**UNITED
        STATES**
  **SECURITIES
        AND EXCHANGE COMMISSION**
  **Washington,
        D.C. 20549**
  **FORM
        10-Q**
  (Mark
        One)
  [X]
              QUARTERLY
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934For
                  the quarterly period ended September 30, 2005[
                   ]
              TRANSITION
                  REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACTFor
                  the transition period from _________________ to
                  _________________Commission
                  file number 333-83152
 
  Inyx,
                  Inc.
                (Exact
                  name of small business issuer as specified in its
                  charter)Nevada
                (State
                  or other jurisdiction of incorporation or organization)
              75-2870720
                (IRS
                  Employer Identification No.)825
                  Third Avenue, 40thFloor, New York, New York
                (Address
                  of principal executive offices)(212)
                  838-1111
                (Issuer’s
                  telephone number)
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 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 is an accelerated filer (as defined
        in Rule
        12b-2 of the Exchange Act: Yes [  ] No [X ].
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes [  ] No [X ].
  **APPLICABLE
        ONLY TO ISSUERS INVOLVED IN BANKRUPTCY**
 **PROCEEDINGS
        DURING THE PRECEDING FIVE YEARS:**
  Check
        whether the registrant filed all documents and reports required to be filed
        by
        Section l2, 13 or 15(d) of the Exchange Act after the distribution
        of
        securities under a plan confirmed by a court. Yes [  ] No [ 
        ]
  **APPLICABLE
        ONLY TO CORPORATE ISSUERS**
  State
        the
        number of shares outstanding of each of the issuer’s classes of common equity,
        as of November 14, 2005: 40,033,983 shares of common stock.
  
   PART
        I —
        FINANCIAL INFORMATION
 Item
                  1. FINANCIAL
                  STATEMENTSConsolidated
                    Balance Sheets as of September 30, 2005 and December 31,
                    2004;
                
                3Consolidated
                    Statements of Operations for the nine and three monthsended
                    September 30, 2005 and 2004;
                
                4Consolidated
                    Statements of Cash Flows for nine and three months ended September
                    30,
                    2005 and 2004;
                
                5Notes
                    to Consolidated Financial Statements;
                
                6Unaudited
                    Pro Forma Consolidated Statements of Operations;
                
                18Item
                    2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
                    OPERATION
                
                22Item
                    3. QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET
                    RISK
                
                42Item
                    4. CONTROLS AND PROCEDURES
                
                42PART
                    II — OTHER INFORMATIONItem
                    5. EXHIBITS
                
                43
 2
  **** **INYX,
        INC.**
 **Consolidated
        Balance Sheets**
 **(Expressed
        in thousands of U.S. dollars except for share amounts)**
 **September
                    30,**
                
                **December
                    31,****2005**
                
                **2004****(Unaudited)****Assets**Current
                    assets:Cash
                    and cash equivalents
                
                $
                4,220
                
                $
                336Accounts
                    receivable, net
                
                
                11,414
                
                
                1,697Inventory,
                    net
                
                
                15,511
                
                
                1,520Prepaid
                    expenses and other current assets
                
                
                4,431
                
                
                2,571Total
                    current assets
                
                
                35,576
                
                
                6,124Property,
                    plant and equipment, net
                
                
                42,400
                
                
                6,230Deferred
                    financing costs, net
                
                
                1,539
                
                
                651Other
                    assets
                
                
                24
                
                
                45Purchased
                    intangible assets, net
                
                
                15,053
                
                
                1,70559,016
                
                
                8,631Total
                    assets
                
                $
                94,592
                
                $
                14,755**Liabilities
                    and Stockholders' Deficit**Current
                    liabilities:Borrowings
                    under working capital line of credit
                
                $
                24,277
                
                $
                -Accounts
                    payable
                
                
                6,801
                
                
                4,091Accrued
                    expenses and other current liabilities
                
                
                7,937
                
                
                1,636Deferred
                    revenue
                
                
                3,723
                
                
                -Customer
                    Advance
                
                
                1,234
                
                
                108Loans
                    payable to Seller of Ashton
                
                
                14,385
                
                
                -Debt
                    refinanced, net of discount
                
                
                -
                
                
                10,395Current
                    portion of long-term debt
                
                
                11,384
                
                
                4,277Total
                    current liabilities
                
                
                69,741
                
                
                20,507Long-term
                    debt, net of current portion
                
                
                45,614
                
                
                113Total
                    liabilities
                
                
                115,355
                
                
                20,620Commitments
                    and contingenciesStockholders'
                    deficit:Preferred
                    stock - $0.001 par value, 10,000,000 sharesauthorized
                    -0- shares issued and outstanding
                
                
                -
                
                
                -Common
                    stock - $0.001 par value, 150,000,000 sharesauthorized,
                    40,033,983 shares issued and outstandingat
                    September 30, 2005; 38,012,479 shares issued andand
                    outstanding at December 31, 2004
                
                
                40
                
                
                38Additional
                    paid-in capital
                
                
                27,094
                
                
                25,275Accumulated
                    deficit
                
                
                (46,397
                )
                
                (30,334
                )Subscriptions
                    receivable
                
                
                (343
                )
                
                (343
                )Accumulated
                    other comprehensive loss -foreign
                    currency translation adjustment
                
                
                (1,157
                )
                
                (501
                )Total
                    stockholders' deficit
                
                
                (20,763
                )
                
                (5,865
                )Total
                    liabilities and stockholders' deficit
                
                $
                94,592
                
                $
                14,755
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
  3
  **INYX,
        INC.**
 **Consolidated
        Statements of Operations**
 **(Expressed
        in thousands of U.S. dollars, except per share amounts)**
 **For
                    the Nine Months Ended**
                  **September
                    30,**
                
                **For
                    the Three Months Ended**
                  **September
                    30,****2005**
                
                **2004**
                
                **2005**
                
                **2004****(Unaudited)**
                
                **(Unaudited)**Net
                    revenues
                
                $
                24,086
                
                $
                11,549
                
                $
                12,908
                
                $
                4,249Cost
                    of sales
                
                
                16,236
                
                
                10,392
                
                
                7,837
                
                
                3,571Gross
                    profit
                
                
                7,850
                
                
                1,157
                
                
                5,071
                
                
                678Operating
                    expenses:Research
                    and development
                
                
                1,876
                
                
                1,341
                
                
                929
                
                
                942General
                    and administrative
                
                
                12,239
                
                
                6,820
                
                
                5,813
                
                
                2,521Selling
                
                
                355
                
                
                255
                
                
                181
                
                
                95Depreciation
                    and amortization
                
                
                1,619
                
                
                431
                
                
                903
                
                
                155Amortization
                    of intangible assets
                
                
                845
                
                
                125
                
                
                436
                
                
                42Total
                    operating expenses
                
                
                16,934
                
                
                8,972
                
                
                8,262
                
                
                3,755Loss
                    from operations before interest and financingcosts
                    and income tax benefit and extraordinary item
                
                
                (9,084
                )
                
                (7,815
                )
                
                (3,191
                )
                
                (3,077
                )Interest
                    and financing costs (Note 12)
                
                
                7,896
                
                
                2,474
                
                
                1,750
                
                
                750Loss
                    before income tax benefit and extraordinary item
                
                
                (16,980
                )
                
                (10,289
                )
                
                (4,941
                )
                
                (3,827
                )Income
                    tax benefit
                
                
                -
                
                
                393
                
                
                -
                
                
                -Net
                    loss before extraordinary item
                
                $
                (16,980
                )
                $
                (9,896
                )
                $
                (4,941
                )
                $
                (3,827
                )Extraordinary
                    item, net of taxes
                
                
                917
                
                
                -
                
                
                -
                
                
                -Net
                    loss
                
                
                (16,063
                )
                
                (9,896
                )
                
                (4,941
                )
                
                (3,827
                )Basic
                    and fully diluted loss per share beforeextraordinary
                    item
                
                $
                (0.43
                )
                $
                (0.32
                )
                $
                (0.12
                )
                $
                (0.12
                )Basic
                    and fully diluted income from extraordinary item
                
                
                0.02
                
                
                -
                
                
                -
                
                
                -Basic
                    and fully diluted loss per share
                
                $
                (0.41
                )
                $
                (0.32
                )
                $
                (0.12
                )
                $
                (0.12
                )Weighted-average
                    number of shares used in computingbasic
                    and fully diluted loss per share amounts
                
                
                39,428,431
                
                
                30,780,478
                
                
                39,985,613
                
                
                32,523,000
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  4
  **INYX,
        INC.**
 **Consolidated
        Statements of Cash Flows**
 **(Expressed
        in thousands of U.S. dollars)**
 **For
                              the Nine Months Ended**
                            **September
                              30,**
                          
                          **For
                              the Three Months Ended**
                            **September
                              30,****2005**
                          
                          **2004**
                          
                          **2005**
                          
                          **2004****(Unaudited)**
                          
                          **(Unaudited)**Cash
                              flows from operating activities:Net
                              loss before extraordinary item
                          
                          $
                          (16,980
                          )
                          $
                          (8,584
                          )
                          $
                          (4,941
                          )
                          $
                          (3,629
                          )Income
                              from extraordinary item
                          
                          
                          917
                          
                          
                          -
                          
                          
                          -
                          
                          
                          -Net
                              loss for the period
                          
                          
                          (16,063
                          )
                          
                          (8,584
                          )
                          
                          (4,941
                          )
                          
                          (3,629
                          )Adjustments
                              to reconcile net loss to net cashused
                              in operating activities:Depreciation
                              and amortization
                          
                          
                          1,619
                          
                          
                          431
                          
                          
                          903
                          
                          
                          155Amortization
                              of financing costs and debt discount
                          
                          
                          2,558
                          
                          
                          319
                          
                          
                          103
                          
                          
                          -Amortization
                              of intangible assets
                          
                          
                          845
                          
                          
                          -
                          
                          
                          436
                          
                          
                          -Deferred
                              tax asset
                          
                          
                          -
                          
                          
                          (393
                          )
                          
                          -
                          
                          
                          119Provision
                              for stock issued for services
                          
                          
                          1,578
                          
                          
                          30
                          
                          
                          -
                          
                          
                          30Stock
                              issue costs
                          
                          
                          (165
                          )
                          
                          -
                          
                          
                          (27
                          )
                          
                          -Provision
                              for bad debts
                          
                          
                          (63
                          )
                          
                          29
                          
                          
                          33
                          
                          
                          (82
                          )Reserve
                              for inventory obsolescence
                          
                          
                          116
                          
                          
                          116
                          
                          
                          (123
                          )
                          
                          333Provision
                              for stock option compensation
                          
                          
                          196
                          
                          
                          227
                          
                          
                          65
                          
                          
                          66Provision
                              for issuance of warrants
                          
                          
                          -
                          
                          
                          580
                          
                          
                          (162
                          )
                          
                          530Warrants
                              issued for financing and consulting fees
                          
                          
                          162
                          
                          
                          745
                          
                          
                          162
                          
                          
                          331Issuance
                              of shares for exercise of stock options
                          
                          
                          -
                          
                          
                          290
                          
                          
                          -
                          
                          
                          -Subscription
                              receivable
                          
                          
                          
                          
                          
                          (243
                          )
                          
                          -
                          
                          
                          50Changes
                              in assets and liabilities:(Increase)
                              decrease in accounts receivables
                          
                          
                          (4,860
                          )
                          
                          718
                          
                          
                          (4,565
                          )
                          
                          (1,091
                          )(Increase)
                              decrease in inventory
                          
                          
                          (1,037
                          )
                          
                          (839
                          )
                          
                          (630
                          )
                          
                          (1,045
                          )(Increase
                              ) decrease in prepaid and other current assets
                          
                          
                          (1,860
                          )
                          
                          (4,563
                          )
                          
                          (685
                          )
                          
                          (1,835
                          )(Increase)
                              in deferred financing costs
                          
                          
                          (3,446
                          )
                          
                          (648
                          )
                          
                          (2,527
                          )
                          
                          -Decrease
                              in other assets
                          
                          
                          21
                          
                          
                          -
                          
                          
                          -
                          
                          
                          -Increase
                              (decrease) in bank overdraft
                          
                          
                          
                          
                          
                          -
                          
                          
                          (404
                          )
                          
                          (51
                          )Increase
                              in deferred revenues
                          
                          
                          3,723
                          
                          
                          2
                          
                          
                          3,723
                          
                          
                          278Increase
                              in accounts payable and accrued liabilities
                          
                          
                          5,056
                          
                          
                          837
                          
                          
                          2,827
                          
                          
                          (563
                          )Increase
                              (decrease) in customer advances
                          
                          
                          1,126
                          
                          
                          -
                          
                          
                          -
                          
                          
                          (153
                          )Net
                              cash used in operating activities
                          
                          
                          (10,494
                          )
                          
                          (10,946
                          )
                          
                          (5,812
                          )
                          
                          (6,557
                          )Cash
                              flows from investing activities:Acquisition
                              of Aventis Pharmaceuticals, Puerto Rico
                          
                          
                          (23,035
                          )
                          
                          (97
                          )
                          
                          -
                          
                          
                          (13
                          )Purchase
                              of property, plant and equipment
                          
                          
                          (980
                          )
                          
                          -
                          
                          
                          (817
                          )
                          
                          -Acquisition
                              of Celltech Manufacturing Services Limited
                          
                          
                          (28,024
                          )
                          
                          -
                          
                          
                          (28,024
                          )
                          
                          -Net
                              cash used in investing activities
                          
                          
                          (52,039
                          )
                          
                          (97
                          )
                          
                          (28,841
                          )
                          
                          (13
                          )Cash
                              flows from financing activities:Borrowings
                              under revolving line of credit, net of fees
                          
                          
                          24,277
                          
                          
                          3,694
                          
                          
                          15,787
                          
                          
                          331Proceeds
                              from issuance of long term debt to Westernbank
                          
                          
                          56,744
                          
                          
                          500
                          
                          
                          25,013
                          
                          
                          -Repayment
                              of long term debt to Stiefel
                          
                          
                          (4,013
                          )
                          
                          -
                          
                          
                          (4,013
                          )
                          
                          -(Repayment)/advance
                              of long-term debt and revolving line of credit - Laurus
                              Funds
                          
                          
                          (10,395
                          )
                          
                          -
                          
                          
                          1,739
                          
                          
                          -Proceeds
                              from issuance of demand notes to shareholders
                          
                          
                          600
                          
                          
                          700
                          
                          
                          -
                          
                          
                          -Repayment
                              of promissory note
                          
                          
                          (67
                          )
                          
                          -
                          
                          
                          -
                          
                          
                          (650
                          )Repayment
                              of demand notes to shareholders
                          
                          
                          -
                          
                          
                          (650
                          )
                          
                          -
                          
                          
                          -Proceeds
                              from issuance of stock, net of issue costs
                          
                          
                          -
                          
                          
                          6,632
                          
                          
                          -
                          
                          
                          6,632Proceeds
                              from exercise of warrants
                          
                          
                          50
                          
                          
                          -
                          
                          
                          50
                          
                          
                          -Repayment
                              of capital lease obligation
                          
                          
                          (123
                          )
                          
                          (115
                          )
                          
                          (37
                          )
                          
                          (39
                          )Net
                              cash provided by financing activities
                          
                          
                          67,073
                          
                          
                          10,761
                          
                          
                          38,539
                          
                          
                          6,274Effect
                              of foreign exchange rate changeson
                              cash and cash equivalents
                          
                          
                          (656
                          )
                          
                          20
                          
                          
                          (786
                          )
                          
                          94Increase(decrease)
                              in cash
                          
                          
                          3,884
                          
                          
                          (262
                          )
                          
                          3,100
                          
                          
                          (202
                          )Cash
                              at beginning of period
                          
                          
                          336
                          
                          
                          796
                          
                          
                          1,120
                          
                          
                          36Cash
                              at end of period
                          
                          
                          4,220
                          
                          
                          534
                          
                          
                          4,220
                          
                          
                          (166
                          )Cash
                              at end of period
                          
