United States
Securities and Exchange Commission

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended January 31, 2009

or

Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ___________to ___________

Commission file number 1-8366

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 MIL 2H5	(416) 755-2231
(Address of principal executive offices)	Telephone No.


Securities Registered Pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange which registered
Common Shares, par value $0.0167 per share	OTC Bulletin Board

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes £ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes £ No Q

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes Q No £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

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 file £
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 Act).

Yes £ No Q

The aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at which the common equity was last sold or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $ 1,167,681. There were 3,072,846 common shares outstanding as of March 31, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

The definitive proxy statement relating to the registrant’s Annual Meeting of Stockholders, to be held on July 10, 2009, is incorporated by reference in Part III to the extent described therein.

	POLYDEX PHARMACEUTICALS LIMITED

	TABLE OF CONTENTS

	Cautionary Note Regarding Forward-Looking Statements	1


	PART I
Item 1.	Business	2
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	9
Item 2.	Properties	9
Item 3.	Legal Proceedings	9
Item 4.	Submission of Matters to a Vote of Security Holders	9

	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	9
Item 6.	Selected Financial Data	11
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	23
Item 8.	Financial Statements and Supplementary Data	26
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	50
Item 9A.	Controls and Procedures	50
Item 9B.	Other Information	51

	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	52
Item 11.	Executive Compensation	52
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	52
Item 13.	Certain Relationships and Related Transactions, and Director Independence	52
Item 14.	Principal Accountant Fees and Services	52

	PART IV
Item 15.	Exhibits and Financial Statement Schedules	53

	SIGNATURES	55

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains various “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company’s expectations or beliefs concerning future events, including, but not limited to statements regarding the Company’s future growth, results of operations, liquidity and capital resources, expectations of regulatory approvals and the commencement of sales of products. The Company has tried to identify such forward-looking statements by use of words such as “believes,” “anticipates,” “intends,” “plans,” “will,” “should,” “expects” and similar expressions, but these words are not the exclusive means of identifying such statements. The Company cautions that these and similar statements in this Annual Report on Form 10-K 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 Annual Report on Form 10-K, whether as a result of new information, future events, changed circumstances or any other reason after the date of this report.

PART I

ITEM 1.

BUSINESS

Introduction

Polydex Pharmaceuticals Limited (the “Company”) is engaged in the research, development, manufacture and marketing of biotechnology-based products for the human pharmaceutical market, and also manufactures bulk pharmaceutical intermediates for the worldwide veterinary pharmaceutical industry. The Company focuses on the manufacture and sale of Dextran and derivative products, including Iron Dextran and Dextran Sulphate, and other specialty chemicals. Dextran, a generic name applied to certain synthetic compounds formed by bacterial growth on sucrose, is a polymer or giant molecule. The name Polydex combines the words “polymer” and “dextran.”

The Company was incorporated under the laws of the Commonwealth of the Bahamas on June 14, 1979 as Polydex Chemicals Limited, and changed its name on March 28, 1984.

The Company conducts its business operations through its two wholly-owned subsidiaries. The manufacture and sale of Dextran and derivative products is conducted through both Dextran Products Limited, incorporated in Canada in 1966 (“Dextran Products”), and Chemdex Inc (“Chemdex”) which is incorporated in the state of Kansas, United States.

Products and Sales

Iron Dextran

Iron Dextran is a derivative of Dextran produced by complexing iron with Dextran. Iron Dextran is injected into most pigs at birth as a treatment for anemia. The Company sells Iron Dextran to independent distributors and wholesalers primarily in Europe, the United States and Canada, with sales increasing in China over the last few years. Chemdex, Inc. has United States FDA approval for the manufacture and sale of Iron Dextran for veterinary use. On March 4, 2004, Sparhawk Laboratories Inc. (“Sparhawk”) and Chemdex entered into an exclusive Supply Agreement under which Sparhawk agreed to purchase 100% of its product needs for bulk Iron Dextran solution from Chemdex for a period of 10 years, and Chemdex agreed to sell such products in the United States exclusively to Sparhawk, subject to minimum purchase requirements. Concurrently with the Supply Agreement, the Company sold its finished product veterinary pharmaceutical business to Sparhawk.

Dextran Sulphate

Dextran Sulphate is a specialty chemical derivative of Dextran used in research applications by the pharmaceutical industry and other centers of chemical research. Dextran Sulphate manufactured by the Company is sold primarily to independent distributors and wholesalers in the United States as analytical chemical applications. This usage requires no regulatory approval.

Patents, Trademarks and Licenses

Cellulose Sulphate

During the fiscal year ended January 31, 1996, a patent for a new method of manufacture of Cellulose Sulphate was purchased for $1 million. The process was patented under U.S. patent number 5,378,828 in June 1995. Prior to development of the patented process, the manufacture of the compound required the use of dangerous and environmentally sensitive chemicals. The patented method is safer and produces a more consistent product.

During fiscal year ended January 31, 2001, a patent bearing U.S. patent number 6,063,773 was issued to the Company and co-inventors entitled “Cellulose Sulphate for use as Antimicrobial and Contraceptive Agent”. Various clinical trials with respect to the safety and efficacy of this product have been completed.

During fiscal year ended January 31, 2006, a patent bearing European Patent No. 1296691 entitled “Cellulose Sulfate and Other Sulfated Polysaccharides to Prevent and Treat Papilloma Virus and Other Infections” was issued. This patent is effective in the following countries: France, Germany, United Kingdom, Austria, Belgium, Switzerland, Denmark, Spain, Finland, Greece, Ireland, Italy, Netherlands, Portugal, Sweden, Turkey and Hong Kong. This patent is directed to treating, inhibiting and preventing papilloma virus infections using sulfated polysaccharides.

Low Molecular Weight Dextran

The Company is a party to a Research Agreement with the University of British Columbia, and a number of Canadian hospitals. Under the terms of this Research Agreement, the Company agreed to provide equipment and funding for continuing research on a low molecular weight dextran, initially studied for a cystic fibrosis treatment, in exchange for an exclusive worldwide license to manufacture, distribute and sell any products developed from the research. Two patents with respect to research products were issued by the United States Patent and Trademark Office in 1996. U.S. patent number 5,441,938 is held jointly by the University of British Columbia and the Company, and U.S. patent number 5,514,665 is held by the University of British Columbia and licensed to the Company. Rights to the low molecular weight dextran, were licensed to BCY LifeSciences, Inc. of Canada in 1999. Under this license agreement, BCY LifeSciences will pay a royalty to both the Company and the University of British Columbia based on sales and sublicensing revenue in return for the exclusive right to sublicense, manufacture, distribute and sell developed products. In February 2005, BCY Lifesciences sublicensed the low molecular weight dextran to ALIGN Pharmaceuticals, a private United States based company.

Iron Dextran

Effective February 1, 1995, the Company entered into an agreement with Novadex Corp., an affiliated company, under which Novadex granted the Company the exclusive worldwide license to use a certain process developed by Novadex for producing Iron Dextran. This process allows the Company to produce Iron Dextran at a lower cost than would otherwise be possible given the Company’s plant and equipment. The license agreement expires when the related patent expires in 2014. The Company pays a license fee based on production volumes. Upon the expiration of the license, the technology relating to the process described above will belong to the Company, with no further obligation to make royalty payments. During July 1999, Novadex was liquidated, and all of its assets and liabilities, including the above-referenced license agreement, were assumed by its sole shareholder, the former Vice Chairman of the Company, Thomas C. Usher, who passed away on February 26, 2005. The Company remains obligated under the license agreement to continue license fee payments.

Suppliers

Dextran Products

In the manufacture of Dextran and Dextran derivative products, the Company uses two suppliers for its sugar raw material requirements. The Company also uses two suppliers for its iron requirements with respect to the manufacture of Iron Dextran. Both sugar and iron are readily available from numerous suppliers at competitive prices in the market.

The Company is dependent upon a single source for a certain raw material used in the production of Dextran Sulphate. Such supply was adequate in fiscal year 2009, and no shortages are anticipated in the near term. However, any curtailment in availability of such raw material could be accompanied by production or other delays as well as increased raw material costs, with consequent adverse effect on the Company’s results of operations. The Company has no long-term contracts with any of its suppliers.

Order Book and Seasonality

The Company’s order book as at January 31, 2009 was significantly lower than levels seen in previous years due to the economic slowdown. The bulk product sold by Dextran Products is primarily targeted to the swine industry where modern animal husbandry techniques maintain most animals indoors. Certain producers in less developed countries may raise animals outdoors thereby reducing the amount of product required but such markets are small and decreasing in size as they modernize. Therefore the Company does not believe that such seasonality is material to its financial results as a whole. The Company’s sale of Dextran Sulphate is not subject to seasonality.

Competition

The Company is the only Canadian manufacturer of Iron Dextran. On March 4, 2004, Sparhawk and Chemdex entered into an exclusive Supply Agreement under which Sparhawk agreed to purchase 100% of its product needs for bulk Iron Dextran solution from Chemdex for a period of 10 years, and Chemdex agreed to sell such products in the United States exclusively to Sparhawk, subject to minimum purchase requirements.

The only other major supplier of Iron Dextran is located in Denmark, although there exist several smaller European and Chinese sources of Iron Dextran. Dextran Sulphate is manufactured by several manufacturers in the United States and Europe. With regard to Iron Dextran and Dextran Sulphate, the Company competes on the basis of quality, service and price.

The technology in the field of Dextran and its derivatives is undergoing continuous expansion and development. The manufacture of Dextran and its derivatives may be achieved by different processes and variations (including by means of a process known as glycoside, which is in the public domain). Therefore, the Company does not believe that its licensed, patented process for the production of Iron Dextran gives it any substantial competitive advantage.

It has come to the attention of management that some producers of Dextran in the world may have focused their attention on other products and may not be producing Dextran anymore. The Company is investigating.

Environmental Compliance

The Company believes that it is in substantial compliance with all existing applicable foreign, federal, state and local environmental laws and does not anticipate that such compliance will have a material effect on its future capital expenditures, earnings or competitive position.

Employees

As of March 31, 2009, the Company employed 20 employees, of whom 12 were engaged in production, 6 in quality control, 2 in administration, marketing and sales activities. None of the Company’s employees is covered by collective bargaining agreements. Management considers its relations with employees to be good.

Research and Development

During the fiscal years ended January 31, 2009, 2008 and 2007, the Company expended $35,102, $135,821 and $214,865 respectively, on research and development, primarily relating to the development of Cellulose Sulphate. Research and development expenditures are a result of additional product development activities performed by the Company, including legal fees related to patent acquisition and maintenance, and is funded outside of its partnership relationships. During the fiscal years ended January 31, 2009, 2008 and 2007, the Company did not recognize any investment tax credit benefits.

Cellulose Sulphate (Ushercell)

Ushercell is a high molecular weight Cellulose Sulphate envisioned for topical vaginal use primarily in the prevention and transmission of AIDS and other sexually transmitted diseases, as well as unplanned pregnancies.

Up to January 31, 2007, research and development with respect to the Company’s Cellulose Sulphate product was being conducted with the assistance and financial support of CONRAD, formerly known as the Contraceptive Research and Development Program, with funding from various private and public sector sources. CONRAD provided direct financial assistance in support of, and/or actually conducted specific research studies involving the Cellulose Sulphate product in conjunction with various public health-oriented entities, such as Family Health International, USAID (The United States Agency for International Development), the World Health Organization, the Centers for Disease Control and the HIV Prevention Trials Network, and many other universities, research centers and philanthropic organizations.

On January 31, 2007, the Independent Review Board in conjunction with CONRAD, WHO, FHI and Polydex announced the halting of Two Phase III clinical trials to assess the effect of Ushercell on vaginal HIV acquisition which had been started in six clinical trial sites located in India and Africa. The trials were halted due to a possible higher than expected incidence of HIV. An investigation is now underway to determine the cause, with a report due in the second half of fiscal year 2010.

