Polydex Pharmaceuticals (POLXF) 10-Q 2010 Q1 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________

FORM 10-Q

(Mark One)

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

For the quarterly period ended April 30, 2009

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

For the transition period from _________________________ to ____________________

Commission File Number 1-8366

POLYDEX PHARMACEUTICALS LIMITED
(Exact Name of Registrant as Specified in Its Charter)

Commonwealth of the Bahamas	None
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer
	Identification No.)

421 Comstock Road, Toronto, Ontario, Canada	M1L 2H5
(Address of Principal Executive Offices)	(Zip Code)

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

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

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

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

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

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

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

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

Common Shares, $.0167 Par Value	3,072,846
(Title of Class)	(Outstanding at May 31, 2009)

POLYDEX PHARMACEUTICALS LIMITED
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1	CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
	Consolidated Balance Sheets April 30, 2009 (Unaudited) and January 31, 2009 (Audited)	F-1
	Consolidated Statements of Operations and Comprehensive Income (Loss) Three months ended April 30, 2009 and 2008 (Unaudited)	F-3
	Consolidated Statements of Shareholders’ Equity
	Three months ended April 30, 2009 and 2008 (Unaudited)	F-4
	Consolidated Statements of Cash Flows
	Three months ended April 30, 2009 and 2008 (Unaudited)	F-5
	Notes to Consolidated Financial Statements (Unaudited)	F-6
Item 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1
Item 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	9
Item 4	CONTROLS AND PROCEDURES	11
PART IIOTHER INFORMATION
Item 1	LEGAL PROCEEDINGS	12
Item 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	12
Item 3	DEFAULTS UPON SENIOR SECURITIES	12
Item 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	12
Item 5	OTHER INFORMATION	12
Item 6	EXHIBITS	13
	Signatures and Certifications

Cautionary Note Regarding Forward-Looking Statements

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

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

PART I
FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited).

Consolidated Balance Sheets
(Expressed in United States dollars)

		April 30		January 31
		2009		2009
		(Unaudited)		(Audited)
Assets
Current assets:
Cash and cash equivalents (note 3)	$	27,038	$	327,857
Investments available for sale (note 4)		396,473		381,457
Trade accounts receivable		674,668		161,858
Inventories
Finished goods		702,426		626,058
Work in progress		274,859		135,966
Raw materials		204,550		241,599
		1,181,835		1,003,623
Prepaid expenses and other current assets		47,971		106,221
Total current assets		2,327,985		1,981,016
Property, plant and equipment, net		4,088,658		4,057,959
Patents and intangible assets, net		35,461		37,471
Due from estate of former shareholder		257,470		257,470
	$	6,709,574	$	6,333,916
See accompanying notes.

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POLYDEX PHARMACEUTICALS LIMITED
Consolidated Balance Sheets
(Expressed in United States dollars)
		April 30			January 31
		2009			2009
		(Unaudited)			(Audited)
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	386,646		$	150,965
Accrued liabilities		358,043			296,538
Customer deposits		92,932			92,932
Current portion of long-term debt		37,175			35,336
Current portion of capital lease obligations		10,840			15,299
Current portion of due to shareholder		30,000			30,000
Total current liabilities		915,636			621,070
Long-term debt		289,705			291,305
Capital lease obligations		20,394			20,902
Due to shareholder		570,300			578,316
		880,399			890,523
Total liabilities		1,796,035			1,511,593
Going concern (note 1)
Shareholders' equity:
Capital stock
Authorized:
100,000 Class A preferred shares of $0.10 each
899,400 Class B preferred shares of $0.0167 each
10,000,000 common shares of $0.0167 each
Issued and outstanding:
899,400 Class B preferred shares (January 31, 2009 - 899,400)		15,010			15,010
3,072,846 common shares (January 31, 2009 - 3,072,846)		51,185			51,185
Contributed surplus		23,527,576			23,527,576
Deficit		(19,424,441	)		(19,370,714	)
Accumulated other comprehensive income		744,209			599,266
		4,913,539			4,822,323
&nbs p;	$	6,709,574		$	6,333,916
See accompanying notes.

