~|F-~~exchange loss (gain)

(7,456)

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)~~ 18,365

(8,087)

8.45,586

	Six Months		Six Months
	Ended		Ended
	July 31,		July 31,
	2007		2006
Total revenue by significant customer:
Customer A	$	588,945	$	523,335
Customer B	$	290,117	$	282,868
Customer C	$	258,091	$	78,779
Customer D	$	194,400	$	355,136
Customer E	$	170,240	$	379,679
Customer F	$	103,600	$	331,760
Customer F	$	1,605,393	$	1,951,557

Cash surrender value of life insurance

	Six Months		Six Months
	Ended		Ended
	July 31,		July 31,
	2007		2006
Sales by geographic destination:
Europe	$	1,214,033	$	1,300,195
United States	$	523,037	$	498,353
Canada	$	483,494	$	496,912
Pacific Rim	$	370,056	$	320,006
Other	$	260,878	$	674,925
	$	2,851,498	$	3,290,391

(77,073)

~~Page |F~~-

(77,073)

~~Item~~Interest ~~2. Management’s Discussion~~ and ~~Analysis~~other ofexpense ~~Financial Condition and Results of Operations~~(income)

~~The Company’s fiscal year ends on January 31st of each year. In this report~~20, fiscal year 2008 refers to the Company’s fiscal year ended January 31, 2008. The following discussion should be read in conjunction with the July 31, 2007 interim consolidated financial statements and notes thereto included elsewhere in this report. Operating results for the six months ended July 31, 2007 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2008. 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, 2007.961

(25,085)

~~Overview~~6,589

(63,467)

~~The Company is engaged in the research~~361, 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. 441

~~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~~327, ~~and Chemdex in the United States which provides ferric hydroxide and hydrogenated dextran to Sparhawk pursuant to a definitive supply agreement.~~ 456

~~Management Objectives for Fiscal 2008~~651,059

The rise in the Canadian dollar as compared to the United States dollar in the third quarter as well as the year to date of fiscal year 2008 has had a significant negative impact on costs related to the operations of the Company670, which are located in Toronto, Canada. Management is addressing this issue through price increases, and continued cost reductions in all areas, especially those related to cost of sales, without compromising the quality of our products. 655

Loss before income taxes

(169,535)

(228,353)

(195,157)

(362,591)

Recovery of income taxes

(57,141)

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. On January 31, 2007, the Company announced that trials, originally intended to evaluate various aspects of the use of Cellulose Sulphate as a gel with antiviral capabilities, were being halted due to higher than expected rates of HIV seroconversion. Announcements were prepared and distributed in conjunction with CONRAD and other agencies which were involved with the trials. A full investigation is now underway as to the potential cause and to determine exactly what occurred. The final report is expected towards the end of fiscal year 2008. The Company never received any financial gain from this project, and as a result, there is no immediate or direct effect on sales or revenues. Management is investigating potential uses for Cellulose Sulphate in the contraceptive field. -

(57,141)

~~Chemdex, Vet Labs and the Joint Venture Business~~-

Net loss for the period

(112,394)

(228,353)

(138,016)

(362,591)

Unrealized gain on investments available for sale

~~During approximately one month of fiscal year 2005~~24, 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 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. 741

~~Management considered the finished goods veterinary pharmaceuticals industry to be a highly competitive~~3, mature industry, and believed that meaningful growth in this industry would require significant investment in new product development. The Company’s investment in this industry through the Joint Venture required the sharing of profits with its partner. Management believed that the Company could expect to obtain a higher return on investment by focusing on its current Dextran Products business and on human pharmaceutical research and development projects. The sale of this business segment resulted in a significant reduction in consolidated sales and gross profits during fiscal year 2006. 332

~~Results of Operations~~24,845

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2007	2006	Variance	2007	2006	Variance
Net income (loss)	$(228,353)	$ (219,814)	(4)%	$(362,591)	$19,662	(1944)%
Earnings (Loss) per Share	$(0.07)	$(0.07)		$(0.12)	$0.01

397

Currency translation adjustment

(136,744)

~~The net loss for the second quarter of fiscal year 2008~~296, as compared to the second quarter of fiscal year 2007, is a result of the low gross margins and lower sales volumes experienced during the period, partially offset by increased investment income. The net income for the year to date of fiscal year 2007 was attributable primarily to the recognition of the deferred gain on the promissory note related to the sale of the veterinary products assets to Sparhawk (see note 7 to the Consolidated Financial Statements) as well as the higher sales and gross margins experienced during that period. Without that gain and the related interest received, the Company would have incurred a net loss of $336,820 and the loss per share would have been $0.08 for the year to date of fiscal year 2007. 573

(152,713)

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2007	2006	Variance	2007	2006	Variance
Sales	$1,504,365	$1,856,718	(19)%	$2,851,498	$3,290,391	(13)%

728,825

Comprehensive income (loss) for the period

The sales decrease for the second quarter and year to date of fiscal year 2008 compared to the second quarter and year to date of fiscal year 2007 was primarily due to plant equipment repairs that decreased overall sales volumes, but especially affected higher margin product sales. In addition, the annual plant shutdown occurred approximately 10 days earlier this year.$

(224,397)

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2007	2006	Variance	2007	2006	Variance
Gross profit	$99,103	$231,413	(57)%	$308,064	$551,435	(44)%
Percentage of sales	6.6%	12.5%		10.8%	16.8%

The decrease in gross margin for the second quarter and the year to date of fiscal year 2008 compared to the second quarter and year to date of fiscal year 2007 is primarily due to several factors throughout both quarters of fiscal year 2008. First71, as mentioned above, the sales mix did not favor higher margin product. Second, certain direct costs were higher than anticipated: repairs and maintenance increased as a result of repairs to key production equipment, and utilities increased due to supplier price increases. Third, since production is based at the Dextran Products Limited facility in Toronto, Canada, the rise of the Canadian dollar relative to the US dollar throughout this period significantly increased the cost of sales.552

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2007	2006	Variance	2007	2006	Variance
Selling, promotion,
general and
administrative expenses	$322,036	$379,862	(15)%	$620,362	$746,011	(17)%

(265,884)

The decrease during the second quarter and year to date of fiscal year 2008 in selling, promotion, general and administrative expenses is primarily due to a general decrease in the expenses of the Company, offset by the continued increase in the value of the Canadian dollar, as mentioned above. These reductions included legal, insurance, consulting and reporting costs, and are a result of the continued focus by management to minimize this cost center. $

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2007	2006	Variance	2007	2006	Variance
Research and development
expenditures	$54,520	$72,484	(25)%	$75,847	$166,185	(54)%

366,631

~~The~~Per ~~decrease~~share in research and development expenses during the second quarter and year to date of fiscal year 2008 is a result of the reduction in activities due to the suspension of Phase III clinical trials for Ushercell, which was announced in January 2007. An independent review board is examining all of the data associated with the clinical trial and its report is expected later this fiscal year. Additionally, the costs related to patent issuance fees and consulting fees were reduced in the second quarter and year to date of fiscal year 2008 as compared to the second quarter and year to date of fiscal year 2007. information:

~~The~~Loss ~~bacterial~~per ~~vaginosis~~common ~~trial that was run in fiscal 2007 is also due to generate a report in fiscal 2008. At this time, no further research regarding bacterial vaginosis is planned.~~ share:

Funding for the Company’s primary development product, cellulose sulphate, has been provided directly by third party public and/or private sector groups to the entities carrying out such research. The Company did not take possession or control over these funds. The Company has benefited 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 this funding or to purchase the results of such research. Basic

~~Further funding from research and development partners for these projects has been put on hold, pending receipt of the independent review board report mentioned above.~~ $

(0.04)

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2007	2006	Variance	2007	2006	Variance
Depreciation and
amortization expense	$139,764	$150,489	(7)%	$270,685	$294,600	(8)%

(0.07)

The decrease in depreciation and amortization expense for the second quarter and year to date of fiscal year 2008 compared to the second quarter and year to date of fiscal year 2007 resulted primarily from some assets, primarily in plant equipment, having reached their fully depreciated values. This decrease is partially offset by the increased value of the Canadian dollar noted above. Significant asset acquisitions related to the plant refurbishment have not been put into service and are therefore not yet being depreciated. $

(0.04)

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2007	2006	Variance	2007	2006	Variance
Interest Expense	$25,008	$24,390	2%	$49,844	$43,888	13%

(0.12)

Interest expense for the second quarter of fiscal 2008 increased from the comparative amount for the second quarter of fiscal year 2007 primarily due to the rise in value of the Canadian dollar. In addition to the rise in value of the Canadian dollar, the increase in the year to date of fiscal year 2008 compared to fiscal year 2007 is also due to the increase in long-term debt related to the capital equipment loan obtained in the second quarter of fiscal year 2007, partially offset by the reduction in capital lease obligations. Diluted

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2007	2006	Variance	2007	2006	Variance
Foreign exchange (gain) loss	$18,365	$(8,120)	(326)%	$45,586	$(8,247)	(653)%

(0.04)

The foreign exchange loss for the first quarter and year to date of fiscal year 2008 compared to the gain for the first quarter and year to date of fiscal year 2007 was due to the continued decline in value of the United States dollar compared to the Canadian dollar. At July 31, 2007, Dextran Products has a net asset exposure to the United States dollar because its liabilities denominated in United States dollars were less than its United States dollar denominated accounts receivable balances. $

(0.07)

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2007	2006	Variance	2007	2006	Variance
Interest and other
income and cash
surrender value of
life insurance	$102,158	$34,649	195%	$140,540	$443,232	(68)%

(0.04)

The increase in other income in the second quarter of fiscal year 2008 is primarily related to the redemption of the cash surrender value of an insurance policy that is no longer required. The decrease in other income in the year to date of fiscal year 2008 compared to the year to date of fiscal year 2007 is primarily related to recognition of the deferred gain on the promissory note receivable from Sparhawk (see note 7 to the Consolidated Financial Statements) in the first quarter of fiscal year 2007. Interest income in the second quarter and the year to date of fiscal year 2008 is also increased by the cessation of the allowance related to the shareholder loan (see Related Party Transactions below). $

(0.12)

Weighted average number of common shares used in

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2007	2006	Variance	2007	2006	Variance
Provision for
(recovery of) income
taxes	–	–	–	–	–	–

computing net earnings per share for the period:

The tax provision of nil for the quarter and year to date ended July 31, 2007 and July 31, 2006 results 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. Basic

~~Liquidity and Capital Resources~~3,072,846

~~As of July 31~~3, ~~2007~~072, the Company had cash and cash equivalents of $794,745, compared to cash and cash equivalents of $1,384,995 at January 31, 2007. In the second quarter of fiscal year 2008 the Company utilized cash of $626,930 in its operating activities, compared to generating cash of $323,852 for the second quarter of fiscal year 2007. The decrease in cash from operations during the second quarter of fiscal year 2008 was primarily due to the loss from operations during the period, as well as the increase in receivables and inventory. Depreciation continues to be a large non-cash expense of the Company. 846

~~The Company’s working capital decreased to $2~~3,~~130~~072,~~203 and a working capital ratio of 2.8 to 1 as of July 31, 2007, compared to $2,375,436 and 2.5 to 1 as of January 31, 2007.~~ 846

~~Management expects the primary source of its future capital needs to be a combination of company earnings~~3, ~~cash on hand and borrowings.~~ 072,846

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. Diluted

~~As of July 31~~3, ~~2007~~072, the Company had accounts receivable of $859,308 and inventory of $1,530,111, compared to $1,139,186 and $1,338,857 respectively at January 31, 2007 and $1,047,865 and $1,601,219 respectively at July 31, 2006. The decrease in accounts receivable is due to the timing of customer payments. 846

~~At July 31~~3, ~~2007~~072, the Company had accounts payable of $721,298 compared to $1,213,518 at January 31, 2007 and $707,157 at July 31, 2006. The decrease in accounts payable was due to reductions in outstanding amounts related to the plant refurbishment and the timing of supplier payments. 846

~~During the second quarter of fiscal year 2008~~3, ~~capital expenditures totaled $351~~072,578, as compared to $242,454 in the second quarter of fiscal year 2007. The expenditures for the second quarter of fiscal 2008 were primarily for construction costs relating to the plant refurbishment, as compared to production equipment costs at the Dextran Products plant in Toronto in the second quarter of fiscal year 2007. Management intends to complete Phase I of its plant refurbishment and expansion plan at Dextran Products in Toronto during the third quarter of fiscal year 2008 and expects capital expenditures to substantially decrease during the remainder of fiscal year 2008. 846

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 dollar3, which has substantially appreciated compared to the United States dollar during the second quarter and year to date of fiscal year 2008. This currency translation adjustment arises from the translation of Dextran Products’ financial statements to U.S. dollars. 072,846

~~Dextran~~See ~~Products~~accompanying ~~has a Cdn~~notes. $750,000 (U.S. $703,037) operating line of credit, of which none was utilized at July 31, 2007 and January 31, 2007. This line of credit bears interest at the Canadian banks’ prime lending rate plus 0.75% (July 31, 2007 – 6.25.%; January 31, 2007 – 6.00%). In May 2006 a fixed term rate loan of Cdn. $500,000 (U.S. $468,700) was obtained to fund capital purchases. The interest rate is 0.75% over Canadian bank prime lending rate (6.95%). Bank indebtedness is collateralized by a general security agreement over the Company’s assets and a collateral mortgage of Cdn. $500,000 on the Dextran Products building in Toronto. The 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~~F-term debt and capital lease obligations from January 31, 2007 is due to the increase in value of the Canadian dollar compared to the United States dollar during the quarter and year to date ended July 31, 2007.3

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.