Low Molecular Weight Dextran

Cystic fibrosis is a genetic disease, which causes a cascade of effects, the most severe being a build up of mucus in the lungs. This mucus is difficult to remove and also permits the colonization of bacteria, which then cause secondary infections and often death. Research relating to cystic fibrosis has shown that a special form of Dextran, named by the Company as Usherdex 4, is effective in preventing the colonization of bacteria in the mouth and in stimulating the macrophages in the lungs to remove the bacteria present and lessen secondary infections.

As noted above, in 1999, the Company’s cystic fibrosis product was licensed to BCY LifeSciences. In November 2003 BCY LifeSciences announced its completion of the analysis of a Phase II clinical trial of the product designed to assess the efficacy and safety of the product on pulmonary function in adult cystic fibrosis patients. The results indicated that the product (known as DCF 987) was well tolerated and may have shown positive trends in the improvement of FEV1 (forced expiratory volume in one second), a measure of lung function, and the reduction of Pseudomonas aeruginosa bacterial load in patient sputum. BCY LifeSciences was also granted a patent entitled “Use of Dextran and Other Polysaccharides to Improve Mucus Clearance” by the European Patent Office. The Company will receive royalty payments based upon sales and other revenues upon approval of any developed product pursuant to its license agreement with BCY LifeSciences. In February of 2005, BCY LifeSciences entered into a development agreement with Align Pharmaceuticals to fund ongoing studies on the compound.

Segmented Information

The information regarding the geographic distribution of revenue and revenue by significant customer is set forth in Note 16 to the Company’s Consolidated Financial Statements for the fiscal year ended January 31, 2009 under Item 8 Financial Statements and Supplementary Data.

ITEM 1A.

RISK FACTORS

The risks, uncertainties and other factors described below could materially and adversely affect the Company’s business, financial condition, operating results and prospects.

The Company’s product development efforts may be reduced or discontinued due to difficulties or delays in clinical trials.

To achieve sustained profitability, the Company must, alone or with corporate partners and collaborators, successfully research, develop and commercialize identified technologies or product candidates, and/or increase sales of higher margin products. Current developmental product candidates are in various stages of clinical and pre-clinical development and will require significant further funding, research, development, preclinical and/or clinical testing, regulatory approval and commercialization testing, and are subject to the risks of failure inherent in the development of products based on innovative or novel technologies. These products are also rigorously regulated by the U.S. federal government, particularly the FDA, and by comparable agencies in state and local jurisdictions and in foreign countries. Specifically, each of the following results is possible with respect to any one of the Company’s developmental product candidates:

that the Company will not be able to maintain its current research and development schedules;
that the Company will not be able to enter into human clinical trials because of scientific, governmental or financial reasons, or that it will encounter problems in clinical trials that will cause a delay or suspension of the development of the product candidate as, for example, occurred when the Independent Review Board and CONRAD suspended two Phase III clinical trials of Ushercell pending an investigation;
that the developmental product will be found to be ineffective or unsafe;
that government regulations will delay or prevent the product’s marketing for a considerable period of time and impose costly procedures upon the Company’s activities;
that the FDA or other regulatory agencies will not approve the product or the process by which the product is manufactured, or will not do so on a timely basis; and/or
that the FDA’s policies may change and additional government regulations and policies may be instituted, which could prevent or delay regulatory approval of the product.
If any of the risks set forth above occurs, the Company may not be able to successfully develop its identified developmental product candidates.

The Company’s developmental product commercialization efforts may not be successful.

It is possible that, for reasons including, but not limited to those set forth below, the Company may be unable to commercialize or receive royalties from the sale of any given developmental product, even if it is shown to be effective, if:

the product is uneconomical or if the market for the product does not develop or diminishes;
the Company is not able to enter into arrangements or collaborations to commercialize and/or market the product;
the product is not eligible for third-party reimbursement from government or private insurers;
others hold proprietary rights that preclude the Company from commercializing the product;
others have brought to market similar or superior products;
others have superior resources to market similar products or technologies;
government regulation imposes limitations on the indicated uses of the product, or later discovery of previously unknown problems with the product results in added restrictions on the product or results in the product being withdrawn from the market; and/or
the product has undesirable or unintended side effects that prevent or limit its commercial use.

The Company depends on partnerships with third parties for the development and commercialization of its products.

The Company’s strategy for development and commercialization of its products is to rely on licensing agreements with third party partners. As a result, the ability of the Company to commercialize future products is dependent upon the success of third parties in performing clinical trials, obtaining regulatory approvals, manufacturing and successfully marketing its products. There can be no assurance that such third party collaborations will be successful. If any of the Company’s current research and development partnerships are discontinued, it may not be able to find others to develop and commercialize its current product candidates.

The Company does not currently have agreements with third parties to market its developmental products.

The commercialization of any of the Company’s developmental products that receive FDA approval will depend upon the Company’s ability to enter into agreements with companies that have sales and marketing capabilities. The Company currently intends to sell its products in the United States and internationally in collaboration with one or more marketing partners. The Company may not be able to enter into any such collaboration to market its developmental products in a timely manner or on commercially reasonable terms, if at all.

The Company may be unable to commercialize its products if it is unable to protect its proprietary rights, and may be liable for significant costs and damages if it faces a claim of intellectual property infringement by a third party.

The Company’s success depends in part on its ability to obtain and maintain patents, protect trade secrets and operate without infringing upon the proprietary rights of others. In the absence of patent and trade secret protection, competitors may adversely affect the Company’s business by independently developing and marketing substantially equivalent or superior products, possibly at lower prices. The Company could also incur substantial costs in litigation and suffer diversion of attention of technical and management personnel if it is required to defend intellectual property infringement suits brought by third parties, with or without merit, or if required to initiate litigation against others to protect or assert intellectual property rights. Moreover, any such litigation may not be resolved in favor of the Company.

The Company has received various patents covering the uses of its developmental products. However, the patent position of companies in the pharmaceutical industry generally involves complex legal and factual questions, and recently has been the subject of much litigation. Any patents the Company has obtained, or may obtain in the future, may be challenged, invalidated or circumvented.

In addition, because patent applications in the United States are maintained in secrecy until patents issue, and because publication of discoveries in scientific or patent literature often lags behind actual discoveries, the Company cannot be certain that it and its licensors are the first creators of inventions covered by any licensed patent applications or patents or that the Company or such licensors are the first to file. The United States Patent and Trademark Office may commence interference proceedings involving patents or patent applications, in which the question of first inventorship is contested. Accordingly, the patents owned by, or licensed to, the Company may not be valid or may not afford the Company protection against competitors with similar intellectual property.

It is also possible that the Company’s patents may infringe on patents or other rights owned by others, licenses to which may not be available to the Company. The Company may have to alter its products or processes, pay licensing fees or cease certain activities altogether because of patent rights of third parties.

In addition to the products for which the Company has patents or has filed patent applications, the Company relies upon unpatented proprietary technology and may not be able to meaningfully protect its rights with regard to that unpatented proprietary technology.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None

ITEM 2.

PROPERTIES

The Company’s wholly-owned subsidiary, Dextran Products maintains its executive and sales offices and its manufacturing plant of approximately 30,000 square feet in Toronto, Ontario, Canada.

The Company owns and operates a fermentation plant in Toronto, Ontario, Canada. This plant has the capacity to simultaneously produce both 10% and 20% Iron Dextran at the rate of up to 11,000 liters per week (there are 1.057 quarts in one liter), and 500 kilograms (there are 2.2 pounds in one kilogram) per month of Dextran Sulphate. Current production is approximately 10,000 liters of Iron Dextran per week and approximately 500 kilos of Dextran Sulphate per quarter.

Continuing in fiscal year 2008, management proceeded with expansion of the Company’s facility and modernization of its powder-producing equipment in Toronto in order to increase production capacity and also improve quality for a significant portion of the Company’s powdered products. The Company had embarked upon a major plant refurbishment project that included the purchase and installation of more modern drying equipment with increased throughput. Engineers prepared drawings and permits were issued, allowing construction of a new drying facility to begin in the fourth quarter of fiscal year 2007. The actual drying equipment is now installed and is expected to be operational in the second quarter of fiscal year 2010. It is expected that improved quality of the finished product will result in new markets becoming available.

ITEM 3.

LEGAL PROCEEDINGS

There are no pending legal proceedings to which the Company or any of its subsidiaries is a party, or to which any of their property is subject.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the Company’s fourth fiscal quarter ended January 31, 2009.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

As of September 12, 2008, the Company’s common shares were delisted from the NASDAQ Capital Market. Subsequent to that date, the shares have been listed and traded on the OTC Bulletin Board and the Pinksheets listings. The Company’s common shares trade under the symbol “POLXF.” The reported high and low closing prices of the Company’s common shares as reported on the NASDAQ Capital Market until September 12, 2008, and subsequently on the OTC Bulletin Board and Pinksheets listings, for each full quarterly period within the two most recent fiscal years of the Company were as follows:

Fiscal Year 2009
fiscal quarter ended:		High	Low
April 30, 2008	$	0.79	0.25
July 31, 2008		1.19	0.35
October 31, 2008		0.88	0.40
January 31, 2009		0.69	0.10


Fiscal Year 2008
fiscal quarter ended:		High	Low
April 30, 2007	$	3.01	1.90
July 31, 2007		2.17	1.53
October 31, 2007		1.86	1.18
January 31, 2008		1.35	0.53

The quotations set out above represent the prices for the specific dates between dealers and do not include retail mark-up, markdown or commission. They do not represent actual transactions.

As of April 20, 2009 there were approximately 347 holders of record of the Company’s common shares.

The Company has paid no dividends in the past and does not consider likely the payment of any dividends in the foreseeable future.

The Company did not sell any unregistered common shares during the fiscal year ended January 31, 2009, did not make any repurchases of its common shares and does not currently have a plan to repurchase any of its common shares.

ITEM 6.

SELECTED FINANCIAL DATA

The following selected historical consolidated financial and other data are qualified by reference to, and should be read in conjunction with, the consolidated financial statements and notes thereto included elsewhere in this report. The Company’s consolidated financial statements are prepared in accordance with United States generally accepted accounting principles. All amounts are in United States dollars.

	Fiscal year ended January 31,
	2009		2008		2007		2006		2005
Sales from continuing operations	4,824,906		5,734,858		6,499,287		5,265,209		6,372,359
Net income (loss) from continuing
operations	(1,591,470	)	(885,211	)	(260,623	)	(1,489,053	)	1,139,911
Net income (loss) per common share	(0.52	)	(0.29	)	(0.09	)	(0.49	)	0.38
Total assets	6,333,916		9,763,270		10,127,298		9,910,445		10,811,873
Long-term borrowings	890,523		1,033,843		1,058,835		691,178		833,631

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company’s fiscal year ends on January 31^stof 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 financial statements and notes thereto included elsewhere in this report. 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. This discussion contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. For a discussion of risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in, or implied by the forward-looking statements, see the discussion of Risk Factors and “Cautionary Note Regarding Forward-Looking Statements” above.

Overview

The Company is engaged in the, manufacture and marketing of Dextran-based products for the veterinary and human pharmaceutical market. The Company conducts its business operations through its wholly-owned subsidiaries: Dextran Products and Chemdex, Inc.

Dextran Products Business

The manufacture and sale of bulk quantities of Dextran and derivative products for sale to large pharmaceutical companies throughout the world is conducted through a Canadian subsidiary, Dextran Products. Such products are used in the production of veterinary and human products such as vaccines and ophthalmic products.

For the past two fiscal years the Company has been extremely challenged by large fluctuations in exchange rates, especially the increase in the value of the Canadian dollar as compared to the United States dollar. The Company’s sales are largely denominated in United States dollars, while its costs are largely in Canadian dollars. 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 2007 until late in the third quarter of fiscal year 2009 severely reduced the profitability of the Canadian operations, and negatively impacted the Company`s cash flows. In addition, the world wide increase in the price of commodities has resulted in lowered hog production, especially in Canada, Europe and the United States, where the Company has traditionally derived a substantial portion of its sales.