                          $
                          4,220
                          
                          $
                          534
                          
                          $
                          4,220
                          
                          $
                          (166
                          )
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  5
  NOTE
        1 :  BUSINESS
        DESCRIPTION
  Inyx,
        Inc. (“Inyx” or the “Company”) through its wholly-owned subsidiaries, Inyx
        Pharma Limited, Inyx Canada Inc., Inyx USA, Ltd., Inyx Europe Limited and
        Exaeris Inc., is a specialty pharmaceutical company which focuses on the
        development and manufacturing of prescription and over-the-counter aerosol
        pharmaceutical products and drug delivery technologies for the treatment
        of
        respiratory, allergy, cardiovascular and dermatological and topical conditions.  In
        addition the Company performs certain sales and marketing functions to market
        and promote its manufacturing, technical and product development capabilities
        to
        its client base .
  Inyx’s
        client base primarily consists of ethical pharmaceutical corporations, branded
        generic pharmaceutical distributors and biotechnology companies. Until it
        has
        completed developing its own products as well as its own distribution and
        marketing capabilities, the Company expects to continue to depend on its
        customers’ distribution channels or strategic partners to market and sell the
        products it manufactures. On
        March
        29, 2005, the Company incorporated Exaeris Inc. (“Exaeris”), a wholly-owned
        Delaware company to manage and operate its contemplated product development
        and
        promotion and marketing activities, including those that it may potentially
        have
        through collaborative agreements with other companies.
  On
        March
        31, 2005, the Company through its wholly-owned subsidiary, Inyx USA, completed
        the acquisition of the business assets of Aventis Pharmaceuticals Puerto
        Rico,
        Inc. (“Aventis PR”) from Aventis Pharmaceuticals, Inc., a subsidiary of the
        sanofi-aventis Group, for approximately $20.3 million, plus acquisition costs
        of
        approximately $2.7 million. Aventis PR is a pharmaceutical manufacturing
        operation producing dermatological, respiratory and allergy products under
        contract manufacturing agreements with third party customers. The results
        of
        operations of the acquired Aventis PR business are included in the Company’s
        consolidated results of operations effective April 1, 2005 (the day after
        completion of the acquisition of such business assets).
  On
        August
        31, 2005, the Company through its wholly-owned United Kingdom subsidiary,
        Inyx
        Europe, completed the purchase of all of the outstanding shares of Celltech
        Manufacturing Services Limited (“CMSL”), a United Kingdom pharmaceutical
        manufacturing company, from UCB Pharma Limited (“UCB”), for approximately $38.3
        million plus acquisition costs of approximately $3.6 million, and thereby
        assumed possession and control of the operations of CMSL on September 1,
        2005.
        On September 9, 2005, the Company changed the “CMSL” name to Ashton
        Pharmaceuticals Limited (“Ashton”). Ashton currently operates as a wholly-owned
        subsidiary of Inyx Europe, and its operating results are included in the
        Company’s consolidated results of operations effective September 1, 2005 (the
        day after completion of the acquisition of all of the outstanding stock of
        Ashton).
  Inyx
        currently manages and operates its business as one operating segment.
  NOTE
        2 :  BASIS
        OF PRESENTATION
  The
        financial information presented herein should be read in conjunction with
        the
        Company’s consolidated financial statements for the year ended December 31,
        2004. The accompanying consolidated financial statements for the nine and
        three
        months ended September 30, 2005 and 2004 are unaudited but, in the opinion
        of
        management, include all necessary adjustments (consisting of normal, recurring
        in nature) for a fair presentation of the financial position, results of
        operations and cash flow for the interim periods presented. Interim results
        are
        not necessarily indicative of results for a full year. Therefore, the results
        of
        operations for the nine and three months ended September 30, 2005 are not
        necessarily indicative of operating results to be expected for the full year
        or
        future interim periods.
  Significant
        accounting policies are detailed in the Company’s annual report on Form 10-KSB
        for the year ended December 31, 2004.
  All
        inter-company accounts and transactions have been eliminated in
        consolidation.
  Certain
        amounts from prior consolidated financial statements and related notes have
        been
        reclassified to conform to the current period presentation.
  6
 
 NOTE
        3 :  ACQUISITION
        OF THE BUSINESS ASSETS OF AVENTIS PR
  On
        March
        31, 2005, Inyx USA acquired the business assets of Aventis PR from the
        sanofi-aventis Group. The acquisition was accounted for as a business
        combination in accordance with Statement of Financial Accounting Standard
        No.
        141 *“Business
        Combinations”* (“SFAS
        No. 141”) *.* In
        connection with this acquisition, Inyx USA paid cash of approximately $19.7
        million upon closing, incurred approximately $2.7 million in direct transaction
        costs (including approximately $90,000 of additional transaction costs incurred
        subsequent to closing) and paid a subsequent purchase price adjustment of
        approximately $570,000 in August 2005, for a total purchase price of $23.0
        million. The acquisition was funded through a credit facility
        from the Business Credit Division of Westernbank, Puerto Rico’s second largest
        bank, and a wholly owned subsidiary of W Holding Company, Inc.
        (“Westernbank”) .
        The
        Westernbank financing consists of a revolving loan, three term loans and
        a
        mezzanine loan, in the aggregate referred to as the “First Westernbank Credit
        Facility”.
  The
        purchase price was allocated to the identifiable net assets acquired including
        the identifiable intangible assets based on their estimated fair market values
        at the date of acquisition as determined by the Valuations Services Practice
        of
        BearingPoint, Inc. (“BearingPoint”).
  The
        fair
        value of the assets acquired from the transaction totaled approximately $62.9
        million based on independent third-party appraisals and valuations, which
        resulted in negative goodwill of $39.9 million. The negative goodwill was
        proportionately allocated over the non-current tangible and intangible assets
        acquired as follows:
 Fair
                    Value of
                
                Allocation
                    of
                
                Allocation
                    ofAssets
                
                negative
                
                Purchase
                    priceacquired
                
                goodwill
                
                of
                    assets acquiredLand
                
                $
                3,040
                
                $
                (2,017
                )
                $
                1,023Building
                
                
                12,700
                
                
                (8,425
                )
                
                4,275Machinery
                    and equipment
                
                
                22,725
                
                
                (14,785
                )
                
                7,940Computer
                    hardware and software
                
                
                269
                
                
                (178
                )
                
                91*Identifiable
                    intangible assets subject to amortization:*Customer
                    contract
                
                
                4,800
                
                
                (3,184
                )
                
                1,616Customer
                    relationships
                
                
                17,100
                
                
                (11,344
                )
                
                5,756Inventory
                
                
                2,334
                
                
                -
                
                
                2,334Total
                
                $
                62,968
                
                $
                (39,933
                )
                $
                23,035
  The
        fair
        values assigned to the acquired assets are based on estimates and assumptions
        provided and other information compiled by management, including independent
        valuations that utilize established valuation techniques appropriate for
        the
        industry in which the Company operates. The property, plant and equipment
        will
        be depreciated based on the Company’s existing depreciation policies. The
        intangible assets, which represent the value assigned to customer contracts,
        will be amortized on a straight line basis over three years. The intangible
        asset which represents the value assigned to customer relationships will
        be
        amortized using the declining balance method of accelerated amortization
        over
        ten years.
  NOTE
        4 :  ACQUISITION
        OF CMSL
  On
        August
        31, 2005, Inyx Europe Limited, a wholly-owned United Kingdom subsidiary of
        the
        Company, completed the purchase of the entire issued share capital of CMSL
        from
        UCB. On September 9, 2005, the Company changed the “CMSL” name to “Ashton”.
  The
        Ashton share acquisition was accounted for as a business combination in
        accordance with Statement of Financial Accounting Standard No. 141 *“Business
        Combinations”* (“SFAS
        No. 141”) *.* The
        total purchase price of approximately $38.3 million consisted of an initial
        deposit of approximately $610,000, a cash payment at closing of approximately
        $23.2 million, a purchase price deferral of approximately $9.8 million payable
        in six (6) equal installments commencing on April 1, 2006 and an amount
        equivalent to $4.6 million, representing the excess working capital over
        a
        targeted working capital at closing agreed to between the parties. The Company
        also incurred approximately $3.6 million in direct transaction costs for
        a total
        acquisition cost of approximately $41.9 million.
  7
 The
        Ashton acquisition was funded through a credit facility
        from Westernbank. The
        Westernbank financing consists of a revolving loan, three term loans and
        a
        mezzanine loan, together referred to as the “Second Westernbank Credit
        Facility”.
  The
        purchase price was allocated to the identifiable net assets acquired including
        the identifiable intangible assets based on their estimated fair market values
        at the date of acquisition as determined by the Valuations Services Practice
        of
        BearingPoint.
  The
        fair
        value of the assets acquired from the transaction totaled approximately $57.7
        million based on independent third-party appraisals and valuations, which
        resulted in negative goodwill of $15.8 million. The negative goodwill was
        proportionately allocated over the non-current tangible and intangible assets
        acquired as follows:
 Fair
                    Value of
                
                Allocation
                    of
                
                Allocation
                    ofAssets
                
                negative
                
                Purchase
                    priceacquired
                
                goodwill
                
                of
                    assets acquiredLand
                
                $
                1,787
                
                $
                (613
                )
                $
                1,174Buildings
                
                
                7,146
                
                
                (2,450
                )
                
                4,696Machinery
                    and equipment
                
                
                26,799
                
                
                (9,189
                )
                
                17,610Net
                    working captial
                
                
                7,000
                
                
                -
                
                
                7,000Excess
                    over agreed working capital
                
                
                4,607
                
                
                
                
                
                4,607*Identifiable
                    intangible assets subject to amortization:*Trade
                    marks and trade names
                
                
                160
                
                
                (55
                )
                
                105Customer
                    relationships
                
                
                8,400
                
                
                (2,880
                )
                
                5,520Product
                    Licenses
                
                
                1,820
                
                
                (624
                )
                
                1,196Total
                
                $
                57,719
                
                $
                (15,811
                )
                $
                41,908
  NOTE
        5:  CASH
        AND CASH EQUIVALENTS
  Cash
        and
        cash equivalents include cash in checking accounts.
  NOTE
        6:  ACCOUNTS RECEIVABLE, NET
  Accounts
        receivable, net consists of the following:
 September
                    30,
                
                December
                    31,2005
                
                2004(Unaudited)Trade
                    receivables
                
                $
                11,503
                
                $
                1,849Less
                    allowance for doubtful accounts
                
                
                (89
                )
                
                (152
                )$
                11,414
                
                $
                1,697
 
 As
        of
        September 30, 2005 the Company had billed certain customers approximately
        $11.8
        million in advance for raw materials and for services to be provided pursuant
        to
        arrangements under contract manufacturing and product support and services
        agreements that it has in place. Such advance invoicing has allowed the Company
        to acquire certain raw materials and components that have longer lead times
        and
        are required to manufacture such customers’ production requirements on a timely
        basis. Such amounts have been offset against deferred revenues for financial
        statement presentation purposes.
  8
 
 NOTE
        7:  INVENTORY,
        NET
  Inventory
        is comprised of the following:
 September
                    30,
                
                December
                    31,2005
                
                2004(Unaudited)Finished
                    goods
                
                $
                6,586
                
                $
                107Work
                    in process
                
                
                3,864
                
                
                551Raw
                    materials
                
                
                5,653
                
                
                1,33816,103
                
                
                1,996Less
                    provision for obsolescence
                
                
                (592
                )
                
                (476
                )$
                15,511
                
                $
                1,520
 
 NOTE
        8:  PREPAIDS
        AND OTHER CURRENT ASSETS
  Prepaid
        and other current assets as of September 30, 2005 and December 31, 2004 were
        approximately $4.4 million and approximately $2.6 million, respectively.
        These
        balances represent amounts paid by the Company for business development
        activities and strategic acquisition and research and development, including
        intellectual property acquisitions that the Company is currently undertaking.
        The Company expects to complete such transactions within the next twelve
        months.
  N OTE
        9 :  PR OPERTY,
        PLANT AND EQUIPMENT, NET
  Property,
        plant and equipment **** consist
        of the following:
 September
                    30,
                
                December
                    31,2005
                
                2004(Unaudited)Land
                
                $
                1,569
                
                $
                546Buildings
                
                
                5,336
                
                
                1,059Machinery,
                    equipment and office furniture
                
                
                70,529
                
                
                3,541Computer
                    hardware and software
                
                
                200
                
                
                10277,634
                
                
                5,248Less
                    accumulated depreciation
                
                
                (37,585
                )
                
                (898
                )40,049
                
                
                4,350Computer
                    hardware and software under capital lease
                
                
                407
                
                
                407Less
                    accumulated amortization
                
                
                (99
                )
                
                (68
                )308
                
                
                339Equipment
                    held for future use (a)
                
                
                1,541
                
                
                1,541Construction
                    in progress (b)
                
                
                502
                
                
                -$
                42,400
                
                $
                6,230
  For
        the nine
        and
        three months
        ended September 30, 2005, depreciation of property, plant and equipment was
        approximately $1,619,000 (2004 - $903,000) and $430,000 (2004 - $154,000),
        respectively. Amortization for equipment under capital leases was approximately
        $31,000 (2004 - $46,000) and $16,000 (2004 - $18,000) for the nine and three
        months ended September 30, 2005 and 2004, respectively.
  (a)
        The
        equipment held for future use consists of a manufacturing line which the
        Company
        is in the process of developing for planned manufacturing use. Management
        expects to incur additional costs to equip this manufacturing line for the
        filling and gassing of non-CFC aerosol pharmaceutical products.
  (b)
        The
        construction in progress relates to costs associated with building a
        manufacturing line for a customer and various other ongoing projects. Management
        expects to incur additional costs to complete the manufacturing line for
        production and the various other projects estimated to be in excess of $6.0
        million over the next two years. As of September 30, 2005, the Company has
        approximately $1,140,000 of outstanding capital expenditure commitments relating
        to these projects.
  9
 
 NOTE
        10 :  DEFERREDFINANCING
        COSTS, NET
  As
        of
        December 31, 2004, deferred financing costs, net are comprised of fees related
        to convertible debt issued to Laurus Master Funds, Ltd (“Laurus Funds”) in 2003.
        All amounts due to Laurus Funds were refinanced on March 31, 2005 through
        the
        Company’s First Westernbank Credit Facility. (See Note 12) The unamortized
        deferred financing costs of approximately $651,000 relating to Laurus Funds
        were
        charged to interest and financing costs in the Company’s consolidated statement
        of operations for the three months ended March 31, 2005.
  As
        of
        September 30, 2005, the deferred financing costs, net, are comprised of bank
        fees and legal costs incurred in connection with obtaining the First Westernbank
        Credit Facility. The Company incurred $919,000 in such costs and fees when
        obtaining the First Westernbank Credit Facility, and an additional $788,000
        on
        August 31, 2005 in obtaining the Second Westernbank Credit facility used
        to fund
        the Company’s acquisition of Ashton. Such deferred financing costs are being
        amortized to interest expense over the three year term of the Westernbank
        credit
        facilities.  Interest expense resulting from the amortization of deferred
        financing costs totaled $168,000 and $103,000, respectively, for the nine
        and
        three months ended September 30, 2005.
  Deferred
        financing costs, net, consist of the following :
 September
                    30,
                
                December
                    31,2005
                
                2004(Unaudited)Deferred
                    financing costs
                
                $
                1,707
                
                $
                1,027Less
                    accumulated amortization
                
                
                (168
                )
                
                (376
                )$
                1,539
                
                $
                651
  For
        the
        nine and three months ended September 30, 2005, the amortization of deferred
        financing costs approximated $168,000 (2004 - $319,000) and $103,000 (2004
        -
        $119,000), respectively.
  NOTE
        11 :  PURCHASED
        INTANGIBLE ASSETS, NET
  Purchased
        intangible assets consist of the following:
 September
                    30,
                