POLYDEX PHARMACEUTICALS LIMITED

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

			Six Months		Six Months
			Ended		Ended
			July 31		July 31
			2008		2007
			(Unaudited)		(Unaudited)

Preferred Shares:
	Balance, beginning and end of period	$	15,010	$	15,010

Common Shares:
	Balance, beginning and end of period	$	51,185	$	51,185

Contributed Surplus:
	Balance, beginning and end of period	$	23,499,154	$	23,483,659

Deficit:
	Balance, beginning of period	$	(17,779,244)	$	(16,894,033)
	Net loss for the period		(138,016)		(362,591)

	Balance, end of period	$	(17,917,260)	$	(17,256,624)

Accumulated Other Comprehensive Income:
	Balance, beginning of period	$	1,898,161	$	702,493
	Unrealized loss reclassified on investments available for sale		24,845		397
	Currency translation adjustment for the period		(152,713)		728,825

	Balance, end of period	$	1,770,293	$	1,431,715

~~The~~See ~~Company~~accompanying ~~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~~notes.

~~Related Party Transactions~~F-4

In August 1997, the Company loaned the late Thomas C. Usher, its Vice-Chairman, Director of Research and Development, a member of its Board of Directors and the beneficial owner of greater than 5% of the outstanding common shares of the Company, $691,500 at an interest rate equal to the prime rate of Toronto Dominion Bank plus 1.50% (the "Loan"). The Loan was used to partially fund a $1,000,000 payment to the State of Florida in order to allow Thomas C. Usher to regain possession of 430,000 Common Shares of the Company then held by the State as collateral security relating to the liquidation of insurance companies formerly owned by Thomas C. Usher. Repayment of the Loan is accomplished by periodic payments and, in the past, bonus payments, if any, granted to Thomas C. Usher as an employee of the Company. The amount outstanding under the Loan as of July 31, 2007 was $298,435, as compared to $306,827 at January 31, 2007, including accrued interest. The Company has taken a cumulative provision of $323,490 against accrued interest on this loan at July 31, 2007, and January 31, 2007. Obligations with respect to the Loan transferred to the estate of Thomas C. Usher.


POLYDEX PHARMACEUTICALS LIMITED

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

			Six Months		Six Months
			Ended		Ended
			July 31		July 31
			2008		2007
			(Unaudited)		(Unaudited)

Cash provided by (used in):

Operating activities:
	Net loss for the period	$	(138,016)	$	(362,591)
	Add (deduct) items not affecting cash:
	Depreciation and amortization		303,570		270,685
	Interest on shareholder loan		(10,242)		(15,040)
	Loss on investments available for sale		31,724		-
	Net change in non-cash working capital balances related to operations		(935,231)		(229,660)

			(748,195)		(336,606)

Investing activities:
	Additions to property, plant and equipment and patents		(27,913)		(1,089,321)
	Decrease in due from shareholder		-		23,431
	Decrease in accrued interest on investments		-		3,232
	Proceeds of investments available for sale		376,623		776,324

			348,710		(286,334)

Financing activities:
	Repayment of long-term debt		(20,428)		(17,193)
	Repayment of capital lease obligations		(2,941)		(2,418)
	Decrease in due to shareholder		(26,119)		(4,383)
	Increase in bank indebtedness		195,314		-

			145,826		(23,994)

	Effect of exchange rate changes on cash		(61,327)		56,684

Decrease in cash and cash equivalents			(314,986)		(590,250)

Cash and cash equivalents, beginning of period			468,570		1,384,995

Cash and cash equivalents, end of period		$	153,584	$	794,745


Cash and cash equivalents is comprised of the following:
	Cash	$	68,909	$	240,523
	Short-term deposits		84,675		554,222

		$	153,584	$	794,745

See accompanying notes.

In August 1999, Thomas C. Usher personally assumed all of the assets and liabilities of Novadex Corp., including the balance of receivables (the "Receivables") due to the Company from Novadex Corp. The Receivables have no specific repayment terms. The total outstanding amount of the Receivables as of July 31, 2007 and January 31, 2007 was $130,619. The Company continues to be obligated to make royalty payments to Mr. Usher’s estate pursuant to intellectual property license agreements, and intends to continue to offset such payments against the Receivables. Thomas C. Usher also owed $250,000 to a subsidiary of the Company, Novadex International Limited, as of July 31, 2007, pursuant to a nonF-interest bearing loan with no specific repayment terms. The outstanding amount of this loan has not changed from January 31, 2007. The amounts continue to remain owing from the estate of Thomas C. Usher upon his death on February 26, 2005. 5

~~As of~~ ~~July~~NOTES ~~31,~~TO ~~2007,~~CONSOLIDATED ~~Thomas~~FINANCIAL C.STATEMENTS Usher, now through his estate, had pledged 288,706 common shares of the Company as security for these amounts owing to the Company. These common shares had a market value of $490,800 at July 31, 2007, based on the closing price of the Company s common shares on the NASDAQ Capital Market on July 31, 2007. During the second quarter of fiscal year 2008, George G. Usher, Chief Executive Officer of the Company, purchased 13,703 shares of the Company from the estate for a cost of $23,432, based on the share market price at the time of purchase. Proceeds were used to reduce the shareholder loan owing to the Company. The Company intends to continue to hold the remaining pledged assets as collateral until the amounts owing discussed above are repaid. (Unaudited)

~~The Company had a commitment to pay~~ ~~an amount equal to one year’s salary, $110,000, to Thomas C~~1. ~~Usher’s estate. The amount owing on this commitment as at July 31, 2007 is $38,408.~~

~~The Company also has an outstanding~~ ~~loan~~Basis ~~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 $674,900 at July 31, 2007 from $679,285 at January 31, 2007 due to monthly payments by the Company, less interest charges. Presentation:

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

~~The Company has no off-balance sheet arrangements.~~ 2.

~~Tabular~~ Significant ~~Disclosure~~Accounting ~~of Contractual Obligations~~Policies:

~~As of July 31, 2007, future minimum~~ ~~cash~~Basis ~~payments due under contractual obligations, including, among others, the Dextran Products line~~ of ~~credit, 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:~~ consolidation

	Payment due by period
Contractual		Less than	1 – 3	3 – 5	More than
Obligations	Total	1 year	years	years	5 years
Long-term debt	$ 1,232,675	$ 162,730	$ 324,663	$322,304	$422,978
obligations (1)
Capital lease	16,898	6,759	10,139	--	--
obligations (2)
Operating Lease	4,228	604	1,208	1,208	1,208
obligations (3)
Purchase	72,060	72,060	--	--	--
obligations (4)
Revolving loans	--	--	--	--	--
(5)
Total	$1,325,861	$242,153	$336,010	$323,512	$424,186

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.

~~1. Consists~~ Use of: estimates

~~(a)~~ ~~Equipment~~The ~~purchase~~preparation ~~term~~of ~~loan~~consolidated offinancial ~~Cdn~~statements ~~$457,957~~in ~~(US~~conformity ~~$429,281)~~with ~~repayable~~United States generally accepted accounting principles requires management to ~~a Canadian~~make ~~bank~~estimates inand ~~monthly~~assumptions ~~payments~~that affect the reported amounts of ~~Cdn~~assets ~~$5,792~~and ~~including~~liabilities ~~interest~~and disclosure of contingent assets and liabilities at ~~6.95%, maturing~~the ~~May~~date ~~2011;~~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.