After the cancellation of the Phase III clinical trials for Ushercell due to inconclusive results, the Company`s share price declined, eventually resulting in the Company`s shares being suspended from trading on the NASDAQ Capital Market on September 12^th, 2008 and delisted in December 2008. It is important to note that this did not have an impact on the core operations or source of funds for the core operations.

Results from ongoing research aimed at characterizing the impact of Ushercell on mucosal safety with new endpoints is expected in the second half of fiscal 2010. At that point the Company will review further opportunities to develop the compound into a commercial product.

Throughout this period, the Company has been investing its significant cash reserves in refurbishing the Toronto plant, in order to capitalize on the higher margins available for its powdered products line, primarily Dextran and Dextran derivatives.

Chemdex

Chemdex is the US based subsidiary that purchases raw materials from Dextran Products for the production of Iron Dextran 10% for the American market. Chemdex then sells the bulk material to Sparhawk Labs who produce the final dosage form for distribution in the US.

Chemdex, Veterinary Laboratories and the Joint Venture Business

During approximately one month of the 2005 fiscal year, the Company also engaged in the finished product veterinary pharmaceutical business through its United States subsidiary Chemdex, which, in turn, conducted its operations through its subsidiary, Veterinary Laboratories. On December 1, 1992, Veterinary Laboratories and Sparhawk Laboratories Inc. entered into a joint venture for the purpose of manufacturing and selling veterinary pharmaceutical products (the “Joint Venture”) On January 13, 2004, the Company, Chemdex and Veterinary Laboratories 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 Veterinary Laboratories 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. On May 31, 2006, payment in full for principal and interest was received. The warrant expired at the earlier of payment in full of the promissory note or March 4, 2014, and therefore expired before it could be exercised. Chemdex also entered into a supply agreement with Sparhawk to supply ferric hydroxide and hydrogenated dextran solution to Sparhawk on an exclusive basis in the United States for 10 years.

Results of Operations

Fiscal Year ended January 31, 2009 compared to Fiscal Year ended January 31, 2008 compared to Fiscal Year ended January 31, 2007

				Fiscal Years
	FY 2009	FY 2008	FY 2007	09 v 08	08 v 07
				(% increase (decrease))
Loss before taxes	$ (1,644,430)	$ (967,155)	$ (375,818)	(70)%	(157)%
Net Loss	(1,591,470)	(885,211)	(260,623)	(80)%	(240)%
Loss per share	(0.52)	(0.29)	(0.09)

The increase in net loss for the fiscal year 2009 as compared to fiscal year 2008 is attributable to two principal causes. First, there was an impairment charge of $550,956 against the long-lived assets of the Company, which was determined on the basis of the Company’s expected future cash flows compared to the current value of the Company’s property and equipment. Second, from an operations aspect, the increase in net loss was impacted by the continued decrease in sales and gross margins, and the strength of the Canadian dollar as compared to the United States dollar encountered during the first three quarters of the fiscal year. Because the majority of the Company’s revenue is denominated in United States dollars while the majority of its cost of sales is denominated in Canadian dollars, at its Dextran Products subsidiary, when the value of the Canadian dollar increases in relation to the United States dollar, margins decrease and expenses increase. The average exchange rate used for fiscal 2009 was only slightly better than that encountered in fiscal 2008 (3.5%), though significant improvement did occur in the fourth quarter,

The increase in net loss for the fiscal year 2008 as compared to fiscal year 2007 was due primarily to the rise of the Canadian dollar relative to the United States dollar and the significant portion of Company expenses that are denominated in Canadian dollars. Exchange rate fluctuations resulted in a 13% decrease in margins at Dextran Products in fiscal year 2008 compared to the previous fiscal year (4% decrease in fiscal year 2007). The results for fiscal year 2007 also included the recognition of the deferred gain on the promissory note related to the sale of the veterinary products assets to Sparhawk (Note 13).

				Fiscal Years
	FY 2009	FY 2008	FY 2007	09 v 08	08 v 07
				(% increase (decrease))
Sales	$4,824,906	$5,734,858	$6,499,287	(16)%	(12)%

Sales decreased in fiscal year 2009 compared to fiscal year 2008 as a result of decreased demand from existing customers, primarily in the fourth quarter of fiscal year 2009. This decline in demand was caused by the general global economic decline which included the decline in the hog markets, especially in Europe. When the decline in sales orders severely escalated early in the fourth quarter, management determined that as a cost-saving measure, it was prudent to close the production plant for approximately 8 weeks. This resulted in a sales decline of $714,175 for the fourth quarter of fiscal year 2009 compared to the same quarter of fiscal year 2008, Year to date sales for the third quarter had already been impacted by the general turmoil in the world economy and combined with the reduced sales from the fourth quarter, resulted in an overall sales decline of 16% for fiscal year 2009 compared to the prior fiscal year.

Sales decreased in fiscal year 2008 compared to fiscal year 2007 as a result of decreased demand from existing customers and production problems which primarily affected our powdered products. Lower customer demand, primarily related to our lower margin products, resulted from overall selling price increases, which in turn were necessitated by the increase in value of the Canadian dollar relative to the United States dollar. Total production volume in fiscal year 2008 decreased by 31% compared to fiscal year 2007.

				Fiscal Years
	FY 2009	FY 2008	FY 2007	09 v 08	08 v 07
				(% increase (decrease))
Gross profit	$31,903	$375,064	$832,443	(91)%	(55)%
Percentage of sales	0.7%	6.5%	13%

The decrease in gross profit in fiscal year 2009 resulted from decreased sales, especially during the fourth quarter as noted above, production problems incurred in the third quarter, and the plant closure that took place during the fourth quarter. Though significant savings resulted from the plant closure in production related areas such as plant labor, utilities and raw materials, ongoing costs such as realty taxes, depreciation and some utility costs were still incurred.

The decrease in gross profit in fiscal year 2008 was a result of the decrease in sales noted above, combined with increased direct costs resulting from the increase in value of the Canadian dollar. Significant cost savings were realized in almost all direct costs, including payroll reductions of more than 10%, but these savings were not sufficient to offset the effect of the exchange rate increase of the Canadian dollar.

				Fiscal Years
	FY 2009	FY 2008	FY 2007	08 v 07	08 v 07
				(% increase (decrease))
Selling, promotion, general and administrative expenses	$1,071,734	$1,211,172	$1,376,960	(11)%	(12)%

As in fiscal year 2008, management continued its efforts to reduce overall selling, promotion and general and administrative expenses. The most significant reductions occurred in administrative wages, insurance, options expense, and selling and promotion costs. Reporting costs were also reduced as a result of being suspended from listing in September 2008.

In fiscal year 2008, management continued its efforts to reduce overall selling, promotion and general and administrative expenses. The most significant reductions occurred in professional and reporting fees, insurance, legal fees, and options expense. The Company also eliminated travel to various conferences that had been attended in previous years that related to the Ushercell project.

				Fiscal Years
Research and development	FY 2009	FY 2008	FY 2007	09 v 08	08 v 07
				(% increase (decrease))
Research and development Expenditures	$35,102	$135,821	$214,865	(74)%	(37)%

In fiscal year 2009, virtually all of the Company’s research into Ushercell was halted, with only some patent expenses being incurred and paid. Further patent fees are also being curtailed. Results from ongoing research aimed at characterizing the impact of Ushercell on mucosal safety with new endpoints is expected in the second half of fiscal 2010. At this point, the Company will assess the potential commercial viability of the compound before investing in further research or development. Since the cessation of the clinical trials for Ushercell, the Company has been reviewing the other projects in its portfolio and actively pursuing their potential for creating new market opportunities.

In fiscal year 2008, the Company continued to reduce its research and development expenditures. Final payments were made with respect to clinical studies related to the Ushercell project, and a small amount was expended on process improvement projects related to the Company’s ongoing product lines. Patent fees were reduced to the minimum necessary to maintain only certain existing patent rights.

Funding for the Company’s primary development products 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 benefits from the results of research projects through the ownership of patents and/or licenses with respect to the products involved. The Company has no commitments to repay the funding or to purchase the results of the research.

				Fiscal Years
	FY 2009	FY 2008	FY 2007	09 v 08	08 v 07
				(% increase (decrease))
Depreciation and amortization expense	$549,376	$559,866	$547,297	(2)%	2%

The small decrease in depreciation and amortization for fiscal year 2009 is due primarily to the small decrease in average value of the Canadian dollar for the year, compared to fiscal 2008. Included in depreciation and amortization expense are allocations to cost of goods sold in the amount of $514,899 for fiscal year 2009 (2008 - $519,787; 2007 - $505,211).

The increase in depreciation and amortization in fiscal years 2008 and 2007 was due primarily to the increased investments in capital equipment during the year, and the increase in the value of the Canadian dollar relative to the United States dollar.

				Fiscal Years
	FY 2009	FY 2008	FY 2007	09 v 08	08 v 07
				(% increase (decrease))
Interest expense	$66,714	$96,818	$94,790	(31)%	2%

The decrease in interest expense in fiscal year 2009 is primarily due to the decrease in interest rates compared to fiscal year 2008, as well as the continued decrease in other long-term debt and capital obligations.

The increase in interest expense in fiscal year 2008 was primarily attributable to the rise in the Canadian dollar relative to the United States dollar. This is partially offset by the decrease in other long-term debt and capital lease obligations.

				Fiscal Years
	FY 2009	FY 2008	FY 2007	09 v 08	08 v 07
				(% increase (decrease))
Foreign exchange loss (gain)	$(77,818)	$43,256	$(22,857)	280%	(289)%

In fiscal year 2009, the Company experienced an overall foreign exchange gain due to Dextran Products’ exposure to the United States dollar, especially with the decline in value of the Canadian dollar relative to the United States dollar in the latter part of the fiscal year. Throughout most of fiscal year 2008, Dextran Products generally had a net asset exposure to the United States dollar because accounts receivable balances denominated in United States dollars normally exceeded its United States dollar denominated intercompany payables. While the exchange rate was relatively consistent during the earlier part of the fiscal year, the significant decline of the Canadian dollar in the latter part of fiscal year 2009 was a major factor contributing to the overall gain for the fiscal year.

In fiscal year 2008, the Company experienced a foreign exchange loss due to Dextran Products’ exposure to the United States dollar, combined with the continued increase in value of the Canadian dollar relative to the United States dollar. Throughout fiscal year 2008, Dextran Products generally had a net asset exposure to the United States dollar because accounts receivable balances denominated in United States dollars normally exceeded its United States dollar denominated intercompany payables.

				Fiscal Years
	FY 2009	FY 2008	FY 2007	09 v 08	08 v 07
				(% increase (decrease))
Impairment of property and equipment	$550,956	----	----	100%	----

A discussed above, the Company has determined that a charge of $550,956 is appropriate to align the value of the Company’s plant and equipment with the value of future cash flows that are expected to be earned by those capital assets.

				Fiscal Years
	FY 2009	FY 2008	FY 2007	09 v 08	08 v 07
				(% increase (decrease))
Interest and other income	$10,359	$184,821	$497,663	(94)%	(63)%

Interest and other income declined significantly in fiscal year 2009 due to the loss realized on disposal of shares included in the investments available for sale. This loss is partially offset by the gain shown in comprehensive income. The decrease is also due to the lower interest rates experienced during fiscal 2008 applicable to the due from shareholder amount.

The decrease in interest and other income in fiscal year 2008 compared to fiscal year 2007 was due primarily to the recognition of the deferred gain of $350,000 on the promissory note from Sparhawk in fiscal year 2007, as explained above. Investment income decreased in fiscal year 2008 as a result of the decrease in investments available for sale and amounts included in cash equivalents, partially offset by the cash surrender of a life insurance policy on a departed Company officer.