                December
                    31,2005
                
                2004(Unaudited)Customer
                    Relationships (accelerated 10 year life)
                
                $
                5,756
                
                $
                -Customer
                    Relationships ( 10 year life)
                
                
                5,520Customer
                    Contracts (straight line 3 year life)
                
                
                1,616
                
                
                1,280Customer
                    list (straight line 12 year life)
                
                
                1,280
                
                
                598Product
                    licenses (10 year life)
                
                
                1,196Know-how
                    (straight line 10 year life)
                
                
                598
                
                
                -Patent
                    (straight line 7 year life)
                
                
                132
                
                
                132Trademarks
                    and trade names (3 months)
                
                
                10516,203
                
                
                2,010Less
                    accumulated amortization
                
                
                (1,150
                )
                
                (305
                )$
                15,053
                
                $
                1,705
  Purchased
        intangible assets are carried at cost less accumulated amortization. For
        the
        nine and three months ended September 30, 2005, amortization expense related
        to
        intangible assets totaled approximately $845,000 (2004 - $125,000) and $436,000
        (2004 - $41,000), respectively.
  10
 The
        aggregate estimated amortization expense for intangible assets for each of
        the
        following periods and thereafter are as follows **:**
 3
                    months ending December 31, 2005
                
                $
                553Year
                    ending December 31, 2006
                
                
                1,916Year
                    ending December 31, 2007
                
                
                1,895Year
                    ending December 31, 2008
                
                
                1,467Year
                    ending December 31, 2009
                
                
                1,306Thereafter
                
                
                7,918Total
                
                $
                15,053
 
 NOTE
        12:  BORROWINGS
        UNDER REVOLVING WORKING CAPITAL LINES OF CREDIT
  On
        March
        31, 2005, the Company, through its wholly owned subsidiary Inyx USA Limited,
        obtained a three-year revolving working capital line of credit facility
        from Westernbank, under the First Westernbank Credit Facility, the Company
        would
        borrow up to $10 million. On September 1, 2005, the limit was increased to
        $15
        million plus a reserve of $500,000.  Advances under this facility
        are
        limited to 85% of eligible accounts receivables and together with the reserve
        shall not exceed $15.5 million, and 60% of eligible inventory which shall
        not
        exceed a sub-limit of $5 million for such inventory.  As of
        September 30, 2005, total advances under this facility amounted to
        approximately $15.5 million.
  On
        August
        31, 2005, the Company, through its wholly owned subsidiary Inyx Europe Limited,
        obtained an additional three-year revolving working capital line of credit
        facility with Westernbank, under the Second Westernbank Credit Facility,
        the
        Company can borrow up to $11.7 million.  Advances under this
        facility
        are limited to 85% of eligible accounts receivables and shall not exceed
        $11.7
        million plus a reserve of $500,000, and 60% of eligible inventory which shall
        not exceed a sub-limit of $5 million for such inventory.  As of
        September 30, 2005, total advances under this facility amounted to
        approximately $8.7 million.
  Borrowings
        under the above facilities bear interest at Westernbank’s prime rate (6.5% as of
        September 30, 2005) plus 1.0%.  Borrowings under the revolving
        working
        capital lines of credit are collateralized by the eligible receivables and
        inventories are guaranteed by the Company and its subsidiaries.  The
        Company is required to maintain compliance with certain financial covenants
        including a specified working capital and net worth levels based on the
        Company’s consolidated operating budget.  As of September 30, 2005,
        the Company was in compliance with such financial covenants.
  NOTE
        13:  CUSTOMER
        ADVANCE
  On
        March
        31, 2005, pursuant to the Company’s acquisition of the business assets of
        Aventis PR and in relation to certain customer contracts transferred to the
        Company, sanofi-aventis advanced the Company, on a one time basis, $3.5 million
        for manufacturing, product support and business transition services to be
        provided from the Inyx USA Puerto Rico manufacturing site. For the nine months
        ended September 30, 2005, the Company recorded extraordinary income, net
        of
        costs and accrued interest, of approximately $917,000 for the services provided
        under the advance. The
        Company has agreed to repay $1.65 million of such advance in November, 2005,
        consisting of the remaining unused portion of that advance (approximately
        $1.2
        million), plus related interest and financing costs of approximately $411,000.
        Such interest is included in interest and financing costs in the consolidated
        statement of operations.
  A
        customer advance of $108,000 at December 31, 2004 related to an advance from
        Stiefel Laboratories, Inc. (“Stiefel”) for services that were carried out for
        that customer during the first three months of 2005.
  NOTE
        14:  AMOUNTS
        PAYABLE TO SELLER OF ASHTON
  As
        of
        September 30, 2005 the Company owed the previous owner of Ashton, UCB Pharma,
        approximately $9,778,000 of the purchase price and approximately $ 4.6 million
        as payment for the additional net current assets acquired not considered
        when
        the purchase price was negotiated between the parties.
  11
 The
        balance of the purchase price is non-interest bearing and is payable by the
        Company to UCB in five (5) equal monthly payments of $1,625,590 plus a final
        monthly payment of $1,650,050; such payments commencing on April 1, 2006
        and
        ending on August 31, 2006. The Company is also entitled, at any time prior
        to
        payment of the balance of the purchase price to set-off against any unpaid
        claim
        it may have against UCB under the share purchase agreement of Ashton. As
        security collateral for the purchase price deferral, and to be released upon
        full payment of such deferral, the Company granted UCB a secondary security
        position over the Company’s assets behind Westernbank’s current first security
        position. Westernbank and UCB have also agreed to an inter-creditor agreement
        to
        be terminated upon full payment of the purchase price deferral.
  The
        amount payable as a result of the additional assets acquired is interest
        bearing
        and is payable in five equal installments commencing in November 2005. Interest
        on such loan is payable on February 28, 2006 at a United Kingdom bank base
        rate.
  12
  NOTE
        15:   LONG-TERM
        DEBT,
        NET
        OF CURRENT PORTION
  Long-term
        debt, net of current portion consists of the following:
  September
                  30,
              
              December
                  31,2005
              
              2004(Unaudited)Prime
                  + 2% Secured Term Promissory Note A issue to Westernbank
                  (1)
              
              $
              1,568
              
              $
              -Prime
                  + 2% Secured Term Promissory Note B issue to Westernbank
                  (1)
              
              
              11,603
              
              
              -Prime
                  + 2% Secured Term Promissory Note C issue to Westernbank
                  (1)
              
              
              13,490
              
              
              -15%
                  Term loan D Promissory Note issued to Westernbank (1)
              
              
              4,750
              
              
              -Prime
                  + 2% Secured Term Promissory Note A issue to Westernbank by Inyx
                  Europe
                  (2)
              
              
              3,000
              
              
              -Prime
                  + 2% Secured Term Promissory Note B issue to Westernbank by Inyx
                  Europe
                  (2)
              
              
              9,800
              
              
              -Prime
                  + 2% Secured Term Promissory Note C issue to Westernbank by Inyx
                  Europe
                  (2)
              
              
              3,000
              
              
              -15%
                  Term loan D-Europe Promissory Note issued to Westernbank by Inyx
                  Europe
                  (2)
              
              
              9,000
              
              
              -Revolving
                  line of credit due to Laurus Funds, net of debt discount of $0
                  at March
                  31, 2005 and $740,000 at December 31, 2004, paid from proceeds
                  of
                  Westernbank on March 31, 2005
              
              
              -
              
              
              6,3687%
                  convertible term note due to Laurus Funds, collateralized by accounts
                  receivable and other assets of the Company, net of debt discount
                  of $0 at
                  March 31, 2005 and $692,000 at December 31, 2004, paid from proceeds
                  of
                  Westernbank on March 31, 2005
              
              
              -
              
              
              4,027Uncollateralized
                  6% convertible promissory note due to customer, paid in
                  2005
              
              
              -
              
              
              4,013Uncollateralized
                  7% to 18% demand notes due to stockholders and various executives
                  of the
                  Company, principal and interest due on demand
              
              
              683
              
              
              150Capital
                  lease obligations, due to financial institutions, collateralized
                  by
                  software and equipment, due in monthly installments of $14,000
                  including
                  interest of 10% to 27%, through 2006
              
              
              104
              
              
              22756,988
              
              
              14,785Less
                  debt refinanced, net of discount (4)
              
              
              -
              
              
              (10,395
              )Less
                  current portion
              
              
              (11,384
              )
              
              (4,277
              )Long-term
                  debt, net of current portion
              
              $
              45,614
              
              $
              113
 
 (1)  On
        March
        31, 2005 the Company secured a non-dilutive asset based secured credit facility
        from Westernbank originally totaling $46 million, and then increased to $51
        million in aggregate by Westernbank on September 1, 2005. The First Westernbank
        Credit facility is comprised of a revolving loan (see Note 12) of up to $15
        million plus a reserve of $500,000 ,
        three
        term loans (Term loan “A”, “B” and “C”) amounting in aggregate to up to $31
        million for purpose of refinancing the indebtedness to Laurus Funds and
        purchasing the business assets of Aventis PR, and a capital expenditure
        mezzanine loan (Term loan “D”) of up to $5 million for the purpose of funding
        construction or the acquisition of new equipment. The revolving working capital
        line of credit associated with the First Westernbank Credit Facility is secured
        by the Company’s eligible receivables and inventory, including those of Inyx USA
        and Inyx Pharma. The term notes are collateralized by substantially all the
        property of the Company and its subsidiaries whether now owned or thereafter
        to
        be acquired. All the term loans mature March 31, 2008. Interest is based
        on
        Westernbank’s prime rate. The prime rate at September 30, 2005 was 6.5%. Payment
        of the amounts due under the Term Notes accelerates upon the occurrence of
        an
        Event of Default.
  13
 (2)  In
        connection with the acquisition of Ashton, the Company, through its wholly
        owned
        subsidiary, Inyx Europe, obtained an additional non-dilutive asset based
        secured
        credit facility from Westernbank totaling $36.5 million. The Second Westernbank
        Credit Facility is comprised of a revolving loan of up to $11.7 million plus
        a
        reserve of $500,000 (see Note 12) plus a series of four term loans (Term
        Loan
“A”, “B”, “C” and “D”), amounting in aggregate up to $24.8 million, and utilized
        to help fund the acquisition of the outstanding stock of Ashton. The revolving
        working capital line of credit associated with the Second Westernbank Credit
        Facility is secured by Ashton’s eligible receivables and inventory. The Loans
        are secured by all of the assets of the Company and its subsidiaries, Inyx
        Europe and Ashton, and are guaranteed by those parties pursuant to Guarantor
        General Security Agreement (the “Security Agreement”). In addition, the Company
        has pledged the stock of Inyx Europe, and Inyx Europe has pledged the stock
        of
        Ashton to Westernbank, as part of the collateral for the Loans, in each case
        pursuant to a Pledge and Security Agreement (the “Pledge Agreement”). The
        principal payments of loan “A”, “B” and “C” commence on December 1, 2005. All of
        the Term Notes mature on March 31, 2008, and are automatically renewed on
        a
        year-to-year basis unless terminated by the Company or Westernbank. Three
        of the
        Term Notes bear interest at Westernbank prime rate + 2%. The fourth Term
        Note
        (Term Note D) bears interest at the rate of 15% per annum, principal payments
        based on an agreed upon formula commencing January 1, 2006. Payment of the
        amounts due under the Term Notes accelerates upon the occurrence of an Event
        of
        Default.
 The
          aggregate maturities of the Westernbank long term debt facilities are as
          follows: for the three months ending December 31, 2005-$1.4 million, for
          the
          year ending December 31, 2006-$11.5 million, for the year ending December
          31,
          2007-$11.6 million and for the year ending December 31, 2008-$31.2
          million.
          These Westernbank loans are automatically renewable after the initial three
          year
          period ending on March 31, 2008 on a year to year basis, unless terminated
          by
          the Company or Westernbank. The amortization schedule for repayment of
          such
          loans ranges from 60 months to 180 months.
  (3)  On
        March
        31, 2005, the Company accelerated its amortization of deferred charges of
        approximately $651,000 and debt discount of approximately $1.4 million, recorded
        an early termination fee of $1.6 million, and repaid in full the debt to
        Laurus
        Funds.
  NOTE
        16:  NET
        LOSS PER SHARE
  The
        Company follows the guidelines of Statement of Financial Accounting Standards
        No. 128, “ *Earnings
        Per Share* ”
        (“SFAS
        No.128”) in calculating its loss per share. SFAS No.128 states basic and diluted
        earnings per share are based on the weighted average number of shares of
        common
        stock and potential common stock outstanding during the period. Potential
        common
        stock equivalents for purposes of determining diluted earnings per share
        include
        the effects of dilutive stock options, warrants and convertible securities.
        The
        effect on the number of shares of such potential common stock equivalents
        is
        computed using the treasury stock method or the if-converted method, as
        applicable. The Company has excluded all outstanding options and warrants
        as
        well as shares issued upon conversion of convertible debt from the calculation
        of diluted net loss per share because these securities are anti-dilutive.
  Accordingly,
        as of September 30, 2005 and December 31, 2004, the Company had common stock
        equivalents of approximately 25,026,500 and 25,155,687 shares respectively,
        related to options and warrants. At December 31, 2004, the Company also had
        approximately 18,375,000 related to shares to be issued upon the conversion
        of
        the convertible debt. There was no convertible debt outstanding at September
        30,
        2005.
  14
  NOTE
        17:  COMMITMENTS
        AND CONTINGENCIES
  Leases:
  The
        Company has commitments under various long-term operating lease agreements
        for
        various premises. For the nine and three months ended September 30, 2005,
        total
        rent of office space was approximately $81,000 (2004 - $192,000 and $41,000
        (2004 - $95,000), respectively. In addition to rent, the Company and its
        subsidiaries are responsible for operating costs, real estate taxes and
        insurance. As of September 30, 2005, future minimum annual rental commitments
        under operating leases are as follows
  Legal
        Matters:
  The
        Company and its
        subsidiaries are subject to claims and lawsuits arising in the ordinary course
        of business. Management, in consultation with its legal advisors, believes
        that
        the outcomes of such legal matters are remote and unlikely to have a material
        adverse effect on the Company’s financial position or operating
        results.
  Key
        Suppliers:
  The
        Company purchases raw materials and components from a limited number of key
        suppliers. A loss of any one of these suppliers would have a material adverse
        effect on the Company’s operations.
  Key
        Customers:
  For
        the
        nine months and three months ended September 30, 2005, the Company’s three top
        customers accounted for approximately $13.1 million of revenue or approximately
        54% of total net revenues and approximately $7.4 million or approximately
        57% of
        net revenues, respectively. In comparison, for the nine months and three
        months
        ended September 30, 2004, the Company’s top three customers accounted for
        approximately $5.1 million in net revenues or approximately 44% of total
        net
        revenues and $2.2 million or approximately 52% of net revenues,
        respectively.
  The
        Company’s management believes that a delay in the production requirements for
        any one of the Company’s major clients or the loss of any one of the Company’s
        top three clients would have a material adverse affect on our revenues and
        profitability opportunities.
  Other:
  As
        of
        September 30, 2005, the Company has approximately $349,000 of outstanding
        commitments related to capital projects currently in progress.
  NOTE
        18:  SUBSEQUENT
        EVENTS
  Subsequent
        to September 30, 2005, the Company borrowed an aggregate amount of approximately
        $607,000 against the Westernbank Term Loan A facility, under the First
        Westernbank Credit Facility, collateralized by the Company’s capital
        expenditures. The term loan bears interest of prime plus 2% with monthly
        principal repayments starting on April 1, 2007. Interest payments are due
        monthly commencing November 1, 2005.
  NOTE
        19:  STOCKHOLDERS’
        DEFICIT
  During
        the nine months ended September 30, 2005, the Company issued 380,000 shares
        of
        its restricted common stock as payment of $304,000 of principal due under
        the
        refinanced Laurus Note. Additionally, the Company issued 300,000 five-year
        stock
        purchase warrants to Laurus in conjunction with a waiver received and certain
        amendments to the registration rights agreement. The fair value of the warrants
        was approximately $162,000 based on the Black-Scholes option pricing model
        with
        the following weighted average assumption: a risk free interest rate of 3.14%,
        an expected life of four years, a volatility factor of 57%, and a dividend
        yield
        of 0%. This amount was charged to interest and financing costs on the
        consolidated statement of operations. On March 31, 2005, the Company issued
        1,591,504 shares of the Company’s restricted common stock valued at
        approximately $1.3 million as payment of certain early termination fees in
        connection with the repayment of all amounts due to Laurus Funds as of March
        31,
        2005. Such repayment amounted to approximately $12.3 million.
  15
 During
        the nine and three months ended September 30, 2005, the Company recorded
        approximately $131,000 and $66,000, respectively, of additional paid-in capital
        resulting from stock options which vested during the period. The fair value
        was
        calculated using the Black-Scholes option pricing model with the following
        assumptions; a risk free interest rate of 3.14%, an expected life of four
        years,
        a volatility factor of 66%, and a dividend yield of 0%. This amount is included
        in general and administrative expenses in the consolidated statement of
        operations.
 For
          the
          nine and three months period ended September 30, 2005, the Company charged
          costs
          to additional paid up capital relating to an SB-2 registration statement
          amounting to $165,000 and $27,000, respectively.
 During
        the three month period ended September 30, 2005, the Company issued 50,000
        shares of its common stock for exercise of 50,000 warrants at a price of
        $1 per
        share.
  NOTE
        20:  ACCUMULATED
        COMPREHENSIVE LOSS
  The
        accumulated comprehensive loss reflected in the consolidated statement of
        changes in stockholders’ deficit and other comprehensive loss represents
        accumulated foreign currency translation adjustments associated with the
        conversion of the Company’s United Kingdom and Canadian subsidiary’s accounts to
        US dollars. These amounts are not adjusted for income taxes as they relate
        to an
        indefinite investment in a foreign subsidiary.
  NOTE
        21 :  WARRANTS
  The
        Company did not issue any warrants for the three months ended September 30,
        2005. During
        the nine months ended September 30, 2005, the Company issued to Laurus Funds,
        300,000 five year warrants in conjunction with a waiver received and certain
        amendments to the registration rights agreements with Laurus Funds. The waiver
        waived any Events of Default that may have occurred under the credit facility
        and term note due to Laurus Funds. These warrants allow the holders to purchase
        the Company’s common stock at a price of $0.95 per share. The fair value of
        these warrants was estimated using the Black-Scholes option pricing model
        with
        the following weighted average assumption: a risk free interest rate of 3.14%,
        an expected life of four years, a volatility factor of 57%, and a dividend
        yield
        of 0%. The value assigned to these warrants was approximately $162,000 and
        was
        charged as interest and financing costs to the Company’s consolidated statement
        of operations for the nine months ended September 30, 2005.
  Comparatively,
        for the nine and three months ended September 30, 2004, the Company issued
        776,500 warrants, respectively to Laurus Funds in conjunction with a credit
        facility established in December 2003. These warrants allow the holders to
        purchase the Company’s common stock at the price of $0.81 per share. The fair
        value of these warrants was estimated using the Black-Scholes option pricing
        model with the following weighted average assumption: a risk free interest
        rate
        of 3.14%, an expected life of four years, a volatility factor of 57%, and
        a
        dividend yield of 0%. The value assigned to these warrants was approximately
        $794,000 for the nine and three months ended September 30, 2004 and was charged
        as interest and financing costs to the Company’s consolidated statement of
        operations for the nine and three months ended September 30,
        2004
  16
  NOTE
        22:  SUPPLEMENTAL
        CASH FLOW INFORMATION
 For
                          the Nine months Ended September
                          30,
                      