~~(b) Note payable~~ inCash ~~quarterly payments of Cdn. $419 (US $393), bearing interest at 10.43%~~ and ~~maturing~~ ~~December~~cash ~~2009; and~~ equivalents

~~(c)~~ ~~Amounts~~Cash ~~due~~and tocash ~~shareholder~~equivalents ~~which~~include ~~bear~~cash ~~interest~~and atshort-term ~~the~~deposits ~~U.S.~~with ~~bank~~maturities ~~prime~~of ~~lending rate~~less ~~plus~~than ~~1.5%,~~three ~~with~~months ~~required~~at ~~minimum~~the ~~monthly~~date ~~payments, including interest,~~ of ~~$8,000.~~ purchase.

~~2. Consists of~~ ~~capital lease obligations for office equipment of Cdn. $16,898 (US $15,840) repayable in quarterly installments, bearing interest at 10.43% and maturing December 2009.~~ Inventories

3 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.

~~4. Consists of:~~ F-6

~~(a) Purchase~~ ~~obligations~~NOTES ofTO ~~$26,979~~CONSOLIDATED ~~for~~FINANCIAL ~~research~~STATEMENTS ~~and development services payable as specified milestones are achieved.~~ (Unaudited)

~~(b) Purchase~~ ~~obligation~~Investments ofavailable ~~$45,081~~ for ~~completion of construction phases related to the plant refurbishment.~~ sale

5. ~~Consists~~Investments available for sale consist of ~~Canadian~~medium-term ~~$750~~fixed income instruments,~~000~~ ~~operating~~trust ~~line~~income offunds, ~~credit~~and ~~bearing~~mutual ~~interest~~funds, and are stated at ~~the~~fair ~~Canadian~~market ~~banks’~~value ~~prime~~based ~~lending rate~~on ~~plus~~quoted 0market prices.~~75%,~~ Interest ~~repayable~~income ~~upon~~is ~~demand.~~included Noin ~~balance~~other income in the consolidated statement of operations as it is ~~outstanding~~earned. Changes atin ~~July~~market ~~31, 2007~~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.

~~Critical~~ Property, ~~Accounting~~plant ~~Policies~~and equipment and patents and intangible assets

~~The~~ Property, ~~Company’s~~plant ~~interim~~and ~~consolidated financial~~equipment ~~statements~~ are ~~prepared~~recorded inat ~~accordance~~cost ~~with~~less ~~accounting~~accumulated ~~principles generally~~depreciation. Depreciation ~~accepted~~is inprovided ~~the United States, applied~~ on a ~~consistent~~straight-line basis. ~~The critical~~over ~~accounting policies include~~ the ~~use~~estimated ~~of estimates of allowance for doubtful accounts, the~~ useful lives of ~~assets and~~ the ~~realizability of deferred tax~~ assets. ~~The~~as ~~Company’s accounting policies with respect to the Joint Venture and its disposition are also discussed below.~~ follows:

~~Management is required to make~~ ~~estimates~~Buildings 15 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. years

~~Revenue~~ Machinery ~~Recognition~~and equipment 3 to 10 years

~~Since March 4, 2004, all revenue is~~ ~~from~~Patents ~~sales of bulk manufactured products~~ and isintangible ~~recognized~~assets ~~when~~are ~~title~~recorded ~~and~~at ~~risk of~~cost ~~ownership of products pass to the customer. Title~~ and ~~risk~~are ofamortized ~~ownership~~on ~~pass to~~a ~~the~~straight-line ~~customer~~basis ~~pursuant~~over totheir ~~the~~estimated ~~applicable~~useful ~~sales~~lives ~~contract, either upon shipment~~ of ~~product~~ten ~~or upon receipt by the customer~~years. Intangible ~~Since~~assets ~~returns~~consist ~~are~~of ~~rare~~intellectual ~~and generally not accepted~~property, ~~management~~government ~~has~~licenses ~~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 ingovernment ~~many~~license ~~cases, customers receive samples for their own testing~~applications. ~~Approval is obtained from the customer prior to shipping.~~

~~Allowance~~ 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 ~~Doubtful~~the ~~Accounts~~difference between estimated fair value and carrying value.

~~Accounts receivable is stated net of~~ ~~allowances~~Costs ~~for~~related ~~doubtful~~to ~~accounts.~~plant ~~Allowances~~refurbishments ~~for~~and ~~doubtful~~equipment ~~accounts~~upgrades ~~are determined~~that byrepresent ~~each~~improvements ~~reporting~~to ~~unit~~existing onfacilities aare ~~specific item basis~~capitalized. Costs ~~Management~~related ~~reviews the~~to ~~credit~~repair ~~worthiness of individual customers~~ and ~~past~~maintenance ~~payment history to determine the allowance for doubtful accounts. Since the majority~~ of ~~sales~~buildings ~~at Dextran~~and ~~Products~~equipment 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~~expensed. The ~~There~~Company has ~~been~~ no ~~allowance~~major ~~for~~planned ~~doubtful accounts~~maintenance ~~during the past two fiscal years~~activity.

~~Long-Lived~~ Revenue ~~Assets~~recognition

~~Long-lived assets are stated at cost,~~ ~~less~~Revenue ~~accumulated~~results ~~depreciation~~from orsales ~~amortization~~of ~~computed~~bulk ~~using~~manufactured ~~the straight-line method based on their estimated useful lives ranging from three to fifteen years~~products. ~~Useful~~Revenue ~~life~~ is ~~the~~recognized ~~period~~when ~~over~~title 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~~risk ~~intangible assets, when events or changes in circumstances occur that indicate that the carrying value~~ of ~~the~~ownership ~~asset may not be recoverable. The assessment~~ of ~~possible~~products ~~impairment~~pass ~~is based on the Company’s ability~~ to ~~recover~~ the ~~carrying~~customer. Title ~~value of the asset from the expected future pre-tax cash flows (undiscounted~~ and ~~without~~risk ~~interest charges)~~ of ~~the~~ownership ~~related operations.~~pass Ifto ~~these~~the ~~cash~~customer ~~flows~~pursuant ~~are~~to ~~less than~~ the ~~carrying~~applicable ~~value~~sales ~~of such asset~~contract, aneither ~~impairment~~upon ~~loss~~shipment ~~is recognized for the difference between estimated fair value and carrying value. The measurement~~ of ~~impairment~~product ~~requires management~~or toupon ~~make~~receipt ~~estimates~~by ofthe ~~these cash flows related to long-lived assets as well as other fair value determinations~~customer.

~~Deferred~~ Product ~~Tax~~sold ~~Assets~~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.