				Fiscal Years
	FY 2009	FY 2008	FY 2007	09 v 08	08 v 07
				(% increase (decrease))
Recovery of income taxes	$(52,960)	$(81,944)	$(115,195)	(35)%	(29)%

The fiscal year 2009 decrease in tax provision is due to a decrease in deferred tax liabilities. This deferred tax liability was no longer considered necessary as the Company has loss carryforwards available that should result in there being no income taxes payable for the foreseeable future.

The fiscal year 2008 decrease in tax provision is due to a decrease in deferred tax liabilities of $83,317, combined with an increase in current tax expense of $1,373. The decrease in the deferred tax liability is due to the decrease in the timing difference related to the excess of carrying value of depreciable assets over tax value, which in turn reduces future income tax liabilities.

Liquidity and Capital Resources

As of January 31, 2009, the Company had cash of $327,857, compared to cash and cash equivalents of $468,570 at January 31, 2008. In fiscal year 2009, the Company expended cash of $251,128 in its operating activities, compared to expending $297,899 for fiscal year 2008 and generating $661,607 for fiscal year 2007. The cash expended in operations in fiscal year 2008 as compared to the cash generated in fiscal year 2007 is due to the decrease in earnings. Depreciation and amortization continues to be a large non-cash expense of the Company, which is expected to increase in fiscal year 2009 as result of assets acquired as part of the refurbishment become operational. The impairment of property and equipment is also a large non-cash item which is not considered to be reoccurring.

Working capital decreased to $1,359,946, and the current ratio decreased to 3.19 to 1 as of January 31, 2009, compared to $2,403,042 and 3.43 to 1 as of January 31, 2008.

As at January 31, 2009, the Company had no commitments for capital expenditures related to the plant refurbishment at Dextran Products in Toronto as compared to $20,024 at January 31, 2008.

At January 31, 2009, the Company had accounts receivable of $161,858 and inventory of $1,003,623, compared to $611,975 and $1,350,490, respectively, at January 31, 2008. The decrease in accounts receivable and inventory at January 31, 2009 is due to the plant closure and related lower volume of sales in the fourth quarter compared to the same period in fiscal year 2008. At January 31, 2009, the Company had accounts payable of $150,965, compared to $399,820 at January 31, 2008. The decrease as at January 31, 2009 was due primarily to the lowered production costs as a result of the plant closure and related lower sales in the fourth quarter. In addition, accrued liabilities at January 31, 2008 included costs related to the plant refurbishment of $129,500 compared to nil at January 31, 2009. During fiscal year 2009, capital expenditures totaled $56,401, as compared to $1,486,866 in fiscal year 2008.

As at January 31, 2009, the Company’s investments consisted of a short-term fixed income fund and a global fixed income bond fund, both denominated in Canadian dollars. Unrealized gains and losses will occur as the market interest rates and investment valuations vary. Management does not expect significant gains or losses in the future due to the relatively short term to maturity of the nature of these funds. Management plans to convert a portion of these investments to cash as needed for working capital or other cash needs such as plant refurbishments and equipment.

The change in accumulated other comprehensive income of the Company is almost entirely attributable to the currency translation adjustment of Dextran Products. Dextran Products’ functional currency is the Canadian dollar. This currency translation adjustment arises from the translation of Dextran Products’ financial statements to United States dollars.

Dextran Products had a Cdn. $250,000 (U.S. $203,000) (2008 – Cdn. $750,000; U.S. $636,000) line of credit, none of which was utilized at January 31, 2009 and 2008. This line of credit bears interest at the Canadian banks’ prime lending rate plus 1.00% (2009 – 3.40%; 2008 – 6.50%) and is repayable on demand. This 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. In March of 2006, the Company secured an additional Cdn $500,000 fixed rate term loan primarily to fund capital purchases, with interest at 0.75% over Canadian banks’ prime lending rate (2009 – 6.95%).

The bank indebtedness agreement contains two covenants related to the operations at the Dextran Products facility in Toronto, Canada. First, there is a Debt to Tangible Net Worth ratio, which requires a maximum of 125%. As at January 31, 2009, the Company met this requirement with a ratio of 16% (2008 –17%). Second, there is a Debt Service Coverage Ratio, which requires a minimum ratio of 120%. Due to the operating loss incurred in fiscal year 2009, the Company did not meet this ratio test, as the loss created a significant negative ratio of 990% (2008-negative 82%) As a result of this covenant failure, the Company’s line of credit was reduced to Cdn $250,000 (USD $203,000) during the first quarter of fiscal year 2009, and a waiver was granted by the bank which noted that the Company was expected to meet this ratio in the future. Management has planned to improve the results of its operations as noted below.

The increase in capital lease obligations during fiscal year 2009 was due to the acquisition of printer/fax equipment and a forklift truck, less repayments on capital leases.

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

Changes in the relative values of the Canadian dollar and the United States dollar occur from time to time and may, in certain instances, materially affect the Company’s results of operations. See Item 7A.

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

Management’s Plan to Improve the Results of Operations.

As at January 31, 2009, there were certain negative financial indicators reflected in our financial statements. These include an accumulated deficit of $19,370,714, a loss of $ 1,591,470 for the year, cash used in operations of $251,128, and the inability of its subsidiary, Dextran Products Limited, to meet its bank’s lending covenants as noted above. The Company has also determined that an impairment charge was necessary to align the carrying value of its property and equipment with the value of expected future cash flows.

These negative results are due to extreme fluctuations in the value of the Canadian dollar versus the US Dollar as previously discussed, the relatively low margin of the main product base, Iron Dextran, and the decreased sales due primarily to the general economic slowdown, especially related to the hog markets worldwide.

To offset these poor results the Company continues to focus on its active program to improve results with the following activities:

As a result of the dramatic impact of exchange rates during the year, the Company has been aggressively seeking cost reductions in all areas of its operations. Cost reductions have been achieved in most areas including raw material pricing, plant repairs, as well as insurance, legal, consulting and reporting costs. Payroll reductions have been implemented, with reductions in management compensation and the implementation of shorter plant hours of work when appropriate. The plant was also shutdown for approximately 8 weeks in the third quarter, resulting in significant cash savings. These cost control initiatives are ongoing and will continue to be of benefit to the Company.

The Company’s operating division, Dextran Products, also conducts weekly meetings with Production and Quality Control to monitor all production processes and batch yields to ensure they are maximized.

In fiscal year 2010, management intends to continue its focus on the core business of Dextran Products that have historically been the backbone of the company. It has come to the attention of the Company that some other producers of Dextran and Dextran derivatives in the world have refocused their attention on other products and are no longer producing Dextran and Dextran derivatives. This has led to an increase in interest in the Company as a potential supplier of this type of product, and the Company is actively responding to these enquiries. These are powdered products and as such present the possibility of increased sales of higher margin product if they result in confirmed orders. At this time it is not possible to confirm this interest will lead to an increase in sales.

The Company is well positioned to take advantage of increased interest in these powdered products as a result of having invested, over the past several years, in state of the art drying equipment. This new drying equipment is now installed and is presently being qualified. This last step requires the preparation of manuals and documents to ensure consistent operation and therefore production of the highest quality product. This will in turn ensure that the Company is capable of supplying product to large pharmaceutical companies who have expressed such an interest. This work is expected to be completed in the first half of fiscal 2010.

Overall, management believes that a number of factors will lead to more profitable operations. First, the Company provides unique, high quality products. This is confirmed by the interest shown from various customers, some of whom have not only researched and tested alternative sources to the products provided by the Company, but have also visited our Toronto operations to confirm their desire to continue or expand their relationship with Polydex Pharmaceuticals. Second, the economic turmoil experienced primarily over the past two years has lessened the number of available producers of comparable products. In addition, our customers have informed us that some of our competitors have had difficulty achieving the high quality standards that are the Company’s norm. Third, though inconclusive at this time, the international hog markets appear to have stabilized. This is hopefully a precursor to improved market conditions overall, especially for our core Dextran and Dextran related products. Fourth, recent strong interest in our various product lines has occurred from new and existing customers, as evidenced by the high level of enquiries and requests for samples being regularly received, and the Company’s recent return to full production levels. Fifth, the lowered carrying cost of the capital assets will more accurately reflect the lower income charge that is more appropriate to the contribution to be made by these assets. Lastly, the recent strength of the United States dollar provides increased profitability, liquidity and cash flow to our Canadian subsidiary in Toronto, which is the engine that drives our Company’s operations.

All of the foregoing expectations are subject to the risks and uncertainties discussed above under “Risk Factors” and “Cautionary Note Regarding Forward Looking Statements”. Should the above expectations fail to occur or do not achieve the levels required to meet the Company’s profitability and liquidity requirements, management may seek other sources of investment or liquidity from new or existing investors, creditors and customers.

Related Party Transactions

In August 1997, the Company loaned Thomas C. Usher, formerly 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 United States’ bank prime rate plus 1.50% (the “Loan”). The Loan was used to partially fund a $1,000,000 payment to the State of Florida in order to allow Thomas C. Usher to regain possession of 430,000 Common Shares of the Company then held by the State as collateral security relating to the liquidation of insurance companies formerly owned by Thomas C. Usher. Repayment of the Loan is accomplished by periodic payments and through offsets by the Company against royalty payments due Thomas C. Usher pursuant to intellectual property license agreements 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 January 31, 2009 was $299,716, as compared to $297,321 at January 31, 2008, including accrued interest. The Company has taken a cumulative provision of $323,490 against this loan and other amounts described below as at January 31, 2009 (2008 -$323,490). Thomas C. Usher passed away on February 26, 2005. Obligations with respect to the Loan transferred to the estate of Thomas C. Usher. The Company continues to be obligated to make royalty payments pursuant to the license agreements, and intends to continue to offset such payments against the Loan.

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 January 31, 2009 was $31,244, as compared to $60,339 at January 31, 2008. Thomas C. Usher also owed $250,000 to a subsidiary of the Company, Novadex International Limited, as of January 31, 2009, pursuant to a non-interest bearing loan with no specific repayment terms. The outstanding amount of this loan has not changed from January 31, 2008. The amounts continue to remain owing from the estate of Thomas C. Usher.

As of January 31, 2009, Thomas C. Usher, now through his estate, has pledged 243,263 common shares of the Company as security for these amounts owing to the Company. These common shares had a market value of $92,440 at January 31, 2009, based on the closing price of the Company’s common shares on the Pink Sheets quotation service on January 31, 2009. During the third quarter of fiscal year 2009, George Usher, Chief Executive Officer of the Company, purchased 27,500 shares of the Company from the estate for a cost of $16,500, 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 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 January 31, 2009 is $36,297 (2008 - $36,908).

The Company also has an outstanding loan payable to the estate of Ruth Usher, a former director and widow of Thomas C. Usher, who passed away in July 2008. The amount due from the Company pursuant to this loan decreased to $608,316 at January 31, 2009 from $658,569 at January 31, 2008 due to monthly payments by the Company exceeding interest charges. The Company is required to make blended monthly payments of $5,000 (2007 - $8,000).

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Critical Accounting Policies

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

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

Revenue Recognition

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

Deferred Tax Assets

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

Changes in Accounting Policies

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

Recent Accounting Pronouncements

In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets-an amendment of FASB Statement No. 140. SFAS No. 156 amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. SFAS No. 156 is effective It the beginning of the first fiscal year that begins after September 15, 2006. The Company does not anticipate that the application of SFAS 156 will have an impact on the consolidated financial statements of the Company.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles '''GAAP''), and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. As such, the Company is required to adopt these provisions at the beginning of he fiscal year ending December 31, 2008. The Company is currently evaluating the impact of SFAS No. 157 on its financial statements.