                      For
                          the Three Months Ended September 30,2005
                      
                      2004
                      
                      2005
                      2004(Unaudited)
                      
                      (Unaudited)**Supplemental
                          Disclosure of Cash Flow Information:**Cash
                          paid during the period for interest
                      
                      $
                      1,434
                      
                      $
                      341
                      
                      $
                      1,093
                      
                      $
                      4**Supplemental
                          Disclosure of Non-Cash Financing Activities:**Issuance
                          of 380,000 shares as payment of debt and issuance of 1,591,504
                          of shares
                          for payment of termination fees to Laurus Funds (conversion
                          price of $0.80
                          per share)
                      
                      
                      1,578
                      
                      
                      30
                      
                      
                      -
                      
                      
                      3Provision
                          for issuance of stock option compensation
                      
                      
                      196
                      
                      
                      227
                      
                      
                      65
                      
                      
                      66Provision
                          for issuance of stock issued for services
                      
                      
                      -
                      
                      
                      30
                      
                      
                      -
                      
                      
                      49Provision
                          for warrants issued for consulting and financing fees
                      
                      
                      162
                      
                      
                      745
                      
                      
                      -
                      
                      
                      331Provision
                          for issuance of warrants for compensation
                      
                      
                      -
                      
                      
                      580
                      
                      
                      -
                      
                      
                      530Write-off
                          of unamortized beneficial conversion feature related to
                          retired Laurus
                          Funds debt
                      
                      
                      651
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -Write-off
                          of unamortized debt discount related to retired Laurus
                          Funds
                          debt
                      
                      
                      1,431
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -**Supplemental
                          Disclosure of Non-Cash Investing Activities**Acquisition
                          of property, plant and equipment, under construction in
                          progress
                      
                      
                      507
                      
                      
                      -
                      
                      
                      153
                      
                      
                      -Acquisition
                          of Celltech Manufacturing Services Limited:Deferred
                          purchase price
                      
                      
                      9,278
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -Excess
                          over agreed working capital
                      
                      
                      4,601
                      
                      
                      -
                      
                      
                      -
                      
                      
                      -
 
 NOTE
        23:  LIQUIDITY
        AND CAPITAL RESOURCES
  The
        accompanying consolidated financial statements have been prepared in conformity
        with accounting principles generally accepted in the United States of America,
        which contemplates continuation of the Company as a going concern.  The
        Company has experienced recurring operating losses, has an accumulated deficit
        and negative working capital. Additionally, the Company has significant debt
        which is due within the next twelve months.
  The
        management of the Company intends to mitigate any factors relating to future
        liquidity and capital resources by continuing to follow its plan as
        follows:
  1)
        Income
        generated from its recent acquisitions - the Ashton business, that the Company
        acquired on August 31, 2005, has historically been a profitable operation
        and
        the Company expects it to continue to be so. The Company also expects to
        generate profits from its manufacturing facility in Puerto Rico that it acquired
        on March 31, 2005 and from its Inyx Pharma facility as two major customer
        contracts which have been delayed have now commenced.
  2)
        Its
        Westernbank credit facilities including its revolving working capital lines
        of
        credit and capital expenditure loans. The Company is in a position to receive
        additional funding from Westernbank in the form of an additional revolving
        working capital line against available assets.
 
 3)
        New
        and additional revenue sources - the Company expects to achieve profitability
        by
        continuing to intensify its sales and marketing efforts to increase the number
        of customer purchase orders and contracts for its contract development and
        manufacturing services, especially as the Company’s two recent acquisitions of
        the business assets of Aventis PR and Ashton have significantly given it
        additional capacity and led to new and profitable multi-year exclusive
        manufacturing contracts with large pharmaceutical companies.
 
 4)
        The
        Company also believes that it can establish new sources of revenue by marketing
        its own proprietary pharmaceutical products or selected clients’ products
        through collaborative agreements such as its September 8, 2005 product
        development, marketing and promotion, and manufacturing agreements with King
        Pharmaceuticals, Inc.
 
 17
 5)
        The
        Company can also raise funds through the issuance of equity or debt securities
        to assist funding its operations and growth strategies.
 
 There
        can
        be no assurances that the Company’s forecasted results will be achieved or that
        additional financing will be obtained.
  **UNAUDITED
        PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS**
  The
        following unaudited consolidated pro forma statements of operations presented
        herein for the three and nine months ended September 30, 2005 and 2004,
        respectively, give effect to the acquisitions of the business assets of Aventis
        PR and the Ashton operations as if these acquisitions had taken place at
        the
        beginning of the respective periods presented.
  The
        pro
        forma results for the three and nine months ended September 30, 2005, as
        summarized below, include the actual results of the Company for the three
        and
        nine months ended September 30, 2005 combined with the results of the acquired
        business of Aventis PR for the three months ended March 31, 2005, and the
        results of the acquired business of Ashton for the two and eight month periods
        ended August 31, 2005; i.e. prior to the acquisition dates of those two
        respective businesses.
  The
        comparative pro forma results for the three and nine months ended September
        2004, as summarized below, include the actual results of the Company for
        the
        three and nine months ended September 30, 2004 combined with the results
        of the
        acquired business of Aventis PR for the three and nine months ended September
        30, 2004, and the results of the acquired business of Ashton for the three
        and
        nine months ended September 30, 2004.
  The
        historical financial data presented is derived from the historical financial
        statements of both companies, prepared in accordance with generally accepted
        accounting principles in the United States of America. The unaudited pro
        forma
        adjustments and certain assumptions are described in the accompanying notes
        which should be read in conjunction with this unaudited pro forma consolidated
        statement of operations.
  The
        preparation of the unaudited pro forma statement of operations for Aventis
        PR
        included an adjustment to back-out any revenues attributable to any Aventis
        PR
        inter-company sales and customer contracts not renewed at the date of
        acquisition. The Aventis acquisition was accounted for using the purchase
        method
        of accounting. The unaudited pro forma financial data is not necessarily
        indicative of the operations had the acquisition taken place at the beginning
        of
        the periods presented and such data is not intended to project the Company’s
        results of operations for any future period.
  The
        Ashton acquisition was a share purchase agreement. As such, all historical
        financial information is assumed to be as recorded with the exception of
        the pro
        forma adjustments as described in the following notes.
  18
  **Unaudited
                      Consolidated Pro Forma Statement of Operations****For
                      the Nine Months ended September 30, 2005**(Expressed
                      in thousands of U.S. dollars)
  Aventis
                      Pharmaceuticals Puerto Rico. Inc.
                  
                  Adjustments
                  
                  Aventis
                      Puerto Rico (Acquired)
                  
                  August
                      YTD CMSL Ashton, UK (Acquired)
                  
                  Inyx,
                      Inc.
                  
                  Aventis
                      PR Pro Forma Adjustments
                  
                  CMSL
                      UK
                    Pro
                      Forma Adjustments
                  
                  CombinedNet
                      Revenues
                  
                  $
                  15,575
                  
                  $
                  (11,905
                  )
                  $
                  3,670
                  
                  $
                  28,042
                  
                  $
                  24,086
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  55,798Cost
                      of sales
                  
                  
                  12,242
                  
                  
                  (10,261
                  )
                  
                  1,981
                  
                  
                  22,128
                  
                  
                  16,237
                  
                  
                  -
                  
                  
                  -
                  
                  
                  40,3463,333
                  
                  
                  (1,644
                  )
                  
                  1,689
                  
                  
                  5,914
                  
                  
                  7,849
                  
                  
                  -
                  
                  
                  -
                  
                  
                  15,452Operating
                      expenses:Research
                      and development
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,876
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,876General
                      and administrative
                  
                  
                  2,609
                  
                  
                  (1,729
                  )
                  
                  880
                  
                  
                  2,402
                  
                  
                  12,239
                  
                  
                  -
                  
                  
                  -
                  
                  
                  15,521Selling
                  
                  
                  -
                  
                  
                  12
                  
                  
                  12
                  
                  
                  634
                  
                  
                  355
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,001Depreciation
                  
                  
                  -
                  
                  
                  71
                  
                  
                  71
                  
                  
                  2,690
                  
                  
                  1,619
                  
                  
                  220
                  
                  
                  248
                  
                  
                  4,848Amortization
                      of intangibles
                  
                  
                  -
                  
                  
                  226
                  
                  
                  226
                  
                  
                  440
                  
                  
                  845
                  
                  
                  89
                  
                  
                  605
                  
                  
                  2,205Total
                      operating expenses
                  
                  
                  2,609
                  
                  
                  (1,420
                  )
                  
                  1,189
                  
                  
                  6,166
                  
                  
                  16,934
                  
                  
                  309
                  
                  
                  853
                  
                  
                  25,451Income
                      (Loss) from continuing operations beforeinterest
                      and financing costs and income tax benefit
                  
                  
                  724
                  
                  
                  (224
                  )
                  
                  500
                  
                  
                  (252
                  )
                  
                  (9,085
                  )
                  
                  (309
                  )
                  
                  (853
                  )
                  
                  (9,999
                  )Interest
                      expense (Income)
                  
                  
                  (1,159
                  )
                  
                  1,524
                  
                  
                  365
                  
                  
                  -
                  
                  
                  7,896
                  
                  
                  (3,061
                  )
                  
                  1,728
                  
                  
                  6,928Other
                      expense (Income)
                  
                  
                  7,965
                  
                  
                  (7,965
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Loss
                      from continuing operations beforeincome
                      tax benefit
                  
                  
                  (6,082
                  )
                  
                  6,217
                  
                  
                  135
                  
                  
                  (252
                  )
                  
                  (16,981
                  )
                  
                  2,752
                  
                  
                  (2,581
                  )
                  
                  (16,927
                  )Income
                      tax benefit (expense)
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  98
                  
                  
                  -
                  
                  
                  -
                  
                  
                  775
                  
                  
                  873Extraordinary
                      Items
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  918
                  
                  
                  -
                  
                  
                  -
                  
                  
                  918Net
                      Income (Loss)
                  
                  $
                  (6,082
                  )
                  $
                  6,217
                  
                  $
                  135
                  
                  $
                  (154
                  )
                  $
                  (16,063
                  )
                  $
                  2,752
                  
                  $
                  (1,806
                  )
                  $
                  (15,136
                  )
   **Unaudited
                      Consolidated Pro Forma Statement of Operations****For
                      the Nine Months ended September 30, 2004**(Expressed
                      in thousands of U.S. dollars)
  Aventis
                      Pharmaceuticals Puerto Rico. Inc.
                  
                  Adjustments
                  
                  Aventis
                      Puerto Rico (Acquired)
                  
                  CMSL
                      Ashton, UK (Acquired)
                  
                  Inyx,
                      Inc.
                  