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. F-7

~~The~~ NOTES ~~Joint~~TO ~~Venture~~CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~In 1992, Vet Labs and Sparhawk~~ ~~entered~~Shipping ~~into the Joint Venture for the manufacture~~ and ~~sale~~handling 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"). costs

~~Pursuant to the Joint Venture~~ ~~Agreement,~~Shipping ~~the Joint Venture Policy Committee was responsible for the overall management of the Joint Venture, including the direction~~ and ~~control~~handling ofcosts ~~the persons~~incurred ~~designated~~by ~~with~~ the ~~daily~~Company ~~management~~for ~~responsibilities~~shipment of ~~the~~products ~~Joint Venture,~~to ~~and~~customers ~~the~~are ~~general~~included ~~supervision~~in ofcost ~~the management and conduct~~ of ~~the affairs~~goods ~~of the Joint Venture~~sold. ~~The Policy 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,~~Research ~~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. development

~~On January 13, 2004, the Company,~~ ~~Chemdex~~Research and ~~Vet~~development ~~Labs~~costs ~~entered~~are ~~into~~expensed anas ~~Asset~~incurred 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 aare ~~gain~~stated ofnet $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~~investment ~~equity~~tax ofcredits ~~Sparhawk~~earned. 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~~Foreign ~~highly~~currency 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. translation

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

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

~~Item~~ The 3Company has elected to follow Statement of Financial Accounting Standards No. 123(R), ~~Quantitative~~“Accounting ~~and~~for ~~Qualitative~~Stock-Based ~~Disclosures~~Compensation” ~~About~~(“SFAS ~~Market~~123(R)”). Under ~~Risk~~ SFAS 123(R), compensation expense is recognized on the date of grant, based on the fair value of the options granted.

~~Exchange~~ Earnings ~~Rate~~(loss) ~~Sensitivity~~per common share

~~The~~ Basic ~~Company’s~~earnings ~~operations~~(loss) ~~consist~~per ~~primarily~~common share is computed using the weighted average number of ~~manufacturing~~common ~~activities located in~~shares ~~Toronto~~outstanding of 3,072,846 ~~Canada~~for the three months ended July 31, 2008 (2007 - 3,072,846). Diluted ~~The~~earnings ~~Company’s~~(loss) ~~products~~per ~~are~~common ~~sold~~share inis ~~North America~~computed using the weighted average number of common shares outstanding adjusted for the incremental shares, ~~Europe~~using the treasury stock method, attributed to outstanding options to purchase common stock. Incremental shares of nil at July 31, 2008 and July 31, 2007 were used in the ~~Pacific~~calculation ~~Rim~~of diluted earnings (loss) per common share, as their effect was anti-dilutive. Options to purchase common shares of nil were included in the computation of diluted earnings per share as at July 31, 2008.

While the majority of the sales of Dextran Products, the Company’s Canadian operation, are denominated in United States dollars, the majority of its expenses are incurred in Canadian dollars. The majority of the assets and liabilities of Dextran Products are denominated in Canadian dollars prior to the currency translation adjustment necessary for preparation of the consolidated financial statements of the Company contained in this report. When the Canadian dollar rises in value relative to the United States dollar, the carrying value of the assets and liabilities of Dextran Products as stated in United States dollars increases. A rise in the Canadian dollar relative to the United States dollar also results in a decrease in gross margins and net income of Dextran Products. Dextran Products also experiences a foreign exchange loss when the Canadian dollar rises in relation to the United States dollar because it has a net asset exposure to the United States dollar resulting from accounts receivables denominated in United States dollars exceeding a United States dollar denominated intercompany loan. 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. F-8

~~Management monitors currency fluctuations to ensure that an~~ ~~acceptable~~NOTES ~~margin~~TO ~~level~~CONSOLIDATED atFINANCIAL ~~Dextran~~STATEMENTS ~~Products is maintained. Management has the ability, to some extent, to adjust sales prices to maintain an acceptable margin level.~~ (Unaudited)

~~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~~3. ~~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
																Fair
		1/31/08		1/31/09		1/31/10		1/31/11		1/31/12		Thereafter		Total		Value
								(US$ Equivalent			)
Assets:
Short-term investments:
Fixed rate ($Cdn)		551,812		—		—		—		—		—		551,812		553,063
Average interest rate		4.39	%	—		—		—		—		—		4.39	%
Liabilities:
Long-term debt:
Fixed rate ($Cdn)		23,980		43,474		46,807		43,375		46,488		243,196		447,320		447,320
Average interest rate		9.36	%	9.19	%	9.19	%	9.00	%	9.00	%	9.00	%	9.12	%

Cash and Cash Equivalents:

~~Interest~~ Cash ~~Rate~~and ~~Sensitivity~~cash equivalents consist of the following:

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.

		July 31		January 31
		2008		2008

Cash	$	68,909	$	171,625
Short-term deposit		84,675		296,945
	$	153,584	$	468,570

~~The following table presents information about the Company’s~~ ~~financial~~Short-term ~~instruments~~deposit ~~that~~consists ~~are~~of ~~sensitive~~Canadian tomoney ~~changes~~market funds in ~~interest~~the ~~rates.~~amount ~~All financial~~of ~~instruments are held for other than trading purposes~~Cdn. ~~The~~$86,707, ~~table presents principal cash flows~~ and ~~related~~bears ~~weighted average~~ interest ~~rates~~at ~~by expected maturity dates~~2. 86%.

	Expected Maturity Date
																Fair
		1/31/08		1/31/09		1/31/10		1/31/11		1/31/12		Thereafter		Total		Value
								(US$ Equivalent			)
Assets:
Short-term investments:
Fixed rate ($Cdn)		551,812		—		—		—		—		—		551,812		553,063
Average interest rate		4.39%	%	—		—		—		—		—		4.39%	%
Notes receivable:
Variable rate ($US)		59,954		65,799		72,215		79,256		21,211		—		298,436		298,436
Average interest rate		9.75	%	9.75	%	9.75	%	9.75	%	9.75	%	—		9.75	%
Liabilities:
Long-term debt:
Fixed rate
($Cdn)		23,980		43,474		46,807		43,375		46,488		243,196		447,320		447,320
Average
interest rate		9.36	%	9.19	%	9.19	%	9.00	%	9.00	%	9.00	%	9.12	%
Variable rate
($US)		15,099		31,669		34,757		38,146		41,865		513,364		674,901		674,901
Average
interest rate		9.75	%	9.75	%	9.75	%	9.75	%	9.75	%	9.75	%	9.75	%

~~Item~~ Investments 4.Available ~~Controls~~For ~~and Procedures.~~ Sale:

~~The Company completed an evaluation~~ asInvestments ofavailable ~~the~~for ~~end~~sale ofconsist ~~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. following:

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.

		July 31		January 31
		2008		2008

Canadian short-term fixed income fund	$	252,246	$	346,845
Global fixed income bond fund	$	205,885	$	498,189
	$	458,131	$	845,034
Current portion of investments available for sale	$	(458,131)	$	(845,034)
	$	–	$	–

~~PART~~ Canadian II short-term fixed income bond fund is currently yielding 3.35%. The Global fixed income bond fund is curently yielding 3.1%. Investments available for sale are stated at fair market value, based on quoted market prices. An ~~OTHER~~unrealized ~~INFORMATION~~loss of $24,845 has been reclassified from Accumulated other comprehensive income.