In June 2006, the FASB issued FASB Interpretation (“FIN”) No. 48 “Accounting for Uncertainty in income Taxes.” FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109 “Accounting for Income Taxes.” FIN No. 48 prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN No. 48 is effective for fiscal years beginning after December 15, 2006. Earlier application is encouraged if the enterprise has not yet issued financial statements, including interim financial statements, in the period of adoption. The adoption of FIN No. 48 will not have a material impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB Statements No. 87, 88, 106, and 132(R). SFAS No. 158 improves financial reporting by requiring an employer to recognize the over funded or under funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. Management does not expect that SFAS No. 158 will have an impact on the consolidated financial statements of the Company.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB 108 requires companies to quantify misstatements using both a balance sheet and an income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies will record the effect as a cumulative effect adjustment to beginning of year retained earnings. The adoption of SAB 108 does not have an impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. The adoption of SFAS 159 does not have an impact on our consolidated financial statements.

In December 2007, the FASB revised SFAS No. 141, Business Combinations. SFAS No. 141 (revised 2007) improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS No. 141 (revised 2007) is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early application is not permitted before that date. As such, the Company is required to adopt these provisions during the fiscal year ending January 31, 2010. The Company is currently evaluating the impact of SFAS No. 141 (revised 2007) on its financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51. SFAS 160 improves the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, earlier adoption is prohibited. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ending January 31, 2010. The Company is currently evaluating the impact of SFAS No. 160 on its financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standard No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133. SFAS No. 161 requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting. SFAS No. 161 is effective for fiscal years, and interim periods within those fiscal years, beginning after November 15, 2008, with early adoption encouraged. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended January 31, 2010. The Company is currently evaluating the impact of SFAS No. 161 on its financial statements.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Exchange Rate Sensitivity

The Company’s operations consist of manufacturing activities in 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 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 gain when the Canadian dollar rises in relation to the United States dollar because it has a net liability exposure to the United States dollar resulting from 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 loss 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
	1/31/10	1/31/11	1/31/12	1/31/13	1/31/14	Thereafter	Total	Value
				(US$ Equivalent)

Assets:

Short-term investments:
Fixed rate ($Cdn.)	383,940	—	—	—	—	—	383,940	378,973
Average interest rate	3.23%	—	—	—	—	—	3.23%

Marketable securities:
Fixed rate ($Cdn.)	—	—	—	—	—	—	—	—
Average interest rate	—	—	—	—	—	—	—

Liabilities:

Long-term debt:
Fixed rate ($Cdn.)	50,790	42,423	45,560	49,199	52,998	121,749	362,719	443,341
Average interest rate	8.80%	9.16%	9.16%	9.17%	9.18%	9.00%	9.08%

Interest Rate Sensitivity

The Company has interest earning assets consisting of investment grade or higher 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 with the shareholder loan receivable. Both of these financial instruments carry the same interest rate. As such, the Company has no significant risk exposure to changes in interest rates. The following table presents information about the Company’s financial instruments that are sensitive to changes in interest rates. All financial instruments are held for other than trading purposes. The table presents principal cash flows and related weighted average interest rates by expected maturity dates.

	Expected Maturity Date
								Fair
	1/31/10	1/31/11	1/31/12	1/31/13	1/31/14	Thereafter	Total	Value
				(US$ Equivalent)
Assets:

Short-term investments:
Fixed rate ($Cdn.)	383,940	—	—	—	—	—	383,940	378,973
Average interest rate	3.23%	—	—	—	—	—	3.23%

Marketable securities:
Fixed rate ($Cdn.)	—	—	—	—	—	—	—	—
Average interest rate	—	—	—	—	—	—	—

Notes receivable:
Variable rate ($US)	21,763	22,797	23,880	25,014	26,203	180,058	299,716	299,716
Average interest rate	4.78%	4.75%	4.75%	4.75%	4.75%	4.75%	4.75%


Liabilities:

Long-term debt:
Fixed rate ($Cdn.)	50,790	42,423	45,560	49,199	52,998	121,749	362,719	443,341
Average interest rate	8.80%	9.16%	9.16%	9.17%	9.18%	9.00%	9.08%
Variable rate ($US)	31,106	32,584	34,131	35,753	37,451	445,916	616,942	616,942
Average interest rate	4.75%	4.75%	4.75%	4.75%	4.75%	4.75%	4.75%

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Polydex Pharmaceuticals Limited
Quarterly Financial Highlights
January 31, 2009
(Expressed in United States dollars)

	Fourth Quarter				Third Quarter				Second Quarter				First Quarter
	Fiscal Year				Fiscal Year				Fiscal Year				Fiscal Year

	2009		2008		2009		2008		2009		2008		2009		2008

Sales from continuing operations	934,454		1,525,679		1,373,963		1,357,681		1,296,704		1,504,365		1,219,785		1,347,133
Gross profit (Loss)	(223,286	)	(70,947	)	(200,713	)	137,947		191,906		99,103		263,996		208,961
Net loss from continuing operations	(1,030,593	)	(285,076	)	(418,680	)	(237,544	)	(169,535	)	(228,353	)	(25,622	)	(134,238	)
Net loss per common share	(0.34	)	(0.10	)	(0.014	)	(0.08	)	(0.04	)	(0.07	)	(0.01	)	(0.04	)

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of
Polydex Pharmaceuticals Limited

We have audited the accompanying consolidated balance sheets of Polydex Pharmaceuticals Limited as of January 31, 2009 and 2008 and the related consolidated statements of shareholders’ equity, operations and comprehensive income (loss) and cash flows for each of the years in the three-year period ended January 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Polydex Pharmaceuticals Limited as of January 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of the years in the three-year period ended January 31, 2009 in conformity with generally accepted accounting principles in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the company will continue as a going concern. As discussed in note 1 to the financial statements, the continuance of the Company is dependent on its future profitability and the ongoing support of its stockholders, affiliates and creditors. This raises substantial doubt about it ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Since the accompanying consolidated financial statements have not been prepared in accordance with generally accepted accounting principles and standards in Canada, they may not satisfy the reporting requirements of Canadian statutes and regulations.

"SCHWARTZ LEVITSKY FELDMAN LLP" Toronto, Ontario, Canada Chartered Accountants April 14, 2009 Licensed Public Accountants

POLYDEX PHARMACEUTICALS LIMITED

Consolidated Balance Sheets
(Expressed in United States dollars)

		January 31			January 31
		2009			2008



Assets

Current assets:
Cash and cash equivalents (note 3)	$	327,857		$	468,570
Investments available for sale (note 7)		381,457			845,034
Trade accounts receivable (note 19)		161,858			611,975
(Allowance for doubtful accounts nil, 2008 nil)
Inventories (note 4)		1,003,623			1,350,490
Prepaid expenses and other current assets		106,221			116,172

Total current assets		1,981,016			3,392,241

Property, plant and equipment, net (note 5)		4,057,959			6,041,348
Patents and intangible assets, net (note 6)		37,471			45,511
Due from estate of former shareholder (note 8)		257,470			284,170

	$	6,333,916		$	9,763,270

Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable	$	150,965		$	399,820
Accrued liabilities (note 11)		296,538			418,832
Customer deposits		92,932			92,932
Current portion of long-term debt (note 10a)		35,336			41,544
Current portion of capital lease obligations (note 10b)		15,299			6,071
Current portion of due to shareholder (note 8)		30,000			30,000

Total current liabilities		621,070			989,199

Long-term debt (note 10a)		291,305			398,540
Capital lease obligations (note 10b)		20,902			6,734
Due to shareholder (note 8)		578,316			628,569
Deferred income taxes (note 15)		-			55,962

		890,523			1,089,805

Total liabilities		1,511,593			2,079,004

Going concern (note 1)
Related party transactions (note 8)
Commitments and contingencies (note 21)

Shareholders' equity:
Capital stock (note 12)
Authorized:
100,000 Class A preferred shares of $0.10 each
899,400 Class B preferred shares of $0.0167 each
10,000,000 common shares of $0.0167 each
Issued and outstanding:
899,400 Class B preferred shares (January 31, 2008 - 899,400)		15,010			15,010
3,072,846 common shares (January 31, 2008 - 3,072,846)		51,185			51,185
Contributed surplus		23,527,576			23,499,154
Deficit		(19,370,714	)		(17,779,244	)
Accumulated other comprehensive income (note 20)		599,266			1,898,161

		4,822,323			7,684,266

	$	6,333,916		$	9,763,270

See accompanying notes.

On behalf of the Board:

Director

POLYDEX PHARMACEUTICALS LIMITED

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

Years ended January 31, 2009, 2008 and 2007

						Accumulated
						Other		Total
	Preferred	Common	Contributed			Comprehensive		Shareholders'
	Shares	Shares	Surplus	Deficit		Income (Loss)		Equity
	$	$	$	$		$		$

Balance, January 31, 2006	15,010	50,953	23,400,259	(16,633,410	)	945,250		7,778,062

Common share options exercised		232	38,879					39,111
Common share options issued			44,521					44,521
Comprehensive income:
Net loss for the year				(260,623	)			(260,623	)
Unrealized loss on investments available for sale						(1,321	)	(1,321	)
Currency translation adjustment						(241,436	)	(241,436	)

Balance, January 31, 2007	15,010	51,185	23,483,659	(16,894,033	)	702,493		7,358,314

Common share options issued			15,495					15,495
Comprehensive income:
Net loss for the year				(885,211	)			(885,211	)
Unrealized gain on investments available for sale						3,702		3,702
Currency translation adjustment						1,191,966		1,191,966

Balance, January 31, 2008	15,010	51,185	23,499,154	(17,779,244	)	1,898,161		7,684,266

Common share options issued			28,422					28,422
Comprehensive income:
Net loss for the year				(1,591,470	)			(1,591,470	)
Unrealized gain on investments available for sale						27,269		27,269
Currency translation adjustment						(1,326,164	)	(1,326,164	)

Balance, January 31, 2009	15,010	51,185	23,527,576	(19,370,714	)	599,266		4,822,323

See accompanying notes.

POLYDEX PHARMACEUTICALS LIMITED

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

Year ended January 31	2009		2008		2007
	$		$		$

Sales	4,824,906		5,734,858		6,499,287
Cost of goods sold	4,793,003		5,359,794		5,666,844

Gross profit	31,903		375,064		832,443

Expenses
General and administrative (note 12b)	1,004,167		1,126,269		1,205,874
Research and development (note 14)	35,102		135,821		214,865
Selling and promotion	67,567		84,903		171,086
Interest expense,net (note 8)	66,714		96,818		94,790
Depreciation	34,477		39,973		42,186
Foreign exchange loss (gain)	(77,818	)	43,256		(22,857	)
Loss (gain) on sale of assets	5,527		-		(20	)
Cash surrender value of life insurance	-		(81,045	)	-
Impairment of plant and equipment	550,956		-		-
Interest and other income (note 13)	(10,359	)	(103,776	)	(497,663	)
Total expenses	1,676,333		1,342,219		1,208,261

Loss before income taxes	(1,644,430	)	(967,155	)	(375,818	)

Recovery of income taxes (note 15)	(52,960	)	(81,944	)	(115,195	)

Loss for the year	(1,591,470	)	(885,211	)	(260,623	)

Unrealized gain (loss) on investments available for sale	27,269		3,702		(1,321	)

Currency translation adjustment	(1,326,164	)	1,191,966		(241,436	)

Comprehensive income (loss) for the period	(2,890,365	)	310,457		(503,380	)

Per share information:
Loss per common share:
Basic	(0.52	)	(0.29	)	(0.09	)
Diluted	(0.52	)	(0.29	)	(0.09	)



Weighted average number of common shares used in computing net loss per share for the period:
Basic	3,072,846		3,072,846		3,063,884
Diluted	3,072,846		3,072,846		3,063,884

See accompanying notes.