                  Aventis
                      PR Pro Forma Adjustments
                  
                  CMSL
                      UK
                    Pro
                      Forma Adjustments
                  
                  CombinedNet
                      Revenues
                  
                  $
                  48,944
                  
                  $
                  (39,985
                  )
                  $
                  8,959
                  
                  $
                  33,272
                  
                  $
                  11,549
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  53,780Cost
                      of sales
                  
                  
                  34,376
                  
                  
                  (28,281
                  )
                  
                  6,095
                  
                  
                  25,905
                  
                  
                  10,392
                  
                  
                  -
                  
                  
                  -
                  
                  
                  42,39214,568
                  
                  
                  (11,704
                  )
                  
                  2,864
                  
                  
                  7,367
                  
                  
                  1,157
                  
                  
                  -
                  
                  
                  -
                  
                  
                  11,388Operating
                      expenses:Research
                      and development
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,341
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,341General
                      and administrative
                  
                  
                  6,568
                  
                  
                  (4,264
                  )
                  
                  2,304
                  
                  
                  2,375
                  
                  
                  6,820
                  
                  
                  -
                  
                  
                  -
                  
                  
                  11,499Selling
                  
                  
                  -
                  
                  
                  38
                  
                  
                  38
                  
                  
                  633
                  
                  
                  255
                  
                  
                  -
                  
                  
                  -
                  
                  
                  926Depreciation
                  
                  
                  3,565
                  
                  
                  (3,186
                  )
                  
                  379
                  
                  
                  2,631
                  
                  
                  431
                  
                  
                  471
                  
                  
                  279
                  
                  
                  4,191Amortization
                      of intangibles
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  53
                  
                  
                  125
                  
                  
                  945
                  
                  
                  682
                  
                  
                  1,805Total
                      operating expenses
                  
                  
                  10,133
                  
                  
                  (7,412
                  )
                  
                  2,721
                  
                  
                  5,692
                  
                  
                  8,972
                  
                  
                  1,416
                  
                  
                  961
                  
                  
                  19,762Income
                      (Loss) from continuing operations beforeinterest
                      and financing costs and income tax benefit
                  
                  
                  4,435
                  
                  
                  (4,292
                  )
                  
                  143
                  
                  
                  1,675
                  
                  
                  (7,815
                  )
                  
                  (1,416
                  )
                  
                  (961
                  )
                  
                  (8,374
                  )Interest
                      expense (Income)
                  
                  
                  (2,111
                  )
                  
                  2,111
                  
                  
                  -
                  
                  
                  -
                  
                  
                  2,474
                  
                  
                  2,150
                  
                  
                  1,728
                  
                  
                  6,352Other
                      expense (Income)
                  
                  
                  7
                  
                  
                  (7
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Loss
                      from continuing operations beforeincome
                      tax benefit
                  
                  
                  6,539
                  
                  
                  (6,396
                  )
                  
                  143
                  
                  
                  1,675
                  
                  
                  (10,289
                  )
                  
                  (3,566
                  )
                  
                  (2,689
                  )
                  
                  (14,726
                  )Income
                      tax benefit (expense)
                  
                  
                  (1,103
                  )
                  
                  1,103
                  
                  
                  -
                  
                  
                  (562
                  )
                  
                  393
                  
                  
                  -
                  
                  
                  807
                  
                  
                  638Extrraordinary
                      ItemsNet
                      Income (Loss)
                  
                  $
                  5,436
                  
                  $
                  (5,293
                  )
                  $
                  143
                  
                  $
                  1,113
                  
                  $
                  (9,896
                  )
                  $
                  (3,566
                  )
                  $
                  (1,882
                  )
                  $
                  (14,088
                  )
   19
 
   **Unaudited
                        Consolidated Pro Forma Statement of Operations****For
                        the Three Months ended September 30, 2005**(Expressed
                        in thousands of U.S. dollars)
  July
                        & August CMSL Ashton, UK (Acquired)
                    
                    Inyx,
                        Inc.
                    
                    CMSL
                        UK Pro Forma Adjustments
                    
                    CombinedNet
                        Revenues
                    
                    $
                    5,858
                    
                    $
                    12,908
                    
                    $
                    -
                    
                    $
                    18,766Cost
                        of sales
                    
                    
                    4,054
                    
                    
                    7,837
                    
                    
                    
                    
                    
                    11,8911,804
                    
                    
                    5,071
                    
                    
                    -
                    
                    
                    6,875Operating
                        expenses:Research
                        and development
                    
                    
                    -
                    
                    
                    929
                    
                    
                    -
                    
                    
                    929General
                        and administrative
                    
                    
                    583
                    
                    
                    5,813
                    
                    
                    -
                    
                    
                    6,396Selling
                    
                    
                    (24
                    )
                    
                    181
                    
                    
                    -
                    
                    
                    157Depreciation
                    
                    
                    738
                    
                    
                    903
                    
                    
                    62
                    
                    
                    1,704Amortization
                        of intangibles
                    
                    
                    107
                    
                    
                    436
                    
                    
                    151
                    
                    
                    694Total
                        operating expenses
                    
                    
                    1,404
                    
                    
                    8,262
                    
                    
                    213
                    
                    
                    9,880Income
                        (Loss) from continuing operations beforeinterest
                        and financing costs and income tax benefit
                    
                    
                    400
                    
                    
                    (3,191
                    )
                    
                    (213
                    )
                    
                    (3,005
                    )Interest
                        expense (Income)
                    
                    
                    -
                    
                    
                    1,750
                    
                    
                    576
                    
                    
                    2,326Other
                        expense (Income)
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Loss
                        from continuing operations beforeincome
                        tax benefit
                    
                    
                    400
                    
                    
                    (4,941
                    )
                    
                    (789
                    )
                    
                    (5,331
                    )Income
                        tax benefit (expense)
                    
                    
                    (155
                    )
                    
                    -
                    
                    
                    237
                    
                    
                    82Net
                        Income (Loss)
                    
                    $
                    245
                    
                    $
                    (4,941
                    )
                    $
                    (552
                    )
                    $
                    (5,249
                    )
  **Unaudited
                        Consolidated Pro Forma Statement of Operations****For
                        the Three Months ended September 30, 2004**(Expressed
                        in thousands of U.S. dollars)
  Aventis
                        Pharmaceuticals Puerto Rico. Inc.
                    
                    Adjustments
                    
                    Aventis
                        Puerto Rico (Acquired)
                    
                    CMSL
                        Ashton, UK (Acquired)
                    
                    Inyx,
                        Inc.
                    
                    Aventis
                        PR Pro Forma Adjustments
                    
                    CMSL
                        UK
                      Pro
                        Forma Adjustments
                    
                    CombinedNet
                        Revenues
                    
                    $
                    13,858
                    
                    $
                    (11,270
                    )
                    $
                    2,588
                    
                    $
                    10,494
                    
                    $
                    4,249
                    
                    $
                    -
                    
                    $
                    -
                    
                    $
                    17,331Cost
                        of sales
                    
                    
                    9,554
                    
                    
                    (7,717
                    )
                    
                    1,837
                    
                    
                    8,723
                    
                    
                    3,571
                    
                    
                    -
                    
                    
                    -
                    
                    
                    14,1314,304
                    
                    
                    (3,553
                    )
                    
                    751
                    
                    
                    1,771
                    
                    
                    678
                    
                    
                    -
                    
                    
                    -
                    
                    
                    3,200Operating
                        expenses:Research
                        and development
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    942
                    
                    
                    -
                    
                    
                    -
                    
                    
                    942General
                        and administrative
                    
                    
                    1,736
                    
                    
                    (1,038
                    )
                    
                    698
                    
                    
                    794
                    
                    
                    2,521
                    
                    
                    -
                    
                    
                    -
                    
                    
                    4,013Selling
                    
                    
                    -
                    
                    
                    13
                    
                    
                    13
                    
                    
                    206
                    
                    
                    95
                    
                    
                    -
                    
                    
                    -
                    
                    
                    314Depreciation
                    
                    
                    1,252
                    
                    
                    (1,077
                    )
                    
                    175
                    
                    
                    978
                    
                    
                    155
                    
                    
                    117
                    
                    
                    93
                    
                    
                    1,518Amortization
                        of intangibles
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    53
                    
                    
                    42
                    
                    
                    315
                    
                    
                    227
                    
                    
                    637Total
                        operating expenses
                    
                    
                    2,988
                    
                    
                    (2,102
                    )
                    
                    886
                    
                    
                    2,031
                    
                    
                    3,755
                    
                    
                    432
                    
                    
                    320
                    
                    
                    7,424Income
                        (Loss) from continuing operations beforeinterest
                        and financing costs and income tax benefit
                    
                    
                    1,316
                    
                    
                    (1,451
                    )
                    
                    (135
                    )
                    
                    (260
                    )
                    
                    (3,077
                    )
                    
                    (432
                    )
                    
                    (320
                    )
                    
                    (4,224
                    )Interest
                        expense (Income)
                    
                    
                    (1,067
                    )
                    
                    1,067
                    
                    
                    -
                    
                    
                    -
                    
                    
                    750
                    
                    
                    717
                    
                    
                    576
                    
                    
                    2,043Other
                        expense (Income)
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Loss
                        from continuing operations beforeincome
                        tax benefit
                    
                    
                    2,383
                    
                    
                    (2,518
                    )
                    
                    (135
                    )
                    
                    (260
                    )
                    
                    (3,827
                    )
                    
                    (1,149
                    )
                    
                    (896
                    )
                    
                    (6,267
                    )Income
                        tax benefit (expense)
                    
                    
                    (402
                    )
                    
                    402
                    
                    
                    -
                    
                    
                    87
                    
                    
                    -
                    
                    
                    -
                    
                    
                    269
                    
                    
                    356Net
                        Income (Loss)
                    
                    $
                    1,981
                    
                    $
                    (2,116
                    )
                    $
                    (135
                    )
                    $
                    (173
                    )
                    $
                    (3,827
                    )
                    $
                    (1,149
                    )
                    $
                    (627
                    )
                    $
                    (5,911
                    )
  20
  **Notes
        to Unaudited Pro Forma Consolidated Statement of
        Operations**
  **For
        the Three and Nine Months Ended September 30, 2005 and
        2004**
  (1)
              Reflects
                  adjustments to back out certain revenues and expenses historically
                  recorded or incurred by Aventis PR which related to those operations
                  not
                  acquired by Inyx USA.
  a.
              Aventis
                  PR’s revenue represents all manufacturing revenues relating to the
                  carved-out business of Aventis PR and was derived using the actual
                  product
                  volumes of the products acquired in the acquisition on March 31,
                  2005,
                  extended at the newly negotiated unit prices for each one of these
                  products.
  (2)
              Reflects
                  the actual revenue and expenses historically recorded by CMSL.
                  The figures
                  have been converted from GBP’s to US dollars based on average exchange
                  rates for each period. Adjustments were made to reduce the cost
                  of sale
                  and correspondingly increase the selling, general and administration
                  cost
                  to reflect consistent with US reporting
                  format.
  (3)
              Reflects
                  the following pro forma adjustments related to the Aventis PR
                  acquisition:
  a.
              Depreciation
                  expense was adjusted to reflect the fair value of assets acquired
                  as of
                  the closing of the acquisition on March 31, 2005, and based on
                  valuations
                  provided by an independent third
                  party.
  b.
              The
                  amortization of intangible assets was recorded to reflect the amortization
                  of purchased intangible assets subject to amortization, including
                  customer
                  contract renewals and customer relationships that were acquired
                  in the
                  Aventis PR transaction on March 31, 2005, and based on valuations
                  provided
                  by an independent third party.
  c.
              Reflects
                  additional interest expense from the Westernbank credit facility
                  closed on
                  March 31, 2005 and a reduction of interest expense due to the repayment
                  of
                  the Laurus Master Funds credit facility also occurring on March
                  31,
                  2005.
  (4)
                Reflects
                    the following pro forma adjustments related to the Ashton
                    acquisition:
  a.
              Depreciation
                expense was adjusted to reflect the fair value of assets acquired
                as of
                the closing of the acquisition on August 31, 2005, based on valuations
                provided by a third party.
 
 b.
              Amortization
                  of intangible assets was recorded to reflect the amortization of
                  purchased
                  intangible assets subject to amortization including customer contract
                  renewals and customer relationships acquired in the Ashton acquisition
                  on
                  August 31, 2005, and based on valuations provided by a third
                  party.
  c.
              Reflects
                  additional interest expense from the new Westernbank credit facility
                  closed on August 31, 2005.
   21
  **Item
        2.** **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**
  **Forward
        Looking Statements**
  Statements
        that are not historical facts included in this report are “forward-looking
        statements” within the meaning of the Private Securities Litigation Reform Act
        of 1995 that involve risks and uncertainties that could cause actual results
        to
        differ from projected results. Such statements address activities, events
        or
        developments that the Company expects, believes, projects, intends or
        anticipates will or may occur, including such matters as future capital,
        business strategies, expansion and growth of the Company’s operations, cash
        flow, marketing of products and services, and development of new products
        and
        services. Factors that could cause actual results to differ materially
        (“Cautionary Disclosures”) are described throughout this report. Cautionary
        Disclosures include, among others: general economic conditions, the markets
        for
        and market price of the Company’s products and services, the Company’s ability
        to find, acquire, market, develop and produce new products and services,
        the
        strength and financial resources of the Company’s competitors, the Company’s
        ability to find and retain skilled personnel, labor relations, availability
        and
        cost of material and equipment, the results of financing efforts, and regulatory
        developments and compliance. All written and oral forward-looking statements
        attributable to the Company are expressly qualified in their entirety by
        the
        Cautionary Disclosures. The Company disclaims any obligation to update or
        revise
        any forward-looking statement to reflect events or circumstances occurring
        hereafter or to reflect the occurrence of anticipated or unanticipated
        events.
  **General**
  Inyx,
        Inc. (“Inyx”, “we”, “us”, “our”, or the “Company”) through its wholly-owned
        subsidiaries, Inyx Pharma Limited (“Inyx Pharma”), Inyx Canada Inc. (“Inyx
        Canada”), Inyx USA, Ltd. (“Inyx USA”), Inyx Europe Limited (“Inyx Europe”) and
        Exaeris Inc. (“Exaeris”) is a specialty pharmaceutical company.
  Our
        corporate headquarters are located at 825 Third Avenue, 40 th Floor,
        New York, New York, 10022 and our product manufacturing and development and
        support facilities are located in Manati, Puerto Rico (Inyx USA), Runcorn,
        England (Inyx Pharma) and Ashton, England (Inyx Europe). We also have business
        development and administrative offices in Toronto, Canada (Inyx Canada) and
        a
        newly opened commercial operations office in Exton, Pennsylvania (Exaeris).
  Our
        focus
        is the development and manufacturing of prescription and over-the-counter
        (“OTC”) aerosol pharmaceutical products and drug delivery technologies for the
        treatment of respiratory, allergy, cardiovascular, dermatological and topical
        conditions. We perform limited sales and marketing functions, but that is
        currently primarily to market and promote our manufacturing, technical and
        product development capabilities to our international client base. Our client
        base primarily consists of ethical pharmaceutical corporations, branded generic
        pharmaceutical distributors and biotechnology companies. Until we have completed
        developing our own product distribution and sales and marketing capabilities,
        we
        will continue to depend on our customers’ distribution channels or strategic
        partners to market and sell the pharmaceutical products we develop and
        manufacture for them.
  **Recent
        Developments**
  On
        March
        29, 2005, we incorporated Exaeris Inc. (“Exaeris”), a wholly-owned Delaware
        corporation, to be headquartered in Exton, Pennsylvania, and to manage and
        operate our contemplated product development and promotion and marketing
        activities, including those through collaborative agreements with other
        companies. Our strategy is to have Exaeris focus on the sales and marketing
        of
        niche or enhanced generic pharmaceutical products, including our clients’
        products and our own planned proprietary products in the respiratory, allergy,
        dermatological, topical and cardiovascular treatment market sectors.
 
 We
        believe that this type of corporate structure will allow us to leverage the
        commercial opportunities that are being created by the client relationships
        we
        are developing in our contract manufacturing and product development areas
        of
        expertise, or those that may come directly through Exaeris’ own business
        development efforts. Such opportunities include product development and
        marketing collaborations, and the commercialization of proprietary products
        that
        we are developing internally or actively looking to acquire either the marketing
        rights or outright ownership from other companies.
 
 22
 Exaeris
        is lead by its President, Mr. Stephen Beckman, who we hired on September
        1,
        2005. Mr. Beckman has more than 15 years experience in the sales, marketing
        and
        commercialization of pharmaceutical products. Exaeris is currently organizing
        its management team and sales force, which we initially intend to establish
        through a commercial relationship with a pharmaceutical contract sales
        representative organization, although no such agreement has been
        finalized.
 