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, 2007.
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
	Not applicable.
Item 3.	Defaults Upon Senior Securities
	Not applicable.
Item 4.	Submission of Matters to a Vote of Security Holders.
	At the July 26, 2007 Annual General Meeting of the Members of the Company, the vote of the Members entitled to notice of, and to vote at, the 2007 Annual General Meeting was as follows:

Election of Board Members
	Votes Cast
	For	Witheld
John L. E. Seidler	2,195,410	243,897
Joseph Buchman	2,195,410	243,897

Commitments and Contingencies:

~~Ratification~~ Subsequent ofto ~~Appointment~~July 31, 2008, the Company installed a replacement copying system, and is committed to 22 quarterly payments of ~~Schwartz~~Cdn ~~Levitsky~~$ ~~Feldman~~1,998. ~~LLP~~This ascontract ~~Independent~~replaced ~~Registered~~the ~~Accounting~~existing ~~Firm~~capital lease and a portion of the existing long-term debt.

Votes Cast
For	Against	Abstain
2,266,481	Nil	634,438

~~Item~~ Stock-based 5.Employee ~~Other Information None.~~Compensation:

~~Item~~ The 6.Company ~~Exhibits~~maintains ~~and~~an ~~Reports~~incentive onshare ~~Form~~option ~~8-K~~plan for management personnel for options to purchase up to 1,000,000 common shares. The Company also issues options to certain consultants for services provided to the Company.

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

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
F-9

~~(b)~~ NOTES ~~Reports~~TO onCONSOLIDATED ~~Form~~FINANCIAL ~~8-K~~STATEMENTS (Unaudited)

~~Not~~ The ~~applicable~~Company uses the fair value method in accordance with SFAS 123 to account for awards of stock-based employee compensation. No stock-based employee compensation expense was recorded during the period from February 1, 2008 to July 31, 2008, because there were no options granted during this period.

~~SIGNATURES~~ 7.

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

Date: September 14, 2007

	Six Months		Six Months
		Ended		Ended
		July 31,		July 31,
		2008		2007

Total revenue by significant customer:
Customer A	$	607,962	$	194,400
Customer B	$	491,026	$	588,945
Customer C	$	343,531	$	290,117
Customer D	$	110,080	$	103,600
Customer E	$	53,960	$	170,240
Customer F	$	–	$	258,091
	$	1,606,559	$1,605,393


	Six Months		Six Months
		Ended		Ended
		July 31,		July 31,
		2008		2007

Sales by geographic destination:
United States	$	872,103	$	523,037
Europe	$	743,343	$	1,214,033
Canada	$	627,596	$	483,494
Pacific Rim	$	77,350	$	370,056
Other	$	196,097	$	260,878
	$	2,516,489	$	2,851,498

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)F-10

~~Exhibit~~Item ~~Index~~2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

	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

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

Overview

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

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

Management Objectives for Fiscal 2009.

The past year and a half has been difficult for Polydex Pharmaceuticals Limited. As a Canadian based manufacturer of pharmaceutical based compounds exporting internationally, the increase in value of the Canadian dollar by approximately 18% compared to the United States dollar from January of 2007 has severely reduced the profitability of the Canadian operations, and negatively impacted the Company’s cash flows. More recently, the world wide increase in the price of commodities has resulted in lowered pig production, especially in Europe, where the Company has traditionally derived a substantial portion of its sales. The cancellation of Phase III HIV clinical trials in January of 2007 for the Company’s cellulose sulphate compound known as Ushercell was very disappointing to the Company, and resulted in a drastic decline in our share price on NASDAQ, though it did not have an impact on our core operations. Throughout this period, the Company has been investing its significant cash reserves in the refurbishment of the Toronto plant, in order to capitalize on the higher margins available for its powdered products line. With all of these challenges occurring at the same time, management has reacted in a number of effective ways, including:

•

The Company has managed to increase its pricing across all product lines to partially compensate for the increased value of the Canadian dollar. This has been a challenging process, as our sales quotes can be up to six months in advance, and with the lowered demand for our products has been met with resistance.

•

Cost reduction has been a hallmark throughout this period of struggle. All of Polydex’s personnel have contributed to the shrinking of everything from the cost of raw materials, plant repairs, and sludge removal, to overheads such as insurance, legal, consulting and reporting costs. Payroll reductions have been de rigeur, with management compensation being reduced and the implementation of shorter plant hours of work when appropriate. Cost control is an ongoing endeavor that will provide a stronger base for future earnings.

•

The Company has been actively striving to optimize its product mix, and the results of this effort are beginning to be seen in the last 6 months, with improved margins helping to reduce overall losses in spite of the decline in sales volumes. Management believes that this improvement will only increase when the plant refurbishment is operational.

•

The new plant equipment will also allow the Company to expand its markets, especially large international pharmaceutical companies who rely on production from high quality facilities.

•

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

With all this in the past, there remain a number of challenges before us. Though rigorous cost cutting and careful price increases have been effective, our cash reserves have been significantly reduced, and the Company’s future will only be assured through meeting the increasingly competitive demands of our customers, who are experiencing their own pressures in the turbulence of the global marketplace.

Research and development of the Company’s human pharmaceutical products is coordinated at Dextran Products. Ushercell is a high molecular weight cellulose sulphate that was envisioned for topical vaginal use primarily in the prevention of unplanned pregnancies, as well as the transmission of AIDS and other sexually transmitted diseases. However, Phase III HIV clinical trials were cancelled in January of 2007 due to a higher than expected incidence of HIV. The New England Journal of Medicine recently published a report on the Phase III trial data indicating that product adherence was low among participants and concluded that cellulose sulphate may not have increased HIV transmission after all but also may not have an HIV preventative effect. In an article published in Obstetrics and Gynecology in March 2008, the lead researchers were quoted by Reuters Health as affirming that “Cellulose sulphate gel appears to be an effective vaginal contraceptive without many side effects" with data showing an approximate 96% effectiveness rate of pregnancy prevention when the product was used as directed. The researchers added, “With time and further research, this vaginal contraceptive may become an alternative to the nonoxynol-9 based contraceptive gels currently available in the U.S.” The Company never received any financial gain from this project, and as a result, there is no immediate or direct effect on sales or revenues. Management intends to pursue the development of cellulose sulphate as a contraceptive.

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

Results of Operations

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2008	2007	Variance	2008	2007	Variance

Net loss	$(112,394)	$ (228,353)	51%	$(138,016)	$(362,591)	62%

Loss per Share	$(0.04)	$(0.07)		$(0.04)	$(0.12)

The decrease in net loss for the second quarter and year to date of fiscal year 2009, as compared to the second quarter and year to date of fiscal year 2008, is a result of improved gross margins, a deferred income tax recovery, and decreased expenses partially offset by decreased investment income experienced during these periods. Expenses during the second quarter and year to date of fiscal year 2008 were reduced by $77,073, which was due to the collection of the cash surrender value of a life insurance policy during that period.

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2008	2007	Variance	2008	2007	Variance
Sales	$1,296,704	$1,504,365	(14)%	$2,516,489	$2,851,498	(12)%

The sales decrease for the second quarter and year to date of fiscal year 2009 compared to the second quarter and year to date of fiscal year 2008 was primarily due to decreased demand, offset by price increases implemented by management subsequent to those periods.