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POLYDEX PHARMACEUTICALS LIMITED

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

	Three Months		Three Months
	Ended		Ended
	April 30		April 30
	2009		2008
	(Unaudited)		(Unaudited)
Sales	1,030,161		1,219,785
Cost of goods sold	822,431		955,789
Gross profit	207,730		263,996
Expenses
General and administrative	212,980		257,475
Interest expense,net	13,142		19,222
Selling and promotion	14,942		13,979
Research and development	1,107		4,784
Depreciation	4,877		9,161
Foreign exchange loss (gain)	16,120		(631	)
Interest and other income	(1,711	)	(14,372	)
Total expenses	261,457		289,618
Loss before income taxes	(53,727	)	(25,622	)
Recovery of income taxes	-		-
Loss for the year	(53,727	)	(25,622	)
Unrealized gain on investments available for sale	2,437		104
Currency translation adjustment	142,506		(15,969	)
Comprehensive income (loss) for the period	91,216		(41,487	)
Per share information:
Loss per common share:
Basic	(0.02	)	(0.01	)
Diluted	(0.02	)	(0.01	)
Weighted average number of common shares used in
computing net loss per share for the period:
Basic	3,072,846		3,072,846
Diluted	3,072,846		3,072,846
See accompanying notes.

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POLYDEX PHARMACEUTICALS LIMITED
Consolidated Statements of Shareholders' Equity
(Expressed in United States dollars)
		Three Months			Three Months
		Ended			Ended
		April 30			April 30
		2009			2008
		(Unaudited)			(Unaudited)
Preferred Shares:
Balance, beginning and end of period	$	15,010		$	15,010
Common Shares:
Balance, beginning and end of period	$	51,185		$	51,185
Contributed Surplus:
Balance, beginning and end of period	$	23,527,576		$	23,499,154
Deficit:
Balance, beginning of period	$	(19,370,714	)	$	(17,779,244	)
Net loss for the period		(53,727	)		(25,622	)
Balance, end of period	$	(19,424,441	)	$	(17,804,866	)
Accumulated Other Comprehensive Income:
Balance, beginning of period	$	599,266		$	1,898,161
Unrealized gain on investments available for sale		2,437			104
Currency translation adjustment for the period		142,506			(15,969	)
Balance, end of period	$	744,209		$	1,882,296
See accompanying notes.

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POLYDEX PHARMACEUTICALS LIMITED

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

	Three Months		Three Months
	Ended		Ended
	April 30		April 30
	2009		2008
	(Unaudited)		(Unaudited)
Cash provided by (used in):
Operating activities:
Net loss for the period	(53,727	)	(25,622	)
Add (deduct) items not affecting cash:
Depreciation and amortization	128,248		152,470
Interest on shareholder loan	-		(5,257	)
Net change in non-cash working capital balances
related to operations	(300,317	)	(601,746	)
Cash used in operating activities	(225,796	)	(480,155	)
Investing activities:
Additions to property, plant and equipment	(20,936	)	(5,032	)
Proceeds (acquisition) of investments available for sale	(2,108	)	103,422
Cash provided by (used in) investing activities	(23,044	)	98,390
Financing activities:
Repayment of long-term debt	(8,579	)	(10,167	)
Repayment of capital lease obligations	(5,747	)	(1,456	)
Decrease in due to shareholder	(8,016	)	(12,563	)
Increase in bank indebtedness	-		129,071
Cash provided by (used in) financing activities	(22,342	)	104,885
Effect of exchange rate changes	(29,637	)	(2,765	)
Net decrease in cash and cash equivalents	(300,819	)	(279,645	)
Cash and cash equivalents, beginning of year	327,857		468,570
Cash and cash equivalents, end of year	27,038		188,925
Cash and cash equivalents is comprised of the following:
Cash	27,038		188,925
Short-term deposits	-		-
	27,038		188,925
See accompanying notes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.         Basis of Presentation:

The information contained in the interim consolidated financial statements is condensed from that which would appear in annual consolidated financial statements. The interim consolidated financial statements included herein should be read in conjunction with the audited financial statements, and notes thereto, and other financial information contained in the 2009 Annual Report on Form 10-K for the fiscal year ended January 31, 2009 as filed by Polydex Pharmaceuticals Limited (the “Company”) with the Securities and Exchange Commission. The unaudited interim consolidated financial statements as of April 30, 2009 and 2008 include all normal recurring adjustments which management considers necessary for a fair presentation. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire fiscal year. The interim consolidated financial statements include the accounts and transactions of the Company and its majority owned subsidiaries in which the Company has equal to or more than a 50% ownership interest and exercises control.