 In
        addition to continuing to develop a sales force, Exaeris’ management team’s
        initial primary focus will be to provide the sales, marketing and product
        promotion support required for our product development, manufacturing and
        marketing collaboration agreements with King Pharmaceuticals, Inc. (“King”)
        regarding King’s Intal ® and
        Tilade ® products.
        Intal ® and
        Tilade ® are
        non-steroidal, anti-inflammatory agents (mast-cell stabilizers) for the
        management of asthma. Such multi-year agreements were signed on September
        8,
        2005 and include the formation of an Alliance Management Committee (“AMC”),
        comprised of three senior executives from each company who will plan, administer
        and monitor the activities of parties under the noted agreements.
  We
        plan
        to have Exaeris enter other such collaborative product marketing and promotion
        agreements but at this time no such agreements have been agreed to or
        completed.
  **The
        Acquisition of Celltech Manufacturing Services Limited**
  On
        August
        31, 2005, through our wholly-owned United Kingdom subsidiary, Inyx Europe,
        we
        completed the purchase of all of the outstanding shares of Celltech
        Manufacturing Services Limited (“CMSL”), a United Kingdom pharmaceutical
        manufacturing company, from UCB Pharma Limted (“UCB”) for approximately $38.2
        million plus acquisition costs of approximately $3.4 million, and thereby
        assumed possession and control of the operations of CMSL on September 1,
        2005.
  On
        September 9, 2005, we changed the “CMSL” name to Ashton Pharmaceuticals Limited
        (“Ashton”). Ashton now operates as a wholly-owned subsidiary of Inyx Europe and
        its operating results are included in our consolidated results of operations
        effective September 1, 2005.
  We
        funded
        the acquisition of Ashton , through a debt financing agreement with Westernbank
        Puerto Rico (“Westernbank”), which had previously provided us the funding
        required to acquire our Inyx USA operations. For the CMSL acquisition,
        Westernbank provided Inyx Europe a revolving credit line of up to $11,700,000
        and term loans to Inyx Europe in the aggregate amount of $24,800,000, pursuant
        to four promissory notes, each dated August 30, 2005. The Loans are secured
        by
        all of the assets of the Company and its subsidiaries including those of
        Inyx
        Europe and Ashton, and are guaranteed by the Company and its subsidiaries
        pursuant to a general security agreement. In addition, we have pledged our
        shares of Inyx Europe and Ashton Inyx Europe to Westernbank as part of the
        collateral for the Loans. The funding of the Ashton acquisition also included
        a
        seller’s loan consisting of a purchase price deferral from UCB of approximately
        $14.4 million, in aggregate, and to be repaid in equal monthly installments
        after the acquisition.
  Ashton
        has over 50 years of experience in pharmaceutical development and manufacturing,
        and currently produces a portfolio of branded and non-branded products for
        third
        party customers including UCB, its previous parent company. Before its
        acquisition by the UCB Group in 2004, the Ashton business was part of the
        Celltech Group PLC.
 
 Ashton
        operates a 152,000 square foot cGMP (current Good Manufacturing Practice)
        facility approved to manufacture pharmaceuticals products for the United
        Kingdom, Europe and Asia. The site is regulated by the United Kingdom MHRA
        (Medicines and Healthcare products Regulatory Agency) and the EMEA (the European
        Agency for the Evaluation of Medicinal Products). The manufacturing site
        is
        comprised of a complex of pharmaceutical manufacturing, laboratory and product
        support, storage space, and administrative office premises located on an
        approximately 7.3-acre piece of land in Ashton, near Manchester, in the North
        East of England, and approximately one hour away by car from our Company’s other
        United Kingdom operation, Inyx Pharma Limited, located in Runcorn, Cheshire.
        Ashton currently has approximately 300 employees consisting of management,
        commercial and finance, production, quality control and testing and technical
        and distribution support staff.
 
 23
 The
        Ashton facility is approved to produce pharmaceuticals, including solid dose,
        sterile and dry powder inhaler products, for the United Kingdom, Europe and
        Asia. Through the Ashton Site, CMSL also manufactures steroids, hormonal
        products and highly potent product formulations. The Ashton site also possesses
        a controlled drug license from the MHRA.
 
 Revenues
        at the Ashton site consist of product manufacturing and support services
        for the
        Celltech-UCB group, under a new five-year exclusive manufacturing contract,
        and
        contracts and purchase orders from other pharmaceutical companies, as well
        as
        the sales of three of its own products, consisting of three major hormonal
        products and currently sold through third parties.
  **The
        Aventis PR Transaction**
  On
        March
        31, 2005, through our wholly-owned subsidiary, Inyx USA, we acquired certain
        business and assets of Aventis PR from Aventis Pharmaceuticals, Inc. (“Aventis
        Pharmaceuticals”), part of the sanofi-aventis Group, for approximately $23.0
        million, consisting of approximately $19.7 million cash paid at closing and
        incremental transaction costs of approximately $2.7 million.
  As
        noted
        above, the
        Aventis PR acquisition was funded through a credit facility
        obtained from Westernbank .
        The
        Aventis PR credit facility consists of a revolving loan, three term loans
        and a
        mezzanine loan, in the aggregate totaling approximately $46.0
        million.
  The
        Aventis PR business assets that we acquired are located on a 9.5 acre property
        in Manati, Puerto Rico comprised of a 140,000 square foot pharmaceutical
        manufacturing operation with supporting equipment, laboratories, warehouse
        and
        office space. We retained 145 employees and the operation currently manufactures
        dermatological, respiratory and allergy products, including niche aerosol
        pharmaceutical products.
  Prior
        to
        our acquisition of its manufacturing assets, Aventis PR previously produced
        pharmaceutical products in accordance with a contract manufacturing agreement
        with its parent company, Aventis Pharmaceuticals.
  **Consolidated
        Results**
  The
        accompanying consolidated financial information includes the accounts of
        Inyx
        and its wholly-owned subsidiaries, Inyx Pharma Limited, incorporated under
        the
        laws of England and Wales; Inyx Canada, Inc., formed as a federally incorporated
        Canadian corporation; Inyx USA, Ltd., incorporated under the laws of Isle
        of
        Man; Inyx Europe Limited, incorporated under the laws of England and Wales;
        and
        Exaeris Inc., incorporated in the state of Delaware. All inter-company accounts
        and transactions have been eliminated in consolidation.
  **Combined
        Results for Comparative Purposes**
  As
        we
        acquired certain business assets of Aventis PR on March 31, 2005 and the
        shares
        of Ashton on August 31, 2005, our Management’s Discussion and Analysis of
        results of operations for the nine month period ending September 30, 2005
        and
        the comparative nine month period ending September 30, 2004 will focus on
        both
        actual and  combined
        pro forma results.
  Based
        on
        the timing of the noted business acquisitions, we believe that a nine month
        pro
        forma comparison provides the reader the best analysis, including comparative
        analysis of our current business situation and results of operation, especially
        as the two noted acquisitions (i.e. the business assets of Aventis PR on
        March
        31, 2005 and the shares of CMSL on August 31, 2005) have contributed materially
        to a growth in our revenues and business scope. Accordingly, the pro forma
        analysis provided below outlines the actual results of the Company for
        the  nine
        months ended September 30, 2004 combined with the results of operation of
        the
        acquired business of Aventis PR and the results of operation of CMSL for
        the
        nine months ended September 30, 2004.
  Therefore,
        the pro forma results for the nine months ended September 30, 2005 include
        the
        actual results of the Company for the nine months ended September 30, 2005
        combined with the results of the acquired business of Aventis PR for the
        three
        months ended March 31, 2005 and the results of CMSL for the eight months
        ended
        August 31, 2005.
  24
 **Unaudited
        Consolidated Statements of Operations and Pro Forma Statements of Operations**
  As
        noted
        above, our discussion herein focuses on our actual results of operations
        for the
        three and nine months ended September 30, 2005, as compared to our actual
        results for the three and nine months ended September 30, 2004, and for
        comparative purposes, our pro forma results of operations for the pro forma
        nine
        months ended September 30, 2005, as compared to the pro forma results of
        operations for the pro forma nine months ended September 30, 2004. Inyx
        currently manages and operates its business as one operating segment; our
        results of operations are derived from contract pharmaceutical manufacturing
        and
        product formulation and development outsourcing services, including product
        stability, commercial scale-up, and validation and regulatory support for
        our
        clients’ products. Future contract revenues are dependant upon our clients
        maintaining or obtaining regulatory approval for the sale of their products
        in
        their designated markets.
  Although
        we do not currently derive any of our revenues from the sale of our own
        products, we believe that we can increase our revenues and achieve greater
        profit margins through the addition of our own proprietary product lines
        in
        selected pharmaceutical market sectors, with marketing to be conducted through
        certain strategic customers or through collaborative product promotion and
        marketing agreements with clients regarding selected or niche products. We
        expect that these types of revenues would include direct sales, revenue sharing,
        and royalty payments and licensing fees.
  We
        are
        incurring proprietary product research and development costs, including costs
        that may be associated with certain potential proprietary product and associated
        intellectual property acquisitions. At this time, we have not commercialized
        any
        of our own proprietary products or product acquisitions but we believe that
        by
        the beginning of 2006 we will be in a position to commence the sale of our
        own
        proprietary products, including selected clients’ products through product
        collaboration and joint marketing and promotion agreements such as our agreement
        with King Pharmaceuticals.
  The
        financial information set forth in the following discussion should be read
        in
        conjunction with and qualified in its entirety by the financial statements
        of
        our Company presented elsewhere herein.
  **Results
        of Operations for the Three and Nine months Ended September 30, 2005 compared
        to
        the Three and Nine months Ended September 30, 2004, and for the Pro Forma
        Nine
        Months Ended September 30, 2005 compared to the Pro Forma Nine Months ended
        September 30, 2004**
 