POLYDEX PHARMACEUTICALS LIMITED

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

Year ended January 31	2009		2008		2007
	$		$		$
Cash provided by (used in):

Operating activities:
Net loss for the period	(1,591,470	)	(885,211	)	(260,623	)
Add (deduct) items not affecting cash:
Depreciation and amortization	549,376		559,866		547,297
Writedown of assets held for sale	-		-		4,410
Deferred income taxes (Recovery) (note 15)	(52,960	)	(83,317	)	(69,140	)
Amortization of premium on investments available for sale	-		-		471
(Gain) Loss on disposal of equipment	5,527		-		(20	)
Licence fee charged to due from shareholder (note 14)	32,769		70,280		76,978
Interest on shareholder loan	(18,895	)	(28,998	)
Options issued in exchange for services (note 12b)	28,422		15,495		44,521
Impairment of plant and equipment	550,956
Net change in non-cash working capital balances related to operations (note 16)	245,147		53,986		322,124

Cash provided by (used in) operating activities	(251,128	)	(297,899	)	666,018

Investing activities:
Additions to property, plant and equipment	(56,401	)	(1,486,866	)	(1,724,440	)
Decrease in due from shareholder	12,826		38,504		47,777
Decrease in accrued interest on investments	-		3,020		57,580
Proceeds of investments available for sale	376,566		805,582		1,123,669
Proceeds from sale of equipment	-		-		4,430

Cash provided by (used in) investing activities	332,991		(639,760	)	(490,985	)

Financing activities:
Repayment of long-term debt	(37,770	)	(36,932	)	(21,876	)
Repayment of capital lease obligations	(16,199	)	(5,220	)	(169,218	)
Increase (decrease) in due to shareholder	(50,253	)	(20,740	)	3,390
Increase in long-term bank indebtedness	-		-		441,034
Exercise of common share options	-		-		39,111

Cash provided by (used in) financing activities	(104,222	)	(62,892	)	292,441

Effect of exchange rate changes	(118,354	)	84,126		(53,931	)

Net increase (decrease) in cash and cash equivalents	(140,713	)	(916,425	)	413,544

Cash and cash equivalents, beginning of year	468,570		1,384,995		971,451

Cash and cash equivalents, end of year	327,857		468,570		1,384,995


Cash and cash equivalents is comprised of the following:
Cash	327,857		171,625		382,419
Short-term deposits	-		296,945		1,002,576

	327,857		468,570		1,384,995

See accompanying notes.

1. GENERAL

Polydex Pharmaceuticals Limited, the ("Company"), is incorporated in the Commonwealth of the Bahamas and carries on business in Canada and the United States. Its principal business activities, carried on through subsidiaries, include the manufacture and sale of veterinary pharmaceutical products and specialty chemicals. These consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles.

GOING CONCERN

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

As referred to in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operation, management has undertaken the following initiatives that it believes will be instrumental in leading to more profitable operations:

Cost reductions relating to direct cost areas, including raw material pricing, and tighter control of plant hours of work (including the plant shutdown in the fourth quarter).
Restructuring of the supervisory hierarchy over production personnel, to ensure more efficient communication especially as related to problem identification and scheduling.
Improved control of operational processes, including increased frequency of production and quality control meetings to address production issues on a more timely basis.
Cost reductions relating to administrative and overhead expenses, including administrative wages, insurance, and reporting costs.
Increased interaction with larger new and potential customers, including site visits, in order to address their opportunities and concerns, and strengthen our relationship with them.

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

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

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are 100% owned. The subsidiaries are: Dextran Products Limited; Chemdex, Inc.; Polydex Chemicals (Canada) Limited; and Novadex International Limited. All inter-company accounts and transactions have been eliminated on consolidation.

Cash and cash equivalents

These consist of cash and short-term deposits having maturities of less than three months.

Use of estimates

The preparation of 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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant accounting estimates relate to the allowance for unrecoverable amounts, depreciation and amortization rates, and asset impairment charges.

Inventories

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

Investments available for sale

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

Property, plant and equipment and patents and intangible assets

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

Buildings	15 years
Machinery and equipment	3 to 10 years

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

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

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

Revenue recognition

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 of product by the customer.

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

Comprehensive income

The Company has adopted SFAS No. 130 Reporting Comprehensive Income. This standard requires companies to disclose comprehensive income in their financial statements. In addition to items included in net income, comprehensive income includes items currently charged or credited directly to shareholders' equity, such as foreign currency translation adjustments.

Shipping and handling costs

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

Research and development

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

Foreign currency translation

The functional currency of the Company's Canadian operations has been determined to be the Canadian dollar. All asset and liability accounts of these companies have been translated into United States dollars using the current exchange rates at the 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 other comprehensive income (loss) within shareholders' equity.

Derivative financial instruments

The Company's Canadian subsidiary enters into foreign exchange contracts from time to time, to manage exposure to currency rate fluctuations related to expected future cash flows. The Company does not engage in speculative trading of derivative financial instruments. The foreign exchange contracts are not designated as hedging instruments, and as a result all foreign exchange contracts are marked to market and the resulting gains and losses are recorded in the consolidated statements of operations in each reporting period. Unrealized gains and losses are included in accrued liabilities in the consolidated balance sheets and in net change in non-cash working capital balances related to operations in the consolidated statements of cash flows.

Income taxes

The Company accounts for income tax under the provision of Statement of Financial Accounting Standards No. 109, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statement or tax returns. Deferred income taxes are provided using the liability method. Under the liability method, deferred income taxes are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities.

Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to tax expense in the period of enactment. Deferred tax assets may be reduced if deemed necessary based on a judgmental assessment of available evidence, by a valuation allowance for the amount of any tax benefits which are more likely, based on current circumstances, not expected to be realized.

Stock options

The Company uses the fair value accounting method provided for under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") to apply recognition provisions to its employee stock options granted, modified or settled. Compensation expense is recorded at the date stock options are granted. The amount of compensation expense is determined by estimating the fair value of the options granted using the Black-Scholes option pricing model.

Loss per common share

Basic loss per common share is computed using the weighted average number of shares outstanding of 3,072,846 for the year ended January 31, 2009 (2008 - 3,072,846; 2007 - 3,063,884). Diluted loss per common share is computed using the weighted average number of shares outstanding adjusted for the incremental shares, using the treasury stock method, attributed to outstanding options to purchase common stock. No incremental shares in 2009, 2008 or 2007, were used in the calculation of diluted loss per common share. Options to purchase of 138,761, 63,699, and 37,725 common shares in 2009, 2008 and 2007, respectively, were not included in the computation of diluted loss per common share because their effect was anti-dilutive.

3. CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following:

					2009	2008
					$	$

Cash					327,857	171,625
Short-term deposit					---	296,945
				327,857		468,570


4. INVENTORIES

Inventories consist of the following:

					2009	2008
					$	$

Finished goods					626,058	790,822
Work-in-process					135,966	380,855
Raw materials					241,599	178,813
					1,003,623	1,350,490


5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

		2009			2008
			Net			Net
		Accumulated	book		Accumulated	book
	Cost	depreciation	value	Cost	depreciation	value
	$	$	$	$	$	$

Land and buildings	4,314,500	976,493	3,338,007	5,242,002	1,079,827	4,162,175
Machinery and equipment	8,173,744	6,964,595	1,209,149	9,908,157	8,028,984	1,879,173
	12,488,244	7,941,088	4,547,156	15,150,159	9,108,811	6,041,348
Less: Impairment adjustment	(489,197)		(489,197)
	11,999,047	7,941,088	4,057,959	15,150,159	9,108,811	6,041,348

As stated in the Going Concern note above, the Company’s operations resulted in several negative financial indicators, including recurring net losses, negative cash flows, violation of a covenant related to its bank term loan, and the plant shutdown in the fourth quarter. The Company then compared the carrying values of its building and production equipment, which are located in Toronto, Canada, and including the nearly completed plant refurbishments, to the value of estimated future cash flows to be expected from the utilization of these assets over their lifetime. This resulted in an impairment adjustment of $489,197, which reduces the carrying value of its assets and the amounts for depreciation to be charged in future financial statements, thereby better reflecting the expected contribution of these assets to the Company’s future operations.

Included in machinery and equipment are assets under capital lease with a total cost of $928,064 (2008 -$1,204,935) and accumulated depreciation of $836,237 (2008 - $919,651). Depreciation of assets under capital lease is included in cost of goods sold. Depreciation of $514,899 was charged to cost of sales in fiscal 2009 (2008- $519,893). Assets not available for use amounted to $2,861,449 (2008 - $3,496,281).

6. PATENTS AND INTANGIBLE ASSETS

Patents and intangible assets consist of the following:

	2009	2008
	$	$

Cost	80,341	80,341
Less accumulated amortization	42,870	34,830
	37,471	45,511

These patents and intangible assets will be amortized at approximately $8,040 per year over the next 5 years.

7. INVESTMENTS AVAILABLE FOR SALE

Investments available for sale, at fair value, consist of the following:

	2009	2008
	$	$


22,685 units (2008–44,458) of DFA Fixed Income Fund yielding 3.27%	175,523	418,094
TD short term bond fund consisting of Canadian government and corporate bonds maturing in the next 1-5 years, yielding 3.19%	205,934	346,845
4,000 preferred shares of Diversified 6% preferred share trust units	—	80,095
	381,457	845,034

Investments available for sale are stated at fair market value, based on quoted market prices. The Company expects that the investments available for sale will be used for working capital for fiscal 2009 and onwards. Accordingly the investments available for sale were classified as part of current assets as at January 31, 2008.

8. RELATED PARTY TRANSACTIONS

Amounts due from (to) shareholder consist of the following:
	2009	2008
	$	$

Amounts due from estate of former shareholder [i]	257,470	284,170

Amounts due to shareholder [ii]	(608,316)	(658,569)

[i]	Amounts due from estate of former shareholder (the “Estate”) bear interest at the United States banks prime lending rate plus 1.5% (2009 – 6.28%; 2008 – 8.48%), except for an amount of $281,244 (2008 – $310,339) which is non-interest bearing. Interest income on this loan is recognized monthly. These amounts have no fixed terms of repayment. The Estate has pledged 243,263 shares of the Company and has pledged future license fee payments from the Iron Dextran process license agreement [note 14] as collateral for this loan. During 2009, $32,769 (2008 – $70,280; 2006 – $76,978) of license fee payments were made. The Company will continue to hold the pledged assets as collateral until the loan is repaid. The Company had a commitment to pay a death benefit of $110,000 to the Estate. At January 31, 2009, a balance of $36,297 is still to be paid to the Estate. See also “Iron Dextran Process” under Note 14.

[ii]	Amounts due to shareholder are unsecured and bear interest at the United States banks prime lending rate plus 1.5% (2009 – 6.28%; 2008 – 8.48%). The Company is required to make monthly payments, inclusive of accrued interest, of $5,000. Based on the current rate of interest, the principal repayment on this loan for fiscal 2010 would be approximately $30,000. This loan may not be called.

Interest expense recorded with respect to amounts due to shareholder is as follows:

	2009	2008	2007
	$	$	$
Interest expense	39,752	63,256	64,390

9. BANK INDEBTEDNESS

The Company had a Canadian operating line of credit of Cdn. $250,000 (U.S. $203,830; 2008 – U.S. $747,160), none of which was utilized at January 31, 2009 (2008 – Nil). The Canadian line of credit bears interest at the Canadian banks' prime lending rate plus 1.00% (2009 – 3.40%; 2008 – 6.50%). During March 2006, a term loan of Cdn $500,000 (U.S. $498,100) was obtained for the purchase of equipment, bearing interest of 6.95% (note 10[a]). 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 Limited ("Dextran Products") building.

Subsequent to the end of fiscal years 2009 and 2008, the Company received notice from its Canadian bank that it was in default of one of its covenants, and that this covenant is to be met on a going forward basis. Subsequent to the year end the bank has waived this default.

10. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

[a] Long-term debt consists of the following:

	2009	2008
	$	$

Note payable in blended quarterly payments of Cdn. $141 (U.S. $115), bearing interest at a fixed rate of 11%, maturing November 13, 2013	1,748	2,980
Bank term loan (note 9) payable in monthly installments of Cdn. $5,792 (U.S. $4,722) principal and interest at the Canadian banks’ prime lending rate plus 0.75% (2009 - 6.95%), maturing May 2016	324,893	437,104
	326,641	440,084
Less current portion	35,336	41,544
	291,305	398,540

Interest expense for the year for long-term debt was $ 23,430 (2008 - $31,984)

Principal repayments on the long-term debt are as follows:
		$

2010		35,336
2011		38,036
2012		40,779
2013		43,721
2014		49,332
Thereafter		84,101
		291,305

[b] Capital lease obligations consist of the following:
	2009	2008
	$	$

Obligation (Cdn. $30,436) under a capital lease, repayable in quarterly installments, bearing interest at 11.15% and maturing in 2014.	24,815	---
Obligation (Cdn $13,965) under a capital lease, repayable in monthly installments, bearing interest at Nil, and maturing in 2009.	11,386	---
Obligation (Cdn. $12,854) under a capital lease, repayable in quarterly installments, bearing interest at 10.43% and matured December 2008.	---	12,805
	36,201	12,805
Less current portion	15,299	6,071
	20,902	6,734

Future minimum annual lease payments on the capital lease obligations including interest are as
follows:
		$

2010		17,943
2011		6,557
2012		6,557
2013		6,557
2014		6,557
Total minimum lease payments		44,171

Less amount representing imputed interest		7,970
		36,201

Interest expense for the year for capital lease obligations was $3,433 (2008 - $1,711)


11. ACCRUED LIABILITIES


	2009	2008
	$	$

Payroll and related taxes payable	132,495	98,736
Professional fees payable	71,221	66,248
Death benefit payable	36,297	36,908
Utilities and taxes	34,489	39,466
Others	22,036	47,966
Plant refurbishment costs	---	129,508
	296,538	418,832

12. CAPITAL STOCK

[a] Share capital issued and outstanding

[i] Class A preferred shares

The Class A preferred shares will carry dividends, will be convertible into common shares of the Company and will be redeemable, at rates as shall be determined by resolution of the Board of Directors. No Class A preferred shares have been issued to date.

[ii] Class B preferred shares

The Class B preferred shares carry no dividends, are non-convertible and entitle the holder to two votes per share. 899,400 of the Class B preferred shares have been issued and are outstanding.

[iii] Common shares

During the year ended January 31, 2009, no common share options were exercised, and no common shares were issued.

During the year ended January 31, 2008, no common share options were exercised, and no common shares were issued.

During the year ended January 31, 2007, 13,950 common share options were exercised for $39,111 resulting in the issuance 13,950 common shares.

[b] Share option plan

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

All options granted have a term of five years and vest immediately. At January 31, 2009, the Company had 138,761 options outstanding at exercise prices ranging from $0.38 to $10.01 and a weighted average exercise price of $1.53. The options, which are immediately exercisable and expire on dates between January 31, 2010 and January 31, 2014, entitle the holder of an option to acquire one common share of the Company.

On January 31, 2009, 78,947 common share options were issued to the independent directors of the Company. These options were valued at $28,422 and were included in general and administrative expense, in accordance with SFAS 123. The fair value for 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 2.50%; dividend yield of nil; volatility factor of the expected market price of the Company's common stock of 1.776, and an expected life of five years.

On January 31, 2008, 37,974 common share options were issued to the independent directors of the Company. These options were valued at $15,495 and were included in general and administrative expense, in accordance with SFAS 123. The fair value for 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 5.25%; dividend yield of nil; volatility factor of the expected market price of the Company's common stock of 0.745, and an expected life of five years.

On July 8, 2006, 7,500 common share options were granted to employees and non-employees of the Company. These options were valued at $35,160 and were included in general and administrative expense, in accordance with SFAS 123. The fair value for 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 five years. On January 31, 2007, 6,000 common share options were issued to the independent directors of the Company. These options were valued at $9,361 and were included in general and administrative expense, in accordance with SFAS 123. The fair value for 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 5.25%; dividend yield of nil; volatility factor of the expected market price of the Company's common stock of 0.754, and an expected life of five years.

Details of the outstanding options, which are all currently exercisable, are as follows:

								Weighted average
			Share options					exercise price per share
	2009		2008		2007			2009		2008		2007
	#		#		#			$		$		$

Options outstanding, beginning of year	63,699		37,725		42,175			3.34		5.64		4.24
Granted	78,947		37,974		13,500			0.38		0.79		6.89
Exercised	—		—		(13,950	)		—		—		2.80
Expired	(3,885	)	(12,000	)	(4,000	)		7.72		2.50		5.00
Options outstanding, end of year	138,761		63,699		37,725			1.53		3.34		5.64

Weighted average fair value of options granted during the year							$	0.38	$	0.51	$	4.12

The following table summarizes information relating to the options outstanding at January 31, 2009:

		Weighted average
Exercise	Number	remaining
price	outstanding	contractual life
$		[months]

0.38	78,947	60
0.79	37,974	48
3.00	6,000	36
6.86	4,365	12
7.52	3,975	24
10.01	7,500	30
	138,761	52

13. VETERINARY LABORATORIES, INC.

Sparhawk Laboratories, Inc.

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

On January 13, 2004, the Company, Chemdex, Inc. and Sparhawk entered into an Asset Purchase Agreement with Sparhawk. Pursuant to this Asset Purchase Agreement, the Company agreed to sell substantially all of the assets of Veterinary Laboratories, 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, Inc. 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. 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 consolidated statement of operations.

14. LICENSE AGREEMENTS AND RESEARCH AND DEVELOPMENT

The Company has made claims for investment tax credits on research and development activities. Research and development expenditures have been reduced by investment tax credits as follows:

	2009	2008	2007
	$	$	$

Research and development expenditures	35,102	135,821	214,865
Investment tax credits	—	—	—
Research and development expense	35,102	135,821	214,865

Iron Dextran process

The Company has an agreement with the Estate which grants the Company the exclusive worldwide license to use a certain process for producing Iron Dextran. This license agreement expires in 2014. The Company pays a license fee based on production volumes. The total license fee incurred during the year was $32,769 [2008 – $70,280; 2007 – $76,978]. These payments are applied to the balance owing by the Estate [note 8[i]].

15. INCOME TAXES

[a]	Substantially all of the Company's activities are carried out through operating subsidiaries in Canada and the United States. The Company's effective income tax rate is dependent on the tax legislation in each country and the operating results of each subsidiary and the parent company.

	The components of loss before income taxes are as follows:

	2009		2008		2007
	$		$		$

Bahamas	(23,716	)	(111,208	)	(244,022	)
Canada	(1,650,590	)	(878,468	)	(510,970	)
United States	29,876		22,521		379,174
	(1,644,430	)	(967,155	)	(375,818	)

During fiscal 2006, the tax residency of the parent company, Polydex Pharmaceuticals Limited, was determined to be Canada, for the years 1999 to the present. Due to the losses incurred in the Company during that period, no income taxes payable were incurred. The provision for (recovery of) income taxes consists of the following:

	2009		2008		2007
	$		$		$
Provision for (recovery of) income taxes based on Canadian statutory income tax rates	(511,683	)	(280,466	)	(189,059	)
Decrease in tax reserve	—		—		(46,055	)
Increase in valuation allowance	496,470		216,216		81,833
Tax and exchange rate changes on deferred tax items	(37,205	)	22,823		(3,554	)
Items not deductible for tax	(542	)	(40,517	)	41,640
	(52,960	)	(81,944	)	(115,195	)
Provision for (recovery of) income taxes based on United States income tax rates	11,054		8,333		140,294
Utilization of previously unrecognized tax losses	(11,054	)	(8,333	)	(140,294	)
	—		—		—
Recovery of income taxes	(52,960	)	(81,944	)	(115,195	)

Significant components of the provision for (recovery of) income taxes attributable to continuing operations are as follows:

	2009		2008		2007
	$		$		$

Canadian deferred tax recovery	(52,960	)	(83,317	)	(69,140	)
Canadian current tax expense (recovery)	—		1,373		(46,055	)
	(52,960	)	(81,944	)	(115,195	)

[b]	Deferred tax assets and liabilities have been provided on temporary differences that consist of the following:

	2009	2008		2007
	$	$		$
Deferred tax assets
Canadian
Non-capital losses	1,082,241	1,053,398		1,120,327
Unclaimed research and development expenses	304,083	315,905		285,444
Excess of tax value over carrying value of
depreciable assets	184,476
Net capital losses [note 15[c]]	154,541	200,055		164,976
Other items	20,846	14,414		15,160
United States
Net operating loss carryforwards	29,378	29,378		42,981
	1,775,565	1,613,150		1,628,888
Less valuation allowance	1,775,565	1,613,150		1,628,888
	—	—		—
Deferred tax liabilities
Excess of carrying value over tax value of depreciable assets	—	(47,120	)	(119,097	)
Investment tax credits and other items	—	(8,842	)	(2,670	)
Net deferred tax liabilities	—	(55,962	)	(121,767	)

[c]	The Canadian subsidiaries have non-capital loss carryforwards available to reduce future years’ income for tax purposes totaling approximately $3,862,000. These non-capital losses expire from 2010 to 2029 and are stated below.

	Year of expiry	$
	2010	123,000
	2011	217,000
	2015	491,000
	2026	767,000
	2027	347,000
	2028	1,150,000
	2029	767,000

	Total	3,862,000

	The Canadian subsidiaries also have deductions relating to scientific research and experimental development credits amounting to approximately $1,600,000. Certain Canadian subsidiaries also have net capital losses available for carryforward of approximately $499,000 available to offset future taxable capital gains. These potential deductions and net capital losses have an indefinite carryforward period.

[d]	The Company has not recorded a deferred tax liability related to its investment in foreign subsidiaries. The Company has determined that its investment in these subsidiaries is permanent in nature and it does not intend to dispose of or realize dividends from these investments in the foreseeable future. However, if either of these events were to occur, the Company will be liable for withholding taxes. The amount of the deferred tax liability related to the Company's investment in foreign subsidiaries is not readily determinable.

16. CONSOLIDATED STATEMENTS OF CASH FLOWS

The net change in non-cash working capital balances related to operations consists of the following:

	2009		2008		2007
	$		$		$

Decrease (increase) in current assets
Trade accounts receivable	381,994		691,495		(436,313	)
Interest receivable	—		—		41,511
Inventories	114,488		212,075		164,193
Prepaid expenses and other current assets	(5,132	)	(3,566	)	26,287
	491,350		900,004		(204,322	)
Increase (decrease) in current liabilities
Accounts payable	(198,510	)	(978,507	)	685,309
Accrued liabilities	(66,697	)	147,783		(117,143	)
Customer deposits	19,004		(15,294	)	3,113
Income taxes payable	—		—		(44,833	)
	245,147		53,986		322,124

Cash paid during the year for interest was $66,714 (2008 – $96,818; 2007 – $89,365). Cash paid during the year for income taxes was Nil (2008 – Nil; 2007 – Nil).

During the fiscal year ended January 31, 2009, the Company acquired a forklift truck for an amount of $19,518 and photocopier/printing equipment for an amount of $18,710 under capital lease arrangements. There were no capital equipment acquisitions under capital leases for the years ended January 31, 2008 and 2007.

17. SEGMENTED INFORMATION

All manufacturing, sales and administrative operations are carried out through Dextran Products Limited (“Dextran”) in Canada, while Chemdex in the United States only sells bulk quantities of a specific dextran derivative to Sparhawk under the Supply Agreement, as described in note 13.

Below is a breakdown of our sales revenue among significant customers and by geographic region:

	2009	2008	2007
	$	$	$
Total revenue by significant customer:


Customer A	1,095,647	1,106,972	1,296,702
Customer B	917,704	655,107	618,878
Customer C	767,878	427,206	668,001
Customer D	376,027	291,983	178,538
Customer E	220,160	578,120	275,200
Customer F	53,960	10,115	780,039
Customer G	---	538,033	155,420
	3,431,376	3,607,536	3,972,778


2009	2008	2007
$	$	$

Sales by geographic destination:

United States	$	1,810,342	$	1,475,295	$	1,283,251
Europe		1,410,803		1,928,278		2,796,710
Canada		824,358		1,035,040		893,977
Other		405,132		452,028		943,768
Pacific Rim		374,271		844,217		581,581
	$	4,824,906	$	5,734,858	$	6,499,287

18. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value of financial instruments information and appropriate valuation methodologies. has been determined based on available market.