Going Concern

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

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, 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1.         Basis of Presentation (Continued):

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

2.         Significant Accounting Policies:

Basis of consolidation

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

Use of estimates

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

Cash and cash equivalents

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

Inventories

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

Investments available for sale

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

2.         Significant Accounting Policies (Continued):

Property, plant and equipment and patents and intangible assets

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

Buildings 15 years
Machinery and equipment 3 to 10 years

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

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

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

Revenue recognition

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

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

Shipping and handling costs

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

Research and development

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

Foreign currency translation

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

2.         Significant Accounting Policies (Continued):

Stock options

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

Earnings (loss) per common share

Basic earnings (loss) per common share is computed using the weighted average number of common shares outstanding of 3,072,846 for the three months ended April 30, 2009 (2008 - 3,072,846). Diluted earnings (loss) per common share is computed using the weighted average number of common shares outstanding adjusted for the incremental shares, using the treasury stock method, attributed to outstanding options to purchase common stock. Incremental shares of nil at April 30, 2009 and nil at April 30, 2008 were used in the calculation of diluted earnings (loss) per common share. Options to purchase common shares of nil were included in the computation of diluted earnings per share as at April 30, 2009. Options to purchase common shares of nil at April 30, 2008 were included in the computation of diluted earnings (loss) per common share.

3.Cash and Cash Equivalents:

Cash and cash equivalents consist of the following:

		April 30		January 31
		2009		2009
Cash	$	27,038	$	327,857

4. Investments Available For Sale:

Investments available for sale consist of the following:

		April 30		January 31
		2009		2009
Canadian short-term bond fund	$	214,744	$	205,934
Global fixed income fund	$	181,729	$	175,523
	$	396,473	$	381,457

Canadian short-term bond fund has maturity dates extending from one to five years and a yield rate of 3.46% . The Global fixed income fund has a yield rate of 2.83% . Investments available for sale are stated at fair market value, based on quoted market prices. An unrealized gain of $2,437 has been included in accumulated other comprehensive income.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

5. Commitments and Contingencies:

There are no material commitments or contingencies outstanding as at April 30, 2009 or April 30, 2008.

6.Stock-based Employee Compensation:

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

All options granted have terms of five years and vest immediately. At April 30, 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.

The Company uses the fair value method in accordance with SFAS 123 to account for awards of stock-based employee compensation. No stock-based employee compensation expense was recorded during the period from February 1, 2009 to April 30, 2009, because there were no options granted during this period. Similarly, no stock-based employee compensation expense was recorded during the period from February 1, 2008 to April 30, 2008, because there were no options granted during that period.

7. Segmented Information:

		Three Months		Three Months
		Ended		Ended
		April 30,		April 30,
		2009		2008
Total revenue by significant customer:
Customer A	$	258,259	$	124,550
Customer B	$	220,160	$	--
Customer C	$	131,551	$	252,523
Customer D	$	102,400	$	--
Customer E	$	575	$	339,570
Customer F	$	--	$	154,693
	$	712,945	$	871,336

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

7. Segmented Information (Continued):

Sales by geographic destination:

Three Months	Three Months
Ended	Ended
April 30,	April 30,
2009	2008

Europe	$	340,954	$	186,910
Pacific Rim	$	233,710	$	33,200
Other	$	202,150	$	89,442
Canada	$	137,552	$	255,045
United States	$	115,795	$	655,188
	$	1,030,161	$	1,219,785

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

     The Company’s fiscal year ends on January 31^st of each year. In this report, fiscal year 2010 refers to the Company’s fiscal year ended January 31, 2010. The following discussion should be read in conjunction with the April 30, 2009 interim consolidated financial statements and notes thereto included elsewhere in this report. Operating results for the three months ended April 30, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2010. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended January 31, 2009.The Company’s financial statements are prepared in accordance with United States generally accepted accounting principles. All amounts are in United States dollars, unless otherwise denoted.

Overview

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

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

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

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

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Results of Operations

Three months ended April 30, 2009 compared to three months ended April 30, 2008

		Three Months			Three Months
		Ended			Ended
		April 30,			April 30,
		2009			2008		Variance
Net Loss	$	(53,727	)	$	(25,622	)	(110	)%
Loss per Share	$	(0.02	)	$	(0.01	)

     The increase in net loss for the first quarter of fiscal year 2010 is a result of decreased sales compared to the first quarter of fiscal year 2009, partially offset by decreased expenses and the increase in value of the United States dollar as compared to the Canadian dollar.