 **Net
        Revenues**
  Net
        revenues for the three months ended September 30, 2005 increased by
        approximately $8.7 million or 207% to approximately $12.9 million as compared
        to
        net revenues of $4.2 million for the same period a year ago.
  Net
        revenues for the nine months ended September 30, 2005 increased by approximately
        $12.5 million or 109% to approximately $24.1 million from net revenues of
        approximately $11.5 million for the nine months ended September 30,
        2004.
  On
        a pro
        forma basis, net revenues for the pro forma nine months ended September 30,
        2005
        increased by approximately $2.0 million or approximately 4% to pro forma
        net
        revenues of $55.8 million from pro forma net revenues of approximately $53.8
        million for the pro forma nine months ended September 30, 2004.
  The
        increase in net revenues between the comparative periods is related to both
        our
        March 31, 2005 acquisition of certain assets and business of Aventis PR plus
        our
        acquisition of all the issued share capital of Ashton on August 31, 2005.
        These
        two acquisitions have contributed significantly to our revenues, diversified
        and
        grown our client base, expanded our manufacturing and business capabilities,
        and
        enlarged our overall scope of operations.
  As
        can be
        noted by our pro forma results of operations for the nine months ended September
        30, 2005, if we had completed these acquisitions at the beginning of 2005
        our
        year-to-date revenues would have been approximately $56 million, based on
        these
        businesses’ historical performance and book of business. The four percent growth
        between the respective pro forma nine-month periods is related to the increased
        growth of Inyx’s core revenues, primarily attributable to our expanding client
        base and business volume.
  25
 The
        noted
        acquisitions of the business assets of Aventis PR and the shares of Ashton
        have
        also provided us with three new top customers for the nine month period ended
        September 30, 2005. For
        the
        nine months ended September 30, 2005, our three top customers were Kos
        Pharmaceuticals, Inc. (“Kos”), the sanofi-aventis Group (“sanofi-aventis”) and
        the UCB Pharma Group (“UCB”). For the nine months ended September 30,2005, these
        customers accounted for approximately $13.1 million or approximately 54%
        of our
        total net revenues for the reporting period, although UCB only accounted
        for one
        month of business as we signed an exclusive five-year manufacturing contract
        with UCB as part of our acquisition of the shares of Ashton on August 31,
        2005.
        Our other top two customers, Kos and sanofi-aventis, became our largest
        customers as a result of our acquisition of the business assets of Aventis
        PR on
        March 31, 2005.
  For
        the
        comparative nine months ended September 30, 2004, our top three customers
        were
        Generics (UK) Limited (“Merck Generics”), SSL International Plc (“SSL”) and
        Genpharm Inc. (“Genpharm”). These customers accounted for approximately $5.1
        million in net revenues or approximately 44% of our total net revenues for
        the
        nine months ended September 30, 2004.
  Although
        we now have broadened our business base, including adding a number of new
        clients, a delay in the production requirements for any one of our major
        clients
        or the loss of any one of our top three clients would have a material adverse
        affect on our revenues and profitability opportunities. As part of our strategic
        growth objectives, we continue to broaden our customer base and distribution
        channels to mitigate the risk of our economic dependence on any one client.
        We
        expect our new manufacturing sites, which provide us with expanded and
        complementary manufacturing capabilities and a broader marketing base will
        enable us to attract additional new customers and to do increasing business
        with
        both new and existing clients.
  Also,
        we
        believe our expertise in aerosol pharmaceutical manufacturing including the
        commercialization and production of hydrocarbon aerosol foams, and converting
        from ozone-depleting chlorofluorocarbon (“CFC”) to CFC-free aerosol
        pharmaceuticals, particularly the production of hydrofluoroalkane (“HFA”)
        non-ozone-depleting aerosol pharmaceutical products, should generate increasing
        business for us as the Montreal Protocol continues to be implemented around
        the
        world, including now in the United States, the largest pharmaceutical market
        in
        the world.
  **Cost
        of Sales**
  Cost
        of
        sales are the costs that we incur in providing our product manufacturing
        and
        development services, including production materials and components,
        manufacturing and packaging labor, factory overheads including gas, power
        and
        security and building maintenance, and technical affairs which includes quality
        control and quality assurance regulatory support functions, and laboratory
        support and testing staff.
  Cost
        of
        sales for the three months ended September 30, 2005 amounted to approximately
        $7.8 million or approximately 60% of net revenues of approximately $12.9
        million
        for the three month period. In
        comparison, for the three months ended September 30, 2004, cost
        of
        sales amounted to approximately $3.6 million or approximately 84% of net
        revenues of approximately $4.2 million for that three month period.
  The
        cost
        of sales for the nine months ended September 30, 2005 amounted to approximately
        $16.2 million or approximately 67% of net revenues of approximately $24.1
        million. In comparison, for
        the
        nine months ended September 30, 2004, our
        cost
        of sales amounted to approximately $10.4 million or approximately 90% of
        net
        revenues of approximately $11.5 million.
  On
        a pro
        forma basis, cost of sales for the pro forma nine months ended September
        30,
        2005 amounted to approximately $40.3 million or approximately 72% of pro
        forma
        net revenues of approximately $55.8 million. In comparison, cost of sales
        for
        the pro forma nine months ended September 30, 2004 amounted to approximately
        $42.4 million or approximately 79% of pro forma net revenues of approximately
        $53.8 million.
  26
 The
        improvement in our cost of sales as a percentage of sales between the
        comparative periods, including for the comparative pro forma nine month periods,
        was driven primarily by the increased amount of product support services
        that we
        provided during the noted three month and nine periods in 2005 as compared
        to
        the same periods in 2004. Such services included product development and
        commercialization activities, product testing, validation and stability work,
        and regulatory compliance and documentation review support. Revenue-generating
        product support and customer assistance activities are associated with the
        commercialization of our customers’ products, the transfer of our customers’
        products to new delivery systems, and the transfer of our customers’ products to
        our manufacturing lines from other facilities or from successful clinical
        testing. We typically charge our customers hourly or milestone related fees
        for
        such services. Such fees typically provide better profit margins due to the
        lower overhead costs (i.e. no material costs, no additional labor costs other
        than what we would normally be absorbing, and limited overhead costs) that
        we
        have to absorb when compared to the operation of our manufacturing lines.
  Additionally,
        material costs associated with the operations we have acquired during the
        past
        nine months are lower as a result of those businesses’ longer-term and larger
        relationships with their key vendors. These acquired vendor relationships
        are
        now providing our Company with lower costs for our materials and components.
  We
        expect
        the cost of goods sold as a percentage of our sales to continue to improve
        as
        more customer contracts are initiated or renewed and our capacity utilization
        is
        enhanced. With improved fixed overhead cost absorption, we expect to continue
        to
        improve our profit margins opportunities. We also expect to further continue
        to
        improve our profit margins as we gain better bulk-purchasing-power leverage
        with
        our vendors for the materials and components that we utilize to manufacture
        our
        clients’ products.
  **Gross
        Profit**
  Gross
        profit for the three months ended September 30, 2005 increased by approximately
        $4.4 million or over 600% to approximately $5.1 million on net revenues of
        $12.9
        million or a gross profit of approximately 39% of net revenues. For the three
        months ended September 30, 2004 we had a gross profit of approximately $680,000
        on net revenues of approximately $4.2 million or a gross profit of approximately
        16% of net revenues.
  Gross
        profit for the nine months ended September 30, 2005 amounted to approximately
        $7.9 million on net revenues of $24.1 million or approximately 33% of net
        revenues. The
        gross
        profit for the nine months ended September 30, 2004 amounted to approximately
        $1.2 million on net revenues of approximately $11.5 million or approximately
        10%
        of net revenues.
  On
        a pro
        forma basis, gross profit for the pro forma nine months ended September 30,
        2005
        increased by $4.1 million to approximately $15.5 million on net revenues
        of
        $55.8 million or approximately 28% of net revenues. In comparison, for the
        pro
        forma nine months ended September 30, 2004, we had a gross profit of
        approximately $11.4 million or approximately 21% of pro forma net revenues
        of
        approximately $53.8 million.
  The
        improvement in gross profit between the comparative periods is driven by
        the
        noted favorable mix of product support and technology services revenues as
        well
        as the increased
        capacity utilization at our facilities, thereby improving overhead absorption
        rates, and the addition of more profitable contracts as a result of our recent
        acquisitions of the business assets of Aventis PR and the Ashton manufacturing
        operations.
  We
        believe that our gross profit will continue to improve as we continue to
        improve
        our capacity utilization at our manufacturing facilities as a result of our
        expanded client base. We believe that we can also continue to improve our
        gross
        profit margins through the addition of our own pharmaceutical product lines
        which traditionally offer greater profit margins than those provided by contract
        manufacturing services. Although we do not currently derive any revenues
        from
        the sale of our own products, we expect to commence such commercial activities
        as a result of our new collaboration and marketing agreement with King
        Pharmaceuticals in 2006. Additionally, we expect to have our first two
        proprietary products ready for commercial marketing in 2006.
  27
 **Operating
        Expenses**
  Our
        operating expenses consist of product research and development costs, general
        and administrative, selling, depreciation and amortization as well as expenses
        related to the amortization of intangible assets.
  Operating
        expenses for the three months ended September 30, 2005 amounted to approximately
        $8.3 million or approximately 64% of net revenues of approximately $12.9
        million. In comparison, for the three months ended September 30, 2004, our
        operating expenses amounted to approximately $3.8 million or approximately
        88%
        of net revenues of $4.2 million.
  Operating
        expenses for the nine months ended September 30, 2005 amounted to approximately
        $16.9 million or approximately 70% of net revenues of $24.1 million. In
        comparison, operating expenses for the nine months ended September 30, 2004
        amounted to approximately $9.0 million or approximately 78% of net revenues
        of
        $11.5 million.
  On
        a pro
        forma basis, operating expenses for the pro forma nine months ended September
        30, 2005 amounted to approximately $25.5 million or approximately 46% of
        pro
        forma net revenues of approximately $55.8 million. In comparison, operating
        expenses for the pro forma nine months ended September 30, 2004 amounted
        to
        approximately $19.8 million or approximately 37% of pro forma net revenues
        of
        approximately $53.8million.
  Although
        our operating expenses as a percentage of our revenues has been reduced due
        to
        the growth in revenues, we had higher operating expenses for the three and
        nine
        months ended September 30, 2005, in comparison to both the actual and pro
        forma
        periods in 2004, as a result of the one-time due diligence costs, travel
        expenses, integration costs and increased operational costs related to our
        acquisitions of the business assets of Aventis PR and the Ashton operation,
        respectively, during 2005. For the nine months ended September 30, 2005,
        we have
        incurred approximately $2.3 million of such one-time general and administrative
        costs, primarily related to acquisition and business integration related
        expenses.
  Additionally,
        we continue to expand the scope of our business operations as we continue
        to
        assimilate and integrate these acquired operations. In addition to an expanded
        management team and labor force, we have enhanced our business support functions
        and also intensified our research and development activities in anticipation
        of
        launching our own proprietary products in 2006. We also now have increased
        training, insurance costs, legal fees, audit fees and other expenses related
        to
        our enhanced corporate and business development activities.
  **Research
        and Development Costs**
  Research
        and development costs for the three months ended September 30, 2005 were
        approximately $930,000 or approximately 11% of our operating expenses of
        approximately $8.3 million, and approximately 7% of net revenues of
        approximately $12.9 million for the three month period. In comparison, for
        the
        three months ended September 30, 2004, our research and development costs
        amounted to approximately $940,000 or approximately 25% of our operating
        expenses of approximately $3.8 million, and approximately 22% of net revenues
        of
        approximately $4.2 million for the comparable three month period.
  Research
        and development costs for the nine months ended September 30, 2005 were
        approximately $1.9 million or approximately 11% of our operating expenses
        of
        approximately $16.9 million, and approximately 8% of net revenues of
        approximately $24.1 million for the nine month period. In comparison, research
        and development costs for the nine months ended September 30, 2004 were
        approximately $1.3 million or approximately 15% of our operating expenses
        of
        approximately $9.0 million, and approximately 12% of net revenues of
        approximately $11.5 million for the comparable nine month period.
  28
 On
        a pro
        forma basis, research and development costs for the pro forma nine months
        ended
        September 30, 2005 were approximately $1.9 million or approximately 7% of
        pro
        forma operating expenses of approximately $25.5 million, and approximately
        3% of
        pro forma net revenues of approximately $55.8 million. In comparison, for
        the
        pro forma nine months ended September 30, 2004, pro forma research and
        development costs were approximately $1.3 million or approximately 7% of
        pro
        forma operating expenses of approximately $19.8 million, and approximately
        2.5%
        of pro forma net revenues of approximately $53.8 million.
  As
        we
        plan to commence commercial marketing of our initial two proprietary
        pharmaceutical aerosol products, a wound irrigation and cleansing spray
        utilizing barrier technologies and an anti-inflammatory nasal pump, in
        2006, subject to the required regulatory approvals, we have intensified
        our
        research and development activities in these areas. As a result, our research
        and development expenses have increased.
  We
        also
        continue to focus our research and development efforts and expenditures on
        inhalation-therapy drug delivery devices and methods, and generic prescription
        and over-the-counter aerosol pharmaceutical products for respiratory,
        cardiovascular and topical applications. These consist of single molecule
        and
        combination HFA respiratory inhalants and non-CFC propelled oral sprays for
        cardiovascular ailments.
  We
        believe that we can also enhance our competitive position through the
        acquisition of regulatory-approved pharmaceutical products and drug delivery
        devices for respiratory, dermatological, topical and cardiovascular medication
        applications or such products in development, including those through the
        acquisition of other pharmaceutical companies. One such example was our
        acquisition of a lipid-binding matrix for delivering incompatible or unstable
        drug substances in single formulations or in a combination of different drugs.
        We plan to use this acquired technology to develop our own proprietary metered
        dose inhalers (“MDIs”) for the treatment of asthma and other respiratory
        diseases, either in a single formulation or as a combination drug delivery
        system, as well as across a broad-spectrum of other inhalation-therapy
        treatments, including acute and chronic pain
        management.
  Our
        research and development costs include intellectual property development
        costs,
        salaries for required technical staff, fees and expenses related to external
        consultants, and costs associated with the use of external laboratory facilities
        as may be required. We believe that even though research and development
        costs
        may increase our operating expenses in the short term; in the long term,
        these
        costs should be offset by the higher profit margins derived from the
        manufacturing and sale of our own proprietary products as compared to the
        operating margins of our contract manufacturing services.
  We
        plan
        to distribute our proprietary products through our own customers’ distribution
        channels or in collaboration with other strategic marketing partners through
        our
        new wholly-owned subsidiary, Exaeris.
  **General
        and Administrative Expenses**
  Our
        general and administrative expenses include management and staff compensation,
        corporate overhead costs, administrative support, business and corporate
        development, including those for external consultants, property, business
        and
        liability insurance, and business support costs incurred by our wholly owned
        subsidiaries.
  General
        and administrative expenses for the three months ended September 30, 2005
        amounted to approximately $5.8 million or approximately 70% of our operating
        expenses of approximately $8.3 million, and approximately 45% of net revenues
        of
        approximately $12.9 million for the three month period. In comparison, for
        the
        three months ended September 30, 2004, our general and administrative expenses
        amounted to approximately $2.5 million or approximately 67% of our operating
        expenses of approximately $3.8 million, and approximately 59% of net revenues
        of
        approximately $4.2 million for the comparable three month period.
  General
        and administrative expenses for the nine months ended September 30, 2005
        amounted to approximately $12.2 million or approximately 72% of our operating
        expenses of approximately $16.9 million, and approximately 51% of net revenues
        of approximately $24.1 million for the nine month period. In comparison,
        general
        and administrative expenses for the nine months ended September 30, 2004
        were
        approximately $6.8 million or approximately 76% of our operating expenses
        of
        approximately $9.0 million, and approximately 59% of net revenues of
        approximately $11.5 million for comparable nine month period.
  29
 On
        a pro
        forma basis, general and administrative expenses for the pro forma nine months
        ended September 30, 2005 amounted to approximately $15.5 million or
        approximately 61% of our pro forma operating expenses of approximately $25.5
        million, and approximately 28% of pro forma net revenues of approximately
        $55.8
        million. In comparison, general and administrative expenses for the pro forma
        nine months ended September 30, 2004 amounted to approximately $11.5 million
        or
        approximately 58% of our pro forma operating expenses of approximately $19.8
        million, and approximately 21% of pro forma net revenues of approximately
        $53.8
        million.
  The
        general and administrative expenses for the three and nine months ended
        September 30, 2005 include due diligence, travel, and integration costs related
        to the acquisition of the business assets of Aventis PR and the Ashton business,
        both completed during the noted reporting periods. As a result, for the nine
        months ended September 30, 2005, we incurred additional general and
        administrative costs amounting to approximately $2.3 million, primarily related
        to acquisition and business integration related expenses.
  We
        also
        incurred additional general and administrative costs during these periods
        as a
        result of a number of other corporate and business development activities
        that
        we are currently undertaking to expand our overall business as a specialty
        pharmaceutical company, none of which have been completed as of yet. Other
        contributing factors to our general and administrative expenses during these
        periods are increased staff compensation and salaries, including increasing
        labor costs due to an employee force increasing from 125 people to more than
        550
        employees, as well as material increases in business and insurance costs
        related
        to the two acquisitions completed during 2005.
  As
        we
        continue to implement our corporate development and growth strategy, we also
        expect to incur general and administrative costs due to the addition of senior
        business and financial executives to our management team and the overall
        enhancement to our business support functions to accommodate our expanded
        operating base in both North America and Europe.
  We
        believe that as we continue to grow our business and begin to introduce our
        own
        proprietary products, such products should provide better profit margins
        than
        the contract development and manufacturing fees that we presently receive
        from
        our customers and as a result of these expected improved margins, we can
        better
        offset our general and administrative costs.
  **Selling
        Expenses**
  Selling
        expenses consist primarily of salaries, commissions and marketing costs
        associated with the commercial and sales and marketing functions of our
        business. Although we perform some sales and marketing functions, currently
        such
        activities are primarily focused on expanding our pharmaceutical aerosol
        manufacturing business with existing or potential clients.
  Selling
        expenses for the three months ended September 30, 2005 amounted to approximately
        $180,000 or approximately 2% of our operating expenses of approximately $8.3
        million, and approximately 1% of net revenues of approximately $12.9 million
        for
        the three month period. In comparison, for the three months ended September
        30,
        2004, our selling expenses amounted to approximately $95,000 or approximately
        2.5% of our operating expenses of approximately $3.8 million, and approximately
        2% of net revenues of approximately $4.2 million for the comparable three
        month
        period..
  Selling
        expenses for the nine months ended September 30, 2005 were approximately
        $355,000 or approximately 2% of our operating expenses of approximately $16.9
        million, and approximately 1.5% of net revenues of approximately $24.1 million
        for the nine month period. In comparison, selling expenses for the nine months
        ended September 30, 2004 were approximately $255,000 or approximately 3%
        of our
        operating expenses of approximately $9.0 million, and approximately 2.2%
        of net
        revenues of approximately $11.5 million for the comparable nine month
        period.
  30
 On
        a pro
        forma basis, selling expenses for the pro forma nine months ended September
        30,
        2005 amounted to approximately $1.0 million or approximately 4% of pro forma
        operating expenses of approximately $25.5 million, and approximately 2% of
        pro
        forma net revenues of approximately $55.8 million. In comparison, for the
        pro
        forma nine months ended September 30, 2004, selling expenses amounted to
        approximately $926,000 or approximately 5% of our pro forma operating expenses
        of approximately $19.8 million, and approximately 2% of pro forma net revenues
        of approximately $53.8 million.
  As
        we
        continue to ramp-up our business development and commercial activities, we
        expect our selling expenses to increase concomitantly with expected revenue
        expansion. Our selling expenses as a percentage of our sales have remained
        relatively consistent over the comparative periods as we have been focusing
        our
        sales and marketing activities on the promotion of our manufacturing facilities.
        We expect that our selling expenses, as a percentage of our revenues, may
        potentially slightly increase as we are planning to add senior sales and
        marketing executives to assist in our business expansion, including continuing
        to intensify our marketing activities to new as well as existing
        customers.
  Additionally,
        we expect to incur additional selling expenses once we commence to market
        and
        promote our own proprietary products or our clients’ products through
        collaborative agreements, such as our September 8, 2005 collaboration agreement
        with King Pharmaceuticals. We expect to commence such activities beginning
        in
        the first quarter of 2006 and expect to offset such additional costs as a
        result
        of the expected better margins offered by the direct sale of such products
        as
        compared to contract manufacturing revenues.
  We
        believe that once we commence the marketing of our own proprietary products
        or
        selected clients’ products, we may also need to build or contract out our own
        sales force. Our strategy is focus on the sales and marketing of niche or
        enhanced generic pharmaceutical products, including our clients’ products and
        our own planned proprietary products in the respiratory, allergy,
        dermatological, topical and cardiovascular treatment market sectors.
  **Depreciation
        and Amortization**
  The
        value
        of our property, plant and equipment is stated at cost. Depreciation is computed
        using the straight-line method based on the estimated useful lives of the
        assets, which range from 25 years for buildings and 3-10 years for equipment.
  Depreciation
        and amortization expenses for the three months ended September 30, 2005 amounted
        to approximately $900,000 or approximately 11% of our operating expenses
        of
        approximately $8.3 million, and approximately 7% of net revenues of
        approximately $12.9 million for the three month period. In comparison, for
        the
        three months ended September 30, 2004, depreciation and amortization expenses
        amounted to approximately $155,000 or approximately 4% of our operating expenses
        of approximately $3.8 million, and approximately 3.6% of net revenues of
        approximately $4.2 million for the comparable three month period.
  Depreciation
        and amortization expenses for the nine months ended September 30, 2005 were
        approximately $1.6 million or approximately 10% of our operating expenses
        of
        approximately $16.9 million, and approximately 7% of net revenues of
        approximately $24.1 million for the nine month period. In comparison,
        depreciation and amortization expenses for the nine months ended September
        30,
        2004 were approximately $430,000 or approximately 5% of our operating expenses
        of approximately $9.0 million, and approximately 4% of net revenues of
        approximately $11.5 million for the comparable nine month period.
  On
        a pro
        forma basis, depreciation and amortization expenses for the pro forma nine
        months ended September 30, 2005 amounted to approximately $4.8 million or
        approximately 19% of our pro forma operating expenses of approximately $25.5
        million, and approximately 9% of pro forma net revenues of approximately
        $55.8
        million. In comparison, for the pro forma nine months ended September 30,
        2004,
        depreciation and amortization expenses amounted to approximately $4.2 million
        or
        approximately 21% of our pro forma operating expenses of approximately $19.8
        million, and approximately 8% of pro forma net revenues of approximately
        $53.8
        million.
  31
 The
        primary reason for the increase in depreciation and amortization expenses
        between the comparative three and nine months ended September 30, 2005 as
        compared to the three and nine months ended September 30, 2004 is the result
        of
        the respective acquisitions of the business assets of Aventis PR and Ashton
        during the nine months ended September 30, 2005.
  The
        pro
        forma nine month period ended September 30, 2005 also includes the depreciation
        of these assets as if we had owned them from the beginning of 2005. The pro
        forma analysis is therefore indicative of the type of depreciation and
        amortization expenses that we will have on a go forward basis due to the
        assets
        we have acquired.
  **Amortization
        of Intangible Assets**
  The
        fair
        values assigned to the intangible assets acquired are based on estimates
        and
        assumptions provided and other information compiled by management, including
        independent valuations that utilize established valuation techniques appropriate
        for the industry in which our Company operates. Purchased
        intangible assets are carried at cost less accumulated amortization.
  The
        amortization expense for intangible assets for the three months ended September
        30, 2005 was approximately $440,000 or approximately 5% of our operating
        expenses of approximately $8.3 million, and approximately 3% of net revenues
        of
        approximately $12.9 million for the three month period. In comparison, the
        amortization expense for intangible assets for the three months ended September
        30, 2004 was approximately $40,000 or approximately 1% of our operating expenses
        of approximately $3.8 million, and less than 0.1% of net revenues of
        approximately $4.2 million for the comparative three month period in
        2004.
  The
        amortization expense for intangible assets for the nine months ended September
        30, 2005 was approximately $845,000 or approximately 5% of our operating
        expenses of approximately $16.9 million, and approximately 3.5% of net revenues
        of approximately $24.1 million for the nine month period. In comparison,
        the
        amortization expense for intangible assets for the nine months ended September
        30, 2004 was approximately $125,000 or approximately 1.4% of our operating
        expenses of approximately $9.0 million, and approximately 1% of net revenues
        of
        approximately $11.5 million for the comparative nine month period in
        2004.
  On
        a pro
        forma basis, the amortization expense for intangible assets for the pro forma
        nine months ended September 30, 2005 was approximately $2.2 million or
        approximately 9% of our pro forma operating expenses of approximately $25.5
        million, and approximately 4% of pro forma net revenues of approximately
        $55.8
        million. In comparison, for the pro forma nine months ended September 30,
        2004
        such amortization expense amounted to approximately $1.8 million or 9% of
        our
        pro forma operating expenses of approximately $19.8 million, and approximately
        3% of pro forma net revenues of approximately $53.8 million.
  For
        the
        nine months ended September 30, 2005, the amortization expenses for intangible
        assets originally related to the Company’s purchased intangible assets as they
        related to Inyx Pharma. Such acquired intangible assets included a customer
        list
        and know-how, as well as a technology patent acquired by Inyx Pharma in late
        2004. The customer list is amortized over a period of 12 years, know-how
        is
        amortized over 10 years and the patent is amortized over 7 years. These
        intangible assets are amortized on a straight-line basis over their estimated
        remaining useful lives in proportion to the underlying cash flows that were
        used
        in determining the acquired value.
  The
        subsequent increase in the amortization expense related to intangible assets
        between the comparative 2005 and 2004 three month and nine months periods
        is due
        to the acquisition of identifiable intangible assets associated with the
        acquisition of certain business assets of Aventis PR on March 31, 2005, and
        the
        acquisition of all of the outstanding shares of Ashton on August 31, 2005.
        Such
        identifiable acquired intangible assets include trademarks, product licenses
        and
        a customer based consisting of contracts and renewals, and customer
        relationships.
  32
 The
        intangible assets acquired, representing the value assigned to “customer
        contracts renewals”, are amortized on a straight-line basis over three years.
        The intangible asset which represents the value assigned to “customer
        relationships” is amortized using the declining balance method of accelerated
        amortization over 10 years.
  **Operating
        Income/Loss from Operations before Interest and Financing Costs, and Income
        Tax
        Benefit and Extraordinary Item**
  For
        the
        three months ended September 30, 2005, the loss from operations before interest
        and financing costs, income tax benefit and extraordinary item amounted to
        approximately $3.2 million based on approximately $12.9 million of net revenues,
        as compared to a loss from operations before interest and financing costs,
        income tax benefit and extraordinary item of approximately $3.1 million based
        on
        approximately $4.2 million of net revenues for the three months ended September
        30, 2004
  For
        the
        nine months ended September 30, 2005, loss from operations before interest
        and
        financing costs, income tax benefit and extraordinary item amounted to
        approximately $9.1 million based on approximately $24.1 million in net revenues,
        as compared to a loss from operations before interest and financing costs,
        income tax benefit and extraordinary item of approximately $7.8 million based
        on
        approximately $11.5 million of net revenues for the nine months ended September
        30, 2004.
  On
        a pro
        forma basis, for the pro forma nine months ended September 30, 2005, the
        pro
        forma loss from operations before interest and financing costs, income tax
        benefit, and extraordinary item amounted to approximately $10.0 million based
        on
        approximately $55.8 million in pro forma net revenues. In comparison, for
        the
        pro forma nine months ended September 30, 2004, such loss amounted to
        approximately $8.4 million, based on approximately $53.8 million of net
        revenues.
  Loss
        from
        operations before interest and financing costs, income tax benefit and
        extraordinary item has decreased as a percentage of our revenues between
        the
        comparative periods due to our improved gross margins. Such improvement was
        offset by the additional due diligence, acquisition and business integration
        costs, and intangible asset expenses that we incurred during 2005 as a result
        of
        our acquisitions of the business assets of Aventis PR and the Ashton business.
  Research
        and development costs have also increased between the comparative periods
        as we
        continue to intensify our product development activities in order to
        commercialize our own proprietary products commencing in 2006.
  **Interest
        and Financing Costs**
  Interest
        and financing costs consist of interest expense primarily related to the
        long
        term debt provided by Westernbank, the amortization of the financing charges
        and
        the amortization of the debt discount associated with the fair value of the
        warrants issued and the beneficial conversion feature related to the financings
        with Laurus Master Fund, Ltd. (“Laurus Funds”) that have since been repaid, as
        well as the interest and financing costs associated with the repayment of
        any
        advances or loans provided to the Company by our customers.
  For
        the
        three months ended September 30, 2005, interest and financing costs totaled
        approximately $1.8 million as compared to interest and financing costs of
        approximately $750,000 for the three months ended September 30, 2004.
  For
        the
        nine months ended September 30, 2005, interest and financing costs totaled
        approximately $7.9 million as compared to interest and financing costs of
        approximately $2.5 million for the nine months ended September 30,
        2004.
  On
        a pro
        forma basis, for the pro forma nine months ended September 30, 2005, interest
        and financing costs totaled approximately $6.9 million. In comparison, for
        the
        pro forma nine months ended September 30, 2004, interest and financing costs
        totaled approximately $6.4 million.
  33
 Approximately
        $5.0 million of our year to date interest and financing charges relate to
        the
        accelerated amortization of the deferred financing costs and debt discount
        chargers associated with the Laurus Funds convertible debt financing that
        we
        repaid from our Westernbank credit facilities on March 31, 2005.
  The
        majority of the balance of our year to date interest and financing costs
        relate
        to the non-dilutive asset
        based secured credit facilities obtained from Westernbank on March 31, 2005
        and
        August 31, 2005, respectively. In addition to repaying the Laurus Funds
        convertible debt, these credit facilities were respectively utilized to acquire
        the business assets of Aventis PR and the Ashton business, and for our ongoing
        working capital and capital expenditure requirements.
  **Income
        Tax Benefit**
  There
        was
        no income tax benefit for the three and nine months ended September 30, 2005.
        In
        comparison, there was no income tax benefit for the three months ended September
        30, 2005 and an income tax benefit of approximately $395,000 for the nine
        months
        ended September 30, 2004.
  On
        a pro
        forma basis, there was an income tax benefit of approximately $875,000 for
        the
        pro forma nine months ended September 30, 2005 and an income tax benefit
        of
        approximately $640,000 for the pro forma nine months ended September 30,
        2004,
        both primarily relating to the acquired Ashton business.
  We
        did
        not record any provisions for United States federal or foreign taxes that
        may
        result from future remittances of undistributed earnings of foreign
        subsidiaries, because it is expected that such earnings will be permanently
        reinvested in our foreign operations.
  **Net
        Loss Before Extraordinary Item**
  The
        net
        loss before extraordinary item for the three months ended September 30, 2005
        was
        approximately $4.9 million as compared to a net loss before extraordinary
        item
        of approximately $3.8 million for the three months ended September 30, 2004.
  The
        net
        loss before extraordinary item for the nine months ended September 30, 2005
        was
        approximately $17.0 million as compared to a net loss before extraordinary
        item
        of $9.9 million for the nine months ended September 30, 2004.
  The
        net
        loss before extraordinary item for the three and nine months ended September
        30,
        2005 is primarily attributable to the early repayment of the Laurus Funds
        convertible debt and associated termination fees and interest costs, the operating
        expenses that we have incurred as a result of the internal and other due
        diligence acquisition and subsequent integration costs related to our
        acquisitions of the business assets of Aventis PR and the Ashton business,
        respectively, during 2005, plus the interest and financing costs associated
        with
        the credit facilities we obtained from Westernbank to finance these
        acquisitions.
  **Extraordinary
        Item**
  On
        March
        31, 2005, pursuant to our acquisition of the business assets of Aventis PR
        and
        in relation to certain customer contracts transferred to us, sanofi-aventis
        advanced us $3.5 million for manufacturing, product support and business
        transition services to be provided from our Puerto Rico site. For the nine
        months ended September 30, 2005, we recorded extraordinary income, net of
        costs
        and accrued interest, of approximately $917,000 for the services provided
        under
        the advance. We have
        agreed to repay $1.65 million of such advance back to sanofi-aventis, consisting
        of the remaining unused portion of that advance plus related interest and
        financing costs.
 