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2008	2007	Variance	2008	2007	Variance
Gross profit	$191,906	$99,103	94%	$455,902	$308,064	48%
Percentage of sales	14.8%	6.6%		18.1%	10.8%

The increase in gross margin for the second quarter and the year to date of fiscal year 2009 compared to the second quarter and year to date of fiscal year 2008 is primarily due to several factors throughout both quarters of fiscal year 2009. First, as mentioned above, sales pricing was increased by management. Second, the Company experienced increased sales of higher margin powder products during the first quarter of fiscal year 2009. Third, management has been successful in continuing to reduce various direct production costs, especially utilities, equipment repairs and supplies, and sludge removal. These improvements were partially offset by the continued rise of the Canadian dollar relative to the US dollar throughout this period, since production is based at the Dextran Products Limited facility in Toronto, Canada.

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2008	2007	Variance	2008	2007	Variance
Selling, promotion,
general and
administrative expenses	$299,791	$322,036	(7)%	$571,245	$620,362	(8)%

The decrease during the second quarter and year to date of fiscal year 2009 in selling, promotion, general and administrative expenses is primarily due to a general decrease in the expenses of the Company, offset by the continued increase in the value of the Canadian dollar as mentioned above, compared to the second quarter and year to date of fiscal 2008. These reductions included legal, insurance, consulting and reporting costs, and are a result of the continued focus by management to minimize this cost center.

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2008	2007	Variance	2008	2007	Variance
Research and development
expenditures	$23,263	$54,520	(57)%	$28,047	$75,847	(63)%

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

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2008	2007	Variance	2008	2007	Variance
Depreciation and
amortization expense	$151,100	$139,764	8%	$303,570	$270,685	12%

The increase in depreciation and amortization expense for the second quarter and year to date of fiscal year 2009 compared to the second quarter and year to date of fiscal year 2008 resulted primarily from assets acquired subsequent to the second quarter of fiscal year 2008, as well as the increase in the Canadian dollar relative to the United States dollar during that same period. Significant asset acquisitions related to the plant refurbishment have not been put into service and are therefore not yet being depreciated.

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2008	2007	Variance	2008	2007	Variance
Interest Expense	$15,781	$25,008	(37)%	$35,003	$49,844	(30)%

Interest expense for the second quarter and year to date of fiscal year 2009 decreased from the comparative amounts for the second quarter and year to date of fiscal year 2008 primarily due to the lower interest rates incurred on the shareholder loan, as well as the decreasing balances due on the longterm debt.

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2008	2007	Variance	2008	2007	Variance
Foreign exchange (gain)
loss	$(7,456)	$18,365	141%	$(8,087)	$45,586	118%

The foreign exchange gain for the second quarter and year to date of fiscal year 2009 compared to the loss for the second quarter and year to date of fiscal year 2008 was due to the small increase in value of the United States dollar compared to the Canadian dollar.

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2008	2007	Variance	2008	2007	Variance
Interest and other
income (loss) and
cash surrender value
of life insurance	$(20,961)	$102,158	(121)%	$(6,589)	$140,540	(105)%

The loss in interest and other income in the second quarter of fiscal year 2009 is primarily due to recognition of the loss on investments that was previously carried in Accumulated and other comprehensive income. Investment income for the second quarter and the year to date of fiscal year 2009 also decreased due to the decrease in the investments available for sale and cash equivalents. The second quarter and year to date of fiscal year 2008 also included the redemption of the cash surrender value of an insurance policy that was no longer required.

	Three	Three
	Months	Months		Six Months	Six Months
	Ended	Ended		Ended	Ended
	July 31,	July 31,		July 31,	July 31,
	2008	2007	Variance	2008	2007	Variance
Provision for
(recovery of) income
taxes	$(57,141)	–	–	$(57,141)	–	–

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

Liquidity and Capital Resources

As of July 31, 2008, the Company had cash and cash equivalents of $153,584, compared to cash and cash equivalents of $468,570 at January 31, 2008. In the second quarter of fiscal year 2009, the Company utilized cash of $268,040 in its operating activities, compared to utilizing cash of $619,577 for the second quarter of fiscal year 2008. The decrease in cash from operations during the second quarter of fiscal year 2009 was primarily due to the loss from operations during the period, as well as the increase in receivables and inventory. Depreciation continues to be a large non-cash expense of the Company.

The Company’s working capital remained consistent with the year ended January 31, 2008 at $2,403,855, while the working capital ratio of 2.89 to 1 as of July 31, 2008, declined compared to 3.43 to 1 as of January 31, 2008.

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

As of July 31, 2008, the Company had accounts receivable of $951,381 and inventory of $2,000,941, compared to $611,975 and $1,350,490 respectively at January 31, 2008 and $859,308 and $1,530,111 respectively at July 31, 2007. The increase in accounts receivable is due to the timing of customer payments, while the increase in inventory is due primarily to the production of finished goods for shipment in the third quarter of fiscal year 2009.

At July 31, 2008, the Company had accounts payable of $538,600 compared to $399,820 at January 31, 2008 and $721,298 at July 31, 2007. The increase in accounts payable was due to the timing of supplier payments.

During the second quarter of fiscal year 2009, capital expenditures totaled $22,881, as compared to $351,578 in the second quarter of fiscal year 2008. The expenditures for the second quarter of fiscal 2008 were primarily for construction costs relating to the plant refurbishment, which is now substantially complete, and expects capital expenditures to substantially decrease during the remainder of fiscal year 2009.

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 slightly depreciated compared to the United States dollar during the second quarter and year to date of fiscal year 2008. 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. $244,140) operating line of credit, of which Cdn $ 200,000 (U.S. $195,314) was utilized at July 31, 2008 and none as at January 31, 2008. This line of credit bears interest at the Canadian banks’ prime lending rate plus 0.75% (July 31, 2007 – 5.50.%; January 31, 2008 – 6.50%). Subsequent to July 31, 2008, the interest rate on the line of credit was increased to prime plus 1%. In May 2006, a fixed term rate loan of Cdn. $500,000 (U.S. $468,700) was obtained to fund capital purchases. The interest rate is 0.75% over Canadian bank prime lending rate (6.95%). Bank indebtedness is collateralized by a general security agreement over the Company’s assets and a collateral mortgage of Cdn. $500,000 on the Dextran Products building in Toronto. The 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 decrease in long-term debt and capital lease obligations from January 31, 2008 is due to repayments during the period.