		Three Months		Three Months
		Ended		Ended
		April 30		April 30,
		2009		2008	Variance
Sales	$	1,030,161	$	1,219,785	(16	)%

     Sales for the first quarter of fiscal year 2010 decreased from the comparable period for the first quarter of fiscal year 2009 is primarily due to a substantial order that was shipped in the first quarter of fiscal year 2009, and is expected to be repeated in the third quarter of fiscal year 2010.

		Three Months		Three Months
		Ended		Ended
		April 30,		April 30,
		2009		2008	Variance
Gross profit	$	207,730	$	263,996	(21	)%
Percentage ofsales		21%		21%

     The decrease in gross margin in the first quarter of fiscal year 2010 is due primarily to the decrease in sales compared to the first quarter of fiscal year 2009, partially offset by management’s commitment to stringent control of direct costs. As a percentage of sales, margins remained consistent aided in part by the decreased value of the Canadian dollar during the period.

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		Three Months		Three Months
		Ended		Ended
		April 30,		April 30,
		2009		2008	Variance
Selling, promotion,general andadministrativeexpenses	$	227,922	$	271,454	(16	)%

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

		Three Months		Three Months
		Ended		Ended
		April 30,		April 30,
		2009		2008	Variance
Research and developmentexpenditures	$	1,107	$	4,784	(77	)%

     The decrease in research and development expenses during the first quarter of fiscal year 2010 is a result of the continued reduction in patent issuance fees and consulting fees which had been substantially related to the Ushercell project. An independent review board is examining all of the data associated with the Ushercell Phase III clinical trials and its report is expected later this fiscal year.

     Further funding from research and development partners for these projects has been put on hold, pending receipt of the independent review board report mentioned above. The Company has no commitments to repay this funding or to purchase the results of such research.

		Three Months		Three Months
		Ended		Ended
		April 30,		April 30,
		2009		2008	Variance
Depreciationandamortizationexpense	$	128,248	$	152,470	(16	)%

     The decrease in depreciation and amortization expense for the first quarter of fiscal year 2010 compared to the first quarter of fiscal year 2009 is due to the decrease in the value of the Canadian dollar and the reduced fixed asset balances resulting from the impairment write down that occurred at January 31, 2009, and described in the Company’s 2009 Annual Report on Form 10K for the fiscal year ended January 31, 2009.

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		Three Months		Three Months
		Ended		Ended
		April 30,		April 30,
		2009		2008	Variance
Interestexpense	$	13,142	$	19,222	(32	)%

     Interest expense decreased for the first quarter of fiscal year 2010 compared to the first quarter of fiscal year 2009 due primarily to the decrease in interest rates applicable to the due to shareholder amount, as well as the reductions in long-term debt balances due to continued repayments by the Company.

		Three Months		Three Months
		Ended		Ended
		April 30,		April 30,
		2009		2008		Variance
Foreignexchange(gain) loss	$	16,120	$	(631	)	(2,655	)%

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

		Three Months		Three Months
		Ended		Ended
		April 30,		April 30,
		2009		2008	Variance
Interest andother income	$	1,711	$	14,372	(88	)%

     The decrease in interest and other income in the first quarter of fiscal year 2010 compared to the first quarter of fiscal year 2009 is primarily related to the decrease in investments available for sale and the reserve provided against the accrued interest on the shareholder loan balance.

Liquidity and Capital Resources

     As of April 30, 2009, the Company had cash of $27,038, compared to cash of $327,857 at January 31, 2009. In the first quarter of fiscal year 2010, the Company expended cash of $255,796 in its operating activities, compared to expending cash of $480,155 for the first quarter of fiscal year 2009. The use of cash for operations during the first quarter of fiscal year 2010 is primarily due to the increase in receivables and inventory, partially offset by the increase in accounts payable. Depreciation continues to be a large non-cash expense of the Company.

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     The Company’s working capital increased to $1,412,349 and a working capital ratio of 2.54 to 1 as of April 30, 2009, compared to $1,359,946 and 3.19 to 1 as of January 31, 2009.