The carrying values of cash and cash equivalents, trade accounts receivable, interest receivable and accounts payable approximate their fair values as at January 31, 2009 because of the short period to maturity of these financial instruments.

The estimated fair values of the bank indebtedness, due to shareholder, long-term debt and capital lease obligations are not materially different from the carrying values for financial statement purposes as at January 31, 2009 and 2008. The estimated fair value of the amount due from shareholder is not determinable because the amount has no fixed terms of repayment.

19. OTHER DISCLOSURES

[a] Concentration of accounts receivable

As at January 31, 2009, two (2008 - three) customers of the Company comprised 73% (2008 - 74%) of the trade accounts receivable balance. No other customers had trade accounts receivable outstanding at year end that represented more than 10% of the Company's trade accounts receivable balance.

[b] Foreign currency risk

The Company is exposed to foreign currency risk through its net investment in its Canadian operations. The Company has not entered into hedging arrangements related to the foreign currency risk exposure.

20. ACCUMULATED OTHER COMPREHENSIVE INCOME

The components of other accumulated comprehensive income are as follows:

	2009	2008
	$	$

Unrealized gains (losses) on investments available for sale	17,301	(9,968	)
Currency translation	581,965	1,908,129
Accumulated other comprehensive income	599,266	1,898,161

21. COMMITMENTS AND CONTINGENCIES

As at January 31, 2009, the Company had no commitments for capital expenditures related to the plant refurbishment (2008 - $20,024) at Dextran Products in Toronto, and no additional other commitments (2008 – $NIL).

22. RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 (“SAB 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 addresses how the effects of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB 108 requires companies to quantify misstatements using both a balance sheet and an income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. When the effect of initial adoption is material, companies will record the effect as a cumulative effect adjustment to beginning of year retained earnings. The adoption of SAB 108 does not have an impact on our consolidated financial statements.

In May 2008, the FASB issued Financial Accounting Standard No. 162, "The Hierarchy of Generally Accepted Accounting Principles" ("SFAS No. 162"). The statement is intended to improve financial reporting by identifying a consistent hierarchy for selecting accounting principles to be used in preparing financial statements that are prepared in conformance with GAAP. Unlike SAS No. 69, "The Meaning of Present in Conformity With GAAP," SFAS No. 162 is directed to the entity rather than the auditor. The statement is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with GAAP." The Company is currently assessing the impact of this statement, but believes it will not have a material impact on its financial position, results of operations, or cash flows upon adoption.

In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity exists in practice in accounting for financial guarantee insurance contracts by insurance enterprises under FASB Statement No. 60, Accounting and Reporting by Insurance Enterprises. This results in inconsistencies in the recognition and measurement of claim liabilities. This Statement requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements. The adoption of FASB 163 is not expected to have a material impact on the Company’s financial position.

In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) APB 14-1, Accounting for Convertible Debt Instruments That May be Settled in Cash upon Conversion (Including Partial Cash Settlement). FSP APB14-1 clarifies that convertible debt instruments that may be settled in cash upon either mandatory or optional conversion (including Partial Cash Settlement) are not addressed by paragraph 12 of APB Opinion No.14, Accounting for Convertible Debt and Debt issued with Stock Purchase Warrants. Additionally, FSP APB14-1 specifies that issuers of such instruments should separately account for the liability and equity components in a manner that will reflect the entity’s non-convertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP APB14-1 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The Company has adopted FSP APB14-1 beginning February 1, 2009, and this standard must be applied on a retrospective basis. The Company is evaluating the impact the adoption of FSP APB14-1 will have on its consolidated financial position and results of operations.

In June 2008, the FASB ratified the consensus reached on EITF Issue No. 07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock. EITF Issue No. 07-05 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity's own stock, which would qualify as a scope exception under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. EITF Issue No. 07-05 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption for an existing instrument is not permitted. The Company is currently evaluating the impact of adopting EITF Issue No. 07-05 on its consolidated financial statements.

On June 16, 2008, the FASB issued final Staff Position (FSP) No. EITF03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transaction Are Participating Securities,” to address the question of whether instrument granted in share-based payment transaction are participating securities prior to vesting. The FSP determines that unvested share-based payment awards that contain rights to dividend payments should be included in earnings per share calculations. The guidance will be effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the requirement of (FSP) No. EITF03-6-1 as well as the impact of the adoption on its consolidated financial statements.

In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” (“FSP FAS 140-4 and FIN 46 (R)-8”). FSP FAS140-4 and FIN 46(R)-8 amends FAS140 and FIN 46(R) to require additional disclosures regarding transfers of financial assets and interest in variable interest entities. FSP FAS 140-4 and FIN 46 (R)-8 is effective for interim or annual reporting periods ending after December 15, 2008. The Company is currently evaluating the impact of the adoption of FSP FAS140-4 and FIN 46(R)-8 will have on its consolidated financial position and results of operations.

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 9A.

CONTROLS AND PROCEDURES

Disclosure Controls

The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures cannot be relied upon to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required or to ensure that information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. Therefore controls and procedures were not effective for fiscal year ended January 31, 2009.

Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. We have assessed the effectiveness of those internal controls as of January 31, 2009.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

A material weakness in internal controls is a deficiency in internal control, or combination of control deficiencies, that adversely affects the Company’s ability to initiate, authorize, record, process, or report external financial data reliably in accordance with accounting principles generally accepted in the United States of America such that there is more than a remote likelihood that a material misstatement of the Company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected.

In the course of making our assessment of the effectiveness of internal controls over financial reporting, we identified a material weakness in our internal control over financial reporting. This material weakness consisted of inadequate staffing within the accounting operations of our company. The small number of employees who are responsible for accounting functions prevents us from segregating duties within our internal control system. The inadequate segregation of duties is a weakness because it could lead to the untimely identification and resolution of accounting and disclosure matters or could lead to a failure to perform timely and effective reviews. Due to this material weakness, management concluded that its internal control over financial reporting was not effective as of January 31, 2009.

Our review also revealed that although a number of controls appeared to exist, and indeed were observed to have been in operation, documentary evidence that such controls were operating throughout the period was found to be lacking. Such evidence as signatures indicating that a certain procedure had been carried out and affixing responsibility were lacking in the internal control system.

Our review also indicated the existence of certain high level procedures that might or might not serve to provide compensating control over these weaknesses. These procedures consisted of analytical review of key operating results by senior management of the Company, including preparation and review of monthly operating results, comparison of such results to budgets and to historical amounts, and comprehensive gross profit analysis. In addition, the Board of Directors received monthly updates on operations, and on a quarterly basis, reviews, investigates and discusses apparent inconsistencies and concerns with senior operating management.

Management has reacted to the Company’s profitability and liquidity issues in various ways, one of which is the reduction of administrative personnel. Inherent in remedying the internal control weaknesses noted above is increased division of duties, which would require the addition of administrative personnel. The Company fully intends to address this need once more profitable operating results have been achieved.

This annual report does not include an attestation report of the Company’s registered public accounting firm regading internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

There was no change in internal control over financial reporting during our fourth fiscal quarter ended January 31, 2009 that has materially affected, or is likely to materially affect, our internal controls over financial reporting.

ITEM 9B.

OTHER INFORMATION

As of September 12, 2008, the Company’s common shares were delisted from the NASDAQ Capital Market. Subsequent to that date, the shares have been listed and traded on the NASDAQ Bulletin Board and the Pinksheets listings. The Company’s common shares trade under the symbol “POLXF.”

PART III

ITEMS 10-14.

Pursuant to General Instruction G (3) of Form 10-K, Items 10 through 14, inclusive, have not been restated or answered in this annual report on Form 10-K because the Company intends to file within 120 days after the close of its fiscal year with the Securities and Exchange Commission a definitive proxy statement pursuant to Regulation 14A under the Securities Exchange Act of 1934, which proxy statement involves the election of directors. The information required in these Items 10 through 14, inclusive is incorporated by reference to that proxy statement.

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)	The following documents are filed as a part of this Annual Report on Form 10-K:

	(1)	Financial Statements of Polydex Pharmaceuticals

		Report of Independent Auditors — Schwartz Levitsky Feldman LLP Consolidated Balance Sheets Consolidated Statements of Shareholders’ Equity Consolidated Statements of Operations Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements

	(2)	Financial Statement Schedules

		Schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted.

(3)	Exhibits

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

	10.1	Employment Agreement between Polydex Pharmaceuticals Limited and George G. Usher dated December 22, 1993 (filed as Exhibit 10.2 to the Annual Report on Form 10-K filed April 30, 1997, and incorporated herein by reference)

	10.2	Amendment to Employment Agreement between Polydex Pharmaceuticals Limited and George G. Usher dated February 1, 1999 (filed as Exhibit 10.4 to the Annual Report on Form 10-K filed April 29, 1999, and incorporated herein by reference)

	10.3	Research Agreement among Dextran Products Limited, Canadian Microbiology Consortium, British Columbia’s Children’s Hospital and the University of British Columbia, dated April 1, 1996 (filed as Exhibit 10.4 to the Annual Report on Form 10-K filed April 30, 1997, and incorporated herein by reference)

	10.4	Joint Venture Agreement among Chemdex, Inc., Veterinary Laboratories Inc. and Sparhawk Laboratories, Inc., dated December 1, 1992 (filed as Exhibit 10.5 to the Annual Report on Form 10-K filed April 30, 1997, and incorporated herein by reference)

	10.5	Asset Purchase Agreement dated as of January 13, 2004, by and among Sparhawk Laboratories, Inc., Polydex Pharmaceuticals Limited, Chemdex, Inc. and Veterinary Laboratories, Inc. (filed as Exhibit 10.9 to the Annual Report on Form 10-K filed April 30, 2004, and incorporated herein by reference)


	10.6	Supply Agreement, dated as of March 1, 2004, by and between Chemdex, Inc. and Sparhawk Laboratories, Inc. (filed as Exhibit 10.10 to the Annual Report on Form 10-K filed April 30, 2004, and incorporated herein by reference)

	10.7	Unsecured Subordinated Promissory Note dated March 4, 2004 made by Sparhawk Laboratories, Inc. in favor of Chemdex, Inc. (filed as Exhibit 10.11 to the Annual Report on Form 10-K filed April 30, 2004, and incorporated herein by reference)

	10.8	Warrant and Repurchase Agreement, dated March 4, 2004 issued by Sparhawk Laboratories, Inc. to Chemdex, Inc. (filed as Exhibit 10.12 to the Annual Report on Form 10-K filed April 30, 2004, and incorporated herein by reference)

	21	Subsidiaries of Polydex Pharmaceuticals Limited (filed as Exhibit 21 to the Annual Report on Form 10-K filed April 28, 2000, and incorporated herein by reference)

	31.1	Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

	31.2	Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

	32.1	Certification of Chief Executive Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

	32.2	Certification of Chief Financial Officer Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	POLYDEX PHARMACEUTICALS LIMITED

Date: April 30, 2009	By: /s/ George G. Usher
	George G. Usher, President and
	Chief Executive Officer
	(Principal Executive Officer)

Date: April 30, 2009	/s/ John A. Luce
	Chief Financial Officer
	(Principal Financial and Accounting
	Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: April 30, 2009	/s/ George G. Usher
	George G. Usher, Director, President
	and Chief Executive Officer
	(Principal Executive Officer)

Date: April 30, 2009	/s/ Joseph Buchman
	Joseph Buchman, Director

Date: April 30, 2009	/s/ Derek John Michael Lederer
	Derek John Michael Lederer, Director

Date: April 30, 2009	/s/ John L.E. Seidler
	John L.E. Seidler, Director

EXHIBIT INDEX


31.1	Certification of Chief Executive Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

POLYDEX PHARMACEUTICALS LTD/BAHAMAS 10-K