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

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

Related Party Transactions

In August 1997, the Company loaned the late Thomas C. Usher, its Vice-Chairman, Director of Research and Development, a member of its Board of Directors and the beneficial owner of greater than 5% of the outstanding common shares of the Company, $691,500 at an interest rate equal to the prime rate of Toronto Dominion Bank plus 1.50% (the “Loan”). The Loan was used to partially fund a $1,000,000 payment to the State of Florida in order to allow Thomas C. Usher to regain possession of 430,000 Common Shares of the Company then held by the State as collateral security relating to the liquidation of insurance companies formerly owned by Thomas C. Usher. Repayment of the Loan is accomplished by periodic payments and, in the past, bonus payments, if any, granted to Thomas C. Usher as an employee of the Company. The amount outstanding under the Loan as of July 31, 2008 was $307,563, as compared to $297,321 at January 31, 2008, including accrued interest. The Company has taken a cumulative provision of $323,490 against accrued interest on this loan at July 31, 2008, and January 31, 2008. Obligations with respect to the Loan transferred to the estate of Thomas C. Usher upon his death in February 2005.

In August 1999, Thomas C. Usher personally assumed all of the assets and liabilities of Novadex Corp., including the balance of receivables (the “Receivables”) due to the Company from Novadex Corp. The Receivables have no specific repayment terms. The total outstanding amount of the Receivables as of July 31, 2008 and January 31, 2008 was $60,339. The Company continues to be obligated to make royalty payments to Mr. Usher’s estate pursuant to intellectual property license agreements, and intends to continue to offset such payments against the Receivables. Thomas C. Usher also owed $250,000 to a subsidiary of the Company, Novadex International Limited, as of July 31, 2008, pursuant to a non-interest bearing loan with no specific repayment terms. The outstanding amount of this loan has not changed from January 31, 2008. The amounts continue to remain owing from the estate of Thomas C. Usher upon his death on February 26, 2005.

As of July 31, 2008, Thomas C. Usher, now through his estate, had pledged 270,763 common shares of the Company as security for these amounts owing to the Company. These common shares had a market value of $186,826 at July 31, 2008, based on the closing price of the Company’s common shares on the NASDAQ Capital Market on July 31, 2008. The Company intends to continue to hold the remaining pledged assets as collateral until the amounts owing discussed above are repaid.

The Company had a commitment to pay an amount equal to one year’s salary, $110,000, to Thomas C. Usher’s estate. The amount owing on this commitment as at July 31, 2008 is $36,908.

The Company also has an outstanding loan payable to Ruth Usher, a former director and the widow of Thomas C. Usher. The amount due from the Company pursuant to this loan decreased to $632,450 at July 31, 2008 from $658,569 at January 31, 2008 due to monthly payments by the Company, less interest charges.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Critical Accounting Policies

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

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

Revenue Recognition

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.

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 which is supported by the Canadian government, for the majority of its customers’ receivables. There has been no allowance for doubtful accounts during the past two fiscal years.

Long-Lived Assets

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

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

On January 13, 2004, the Company, Chemdex and Vet Labs entered into an Asset Purchase Agreement with Sparhawk. Pursuant to the Asset Purchase Agreement, the Company agreed to sell substantially all of the assets of Vet Labs, including its interest in the Joint Venture, to Sparhawk for $5,500,000 in cash. Effective March 4, 2004, this sale was completed and a gain of $1,859,471 was recognized. Simultaneously with the closing, Chemdex advanced $350,000 to Sparhawk in exchange for an unsecured subordinated promissory note bearing interest at 13% per annum and a warrant to purchase 4% of the equity of Sparhawk. On May 31, 2006, payment in full for principal and interest of the promissory note was received. The warrant expired at the earlier of payment in full of the promissory note or March 4, 2014, and therefore expired before it could be exercised. Chemdex also entered into a supply agreement with Sparhawk to supply ferric hydroxide and hydrogenated dextran solution to Sparhawk on an exclusive basis in the United States for 10 years.

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

Changes in Accounting Policies

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Exchange Rate Sensitivity

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

While the majority of the sales of Dextran Products, the Company’s Canadian operation, are denominated in United States dollars, the majority of its expenses are incurred in Canadian dollars. The majority of the assets and liabilities of Dextran Products are denominated in Canadian dollars prior to the currency translation adjustment necessary for preparation of the consolidated financial statements of the Company contained in this report. When the Canadian dollar rises in value relative to the United States dollar, the carrying value of the assets and liabilities of Dextran Products as stated in United States dollars increases. A rise in the Canadian dollar relative to the United States dollar also results in a decrease in gross margins and net income of Dextran Products. Dextran Products also experiences a foreign exchange loss when the Canadian dollar rises in relation to the United States dollar because it has a net asset exposure to the United States dollar resulting from accounts receivables denominated in United States dollars exceeding United States dollar denominated payables. Similarly, a decline in the Canadian dollar relative to the United States dollar results in a foreign exchange gain and increased gross margins and net income at Dextran Products.

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

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

	Expected Maturity Date
								Fair
	1/31/08	1/31/09	1/31/10	1/31/11	1/31/12	Thereafter	Total	Value
	(US$ Equivalent)
Assets:
Short-term
investments:
Fixed rate ($Cdn)	465,617	—	—	—	—	—	465,617	465,617
Average interest
rate	3.84%	—	—	—	—	—	3.84%
Liabilities:
Long-term debt:
Fixed rate ($Cdn)	23, 643	50,300	45,188	48,431	51,905	201,456	420,922	427,052
Average interest
rate	9.23%	9.23%	9.00%	9.00 %	9.00 %	9.00 %	9.08%

Interest Rate Sensitivity

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
								Fair
	1/31/08	1/31/09	1/31/10	1/31/11	1/31/12	Thereafter	Total	Value
	(US$ Equivalent)
Assets:
Short-term
investments:
Fixed rate
($Cdn)	465,617	—	—	—	—	—	465,617	465,617
Average
interest rate	3.84%	—	—	—	—	—	3.84%
Notes receivable:
Variable rate
($US)	76,008	80,949	86,211	60,080	4,315	—	307,563	307,563
Average
interest rate	6.50%	6.50 %	6.50%	6.50%	6.50%	—	6.50 %
Liabilities:
Long-term debt:
Fixed rate
($Cdn)	23, 643	50,300	45,188	48,431	51,905	201,456	420,922	427,052
Average
interest rate	9.23%	9.23%	9.23%	9.00%	9.00%	9.00%	9.08 %
Variable rate
($US)	15,446	31,897	33,970	36,178	38,529	476,402	632,423	632,423
Average
interest rate	9.75%	9.75%	9.75%	9.75%	9.75%	9.75%	9.75%

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 that occurred in the Company’s fiscal quarter ended July 31, 2008 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

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

At the July 11, 2008 Annual General Meeting of the Members of the Company, the vote of the Members entitled to notice of, and to vote at, the 2008 Annual General Meeting was as follows:

Election of Board Members
	Votes Cast

	For	Withheld

Derek John Michael Lederer	2,062,088	182,547


Ratification of Appointment of Schwartz Levitsky Feldman LLP
as Independent Registered Accounting Firm

	Votes Cast

For	Against	Abstain

2,059,183	104,141	Nil

Item 5. Other Information

Not applicable.

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

(a) Exhibits

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

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

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

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

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

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

(b) Reports on Form 8-K

Not applicable.

SIGNATURES

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

Date: September 12, 2008

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)

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

Filing Compare · POLYDEX PHARMACEUTICALS LTD/BAHAMAS