     As of April 30, 2009, the Company had accounts receivable of $674,668 and inventory of $1,181,835, compared to $161,858 and $1,003,623 respectively at January 31, 2009 and $936,231 and $1,750,390 respectively at April 30, 2008. The increase in accounts receivable during the first quarter ended April 30, 2009 is primarily due to the low volume of sales during the latter part of the fourth quarter of fiscal year 2009, which led to the plant shutdown during that period.

     At April 30, 2009, the Company had accounts payable of $386,646 compared to $150,965 at January 31, 2009 and $535,456 at April 30, 2008. The increase in accounts payable from January 31, 2009 was due to the increase in inventory, and the timing of supplier payments.

     During the first quarter of fiscal year 2010, capital expenditures totaled $20,936, as compared to $5,032 in the first quarter of fiscal year 2009. Expenditures related to Phase I of the plant refurbishment and expansion plan at Dextran Products in Toronto have been completed and management expects it to be available for production during the third quarter of fiscal year 2010. Capital expenditures are expected to be minimal during the remainder of fiscal year 2010.

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

     Dextran Products has a Cdn. $250,000 (U.S. $209,500) operating line of credit, of which none was utilized at April 30, 2009 and January 31, 2009. This line of credit bears interest at the Canadian banks’ prime lending rate plus 1.0% (April 30, 2009 – 3.25%; January 31, 2009 –4.00%) . In May 2006, a fixed term rate loan of Cdn. $500,000 (U.S. $419,111) was obtained to fund capital purchases. The interest rate is 0.75% over Canadian bank prime lending rate (6.95%) . Bank indebtedness is collateralized by a general security agreement over the Company’s assets and a collateral mortgage of Cdn. $500,000 on the Dextran Products building in Toronto. The line of credit is used periodically by the Company to cover temporary short-term Canadian dollar cash needs. For these short-term cash needs, the interest expense on the credit line is typically less than the transaction costs incurred in selling short-term investments.

     The decrease in long-term debt and capital lease obligations from January 31, 2009 is due to repayments during the period, as well as the decrease in value of the Canadian dollar during the period.

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

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

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Related Party Transactions

     In August 1997, the Company loaned the late Thomas C. Usher, its Vice-Chairman, Director of Research and Development, a member of its Board of Directors and the beneficial owner of greater than 5% of the outstanding common shares of the Company, $691,500 at an interest rate equal to the prime rate of Toronto Dominion Bank plus 1.50% (the “Loan”). The Loan was used to partially fund a $1,000,000 payment to the State of Florida in order to allow Thomas C. Usher to regain possession of 430,000 Common Shares of the Company then held by the State as collateral security relating to the liquidation of insurance companies formerly owned by Thomas C. Usher. Repayment of the Loan is accomplished by periodic payments and through offsets by the Company against royalty payments due Thomas C. Usher pursuant to 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 April 30, 2009 was $303,201, as compared to $299,716 at January 31, 2009, including accrued interest. The Company has taken a cumulative provision of $326,975 at April 30, 2009 (January 31, 2009 - $323,490) against accrued interest on the Loan and the other amounts receivable from the estate as noted below. Obligations with respect to the Loan transferred to the estate of Thomas C. Usher upon his death in February 2005.

     In August 1999, Thomas C. Usher personally assumed all of the assets and liabilities of Novadex Corp., including the balance of receivables (the “Receivables”) due to the Company from Novadex Corp. The Receivables have no specific repayment terms. The total outstanding amount of the Receivables as of April 30, 2009 and at January 31, 2009 was $31,244. The Company continues to be obligated to make royalty payments to Mr. Usher’s estate pursuant to intellectual property license agreements, and intends to continue to offset such payments against the Receivables. Thomas C. Usher also owed $250,000 to a subsidiary of the Company, Novadex International Limited, as of April 30, 2009, pursuant to a non-interest bearing loan with no specific repayment terms. The outstanding amount of this loan has not changed from January 31, 2009. The amounts continue to remain owing from the estate of Thomas C. Usher.

     As of April 30, 2009, Thomas C. Usher, now through his estate, had pledged 243,263 common shares of the Company as security for these amounts owing to the Company. These common shares had a market value of $41,355 at April 30, 2009, based on the closing price of the Company’s common shares on the OTC Bulletin Board on April 30, 2009. 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 April 30, 2009 is $36,050.

     The Company also has an outstanding loan payable to Ruth Usher, a former director and the widow of Thomas C. Usher. The amount due from the Company pursuant to this loan decreased to $600,277 at April 30, 2009 from $608,293 at January 31, 2009 due to monthly payments by the Company, less interest charges.

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Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Critical Accounting Policies

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

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

Revenue Recognition

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

Allowance for Doubtful Accounts

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

Long-Lived Assets

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

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Deferred Tax Assets

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

Changes in Accounting Policies

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

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Exchange Rate Sensitivity

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

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

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
	4/30/09	4/30/10	4/30/11	4/30/12	4/30/13	Thereafter	Total	Value
	(US$ Equivalent)
Assets:
Short-terminvestments:
Fixed rate ($Cdn)	396,488	—	—	—	—	—	396,488	395,984
Average interestrate	3.16%	—	—	—	—	—	3.16 %
Liabilities:
Long-term debt:
Fixed rate ($Cdn)	47,954	44,428	47,843	51,530	53,706	112,704	358,165	358,165
Average interestrate	8.94%	9.16%	9.17%	9.17 %	9.14 %	9.00 %	9.09%

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Interest Rate Sensitivity

The Company has interest earning assets consisting of investment grade short-term commercial paper and medium-term fixed income instruments. A significant portion of the Company’s debt is at fixed rates. The variable rate debt represents the shareholder loan payable, which is partially offset by the shareholder loan receivable. Both of these financial instruments carry the same interest rate. As such, the Company has no significant risk exposure to changes in interest rates.

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

	Expected Maturity Date
								Fair
	4/30/09	4/30/10	4/30/11	4/30/12	4/30/13	Thereafter	Total	Value
	(US$ Equivalent)
Assets:
Short-terminvestments:
Fixed rate($Cdn)	396,488	—	—	—	—	—	396,488	395,984
Averageinterest rate	3.16%	—	—	—	—	—	3.16%
Notes receivable:
Variable rate($US)	21,598	22,624	23,698	24,824	26,003	184,453	303,201	303,201
Averageinterest rate	4.75%	4.75 %	4.75%	4.75%	4.75%	4.75%	4.75%
Liabilities:
Long-term debt:
Fixed rate($Cdn)	47,954	44,428	47,843	51,530	53,706	112,704	358,165	358,165
Averageinterest rate	8.94%	9.16%	9.17%	9.17%	9.14%	9.00%	9.09%
Variable rate($US)	31,487	32,982	34,549	36,19	37,909	436,287	609,406	609,406
Averageinterest rate	4.75%	4.75%	4.75%	4.75%	4.75%	4.75%	4.75%

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Item 4. Controls and Procedures.

The Company completed an evaluation as of the end of the period covered by this report under the supervision and with the participation of management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures cannot be relied upon to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required or to ensure that information is accumulated and communicated to our management to allow timely decisions regarding required disclosure. Therefore disclosure controls and procedures were not effective for the 3 months ended April 30, 2009.

There have been no changes in the Company’s internal control over financial reporting that occurred in the Company’s fiscal quarter ending April 30, 2009, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II
OTHER INFORMATION

Item 1.         Legal Proceedings

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

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

Not applicable.

Item 3.         Defaults Upon Senior Securities

Not applicable.

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

No items were submitted to a vote of the Company’s shareholders during the quarter ended April 30, 2009.

Item 5.         Other Information

Not applicable.

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

(a)         Exhibits

3.1	Memorandum of Association of Polydex Pharmaceuticals Limited, as amended to date (filed as Exhibit 3.1 to the Annual Report on Form 10-K filed April 30, 1997, and incorporated herein by reference)
3.2	Articles of Association of Polydex Pharmaceuticals Limited, as amended to date (filed as Exhibit 3.2 to the Quarterly Report on Form 10-Q filed September 13, 1999, and incorporated herein by reference)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b)         Reports on Form 8-K

Not applicable.

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SIGNATURES

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

Date: June 15, 2009

POLYDEX PHARMACEUTICALS LIMITED

(Registrant)

By /s/ George G. Usher

     George G. Usher, Chairman, President and

     Chief Executive Officer

     (Principal Executive Officer)

By /s/ John A. Luce

     John A. Luce, Chief Financial Officer

     (Principal Financial Officer)

Exhibit Index

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

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