 **Net
        Loss**
 
 The
        net
        loss for the three months ended September 30, 2005 was approximately $4.9
        million as compared to a net loss of approximately $3.8 million for the three
        months ended September 30, 2004.
  34
 The
        net
        loss for the nine months ended September 30, 2005 was approximately $16.1
        million as compared to a net loss of $9.9 million for the nine months ended
        September 30, 2004.
  On
        a pro
        forma basis, for the pro forma nine months ended September 30, 2005, the
        pro
        forma net loss was approximately $15.1 million as compared to a pro forma
        net
        loss of $14.1 million for the pro forma nine months ended September 30,
        2004.
  As
        noted
        above, our net losses for the respective three and nine month periods ended
        September 30, 2005 are primarily attributable to the early repayment of the
        Laurus Funds convertible debt and associated termination fees and interest
        costs, the operating
        expenses that we incurred as a result of the internal and other due diligence
        acquisition and business integration costs related to our acquisitions of
        the
        business assets of Aventis PR and the Ashton business, respectively, during
        2005, plus the interest costs associated with the credit facilities we obtained
        from Westernbank to finance these acquisitions.
  Lower
        currency exchange rates as the US dollar strengthened against the Euro and
        the
        Great Britain pound also contributed to a slightly lower than expected revenue
        base in the three and nine months ended September 30, 2005 as compared to
        the
        same periods in 2004. As a result of the profit margins we are currently
        expecting, such loss of revenues decreases our profitability opportunities
        and
        therefore our ability to offset some of our operating expenses.
  As
        a
        result of the noted business acquisitions and strategic collaboration agreements
        with our clients, we have broadened our client and business base and
        profitability opportunities. Our broader client base will allow us to continue
        to improve our manufacturing capacity utilization and thereby, improve our
        gross
        margins, while our newly acquired manufacturing facilities should allow for
        a
        more profitable product mix.
  Additionally,
        with the commercialization of our own proprietary products, which should
        offer
        higher profit margins, we expect to offset any inherent higher operating
        expenses and business support costs thereby also improving our profitability
        opportunities.
  **Liquidity
        and Capital Resources** ****
  **General**
  We
        are
        currently primarily financing our operations through credit facilities
        established with our primary lender, Westernbank Puerto Rico, and from the
        cash
        generated from multi-year contract manufacturing and product development
        and
        technical support contracts and short-term purchase orders with our
        customers.
  As
        of
        September 30, 2005, our current assets, including cash and cash equivalents,
        accounts receivable, inventory, deposits and other current assets amounted
        to
        approximately $35.6 million, an increase of approximately $29.5 million for
        such
        assets from approximately $6.1 million in total current assets at December
        31,
        2004. Our total assets have increased from approximately $14.8 million as
        of
        December 31, 2004 to approximately $94.6 million as of September 30,
        2005.
  Current
        liabilities, consisting of borrowings under our working capital revolving
        line
        of credit, accounts payable, accrued expenses and deferred revenues including
        customer advances and loans, and the current portion of our long-term debt
        to
        Westernbank amounted to approximately $69.7 million, approximately $49.2
        million
        more in current liabilities than the approximately $20.5 million of current
        liabilities we had at December 31, 2005. Our total liabilities have increased
        from approximately $20.6 million as of December 31, 2004 to approximately
        $115.4
        million as of September 30, 2005.
  As
        of
        September 30, 2005, we had approximately $102.8 million in contractual
        obligations that are due through 2009. These financial obligations include
        both
        short-term and long-term debt interest and principal repayments, and amounts
        owed for operating and capital leases.
  35
 We
        continue to incur operating losses. For the three and nine months ended
        September 30, 2005, such losses amounted to approximately $4.9 million and
        $16.1
        million, respectively. In comparison, for the three and nine months ended
        September 30, 2004, we had net losses of approximately $3.8 million and $9.9
        million, respectively.
  As
        noted
        above, our net losses for the nine months ended September 30, 2005 include
        non-cash losses of approximately $5.0 million largely attributable to
        accelerated amortization costs, interest and financing costs that we incurred
        as
        a result of the funding and repayment of the Laurus Funds convertible debt,
        plus
        the interest costs associated with the Westernbank credit facilities. We
        utilized the Westernbank credit facilities to repay all of the Laurus Funds
        convertible debt, plus help fund the acquisitions of the business assets
        of
        Aventis PR on March 31, 2005 and the Ashton business on August 31, 2005,
        respectively.
  We
        also
        incurred additional general and administrative expenses of approximately
        $2.3
        million during the nine months ended September 30, 2005 consisting of due
        diligence, travel and acquisition and business integration costs related
        to
        these acquisitions; these operating expenses are one-time expenses, largely
        related to the successful completion of the two acquisitions.
  Importantly,
        we have had a significant increase in net revenues between the comparative
        three
        and nine months periods ended September 30, 2005 related to both our March
        31,
        2005 acquisition of certain assets and business of Aventis PR plus our
        acquisition of all the issued share capital of Ashton on August 31, 2005.
        We
        believe that as we continue to grow our revenues, we will continue to improve
        our profitability and begin to offset all of our operating expenses.
  We
        believe that we can also continue to adequately service our debt with
        Westernbank and fund our operations through the business generated from these
        two recent acquisitions. Both acquisitions have contributed significantly
        to our
        revenues and profitability opportunities as they have diversified and grown
        our
        client base, expanded our manufacturing and business capabilities, and enlarged
        our overall scope of operations.
  Ashton
        has historically been a highly profitable operation and continues to be so.
        Customer production demand at Ashton continues to be strong in both the sterile
        and dry powder inhaler areas, which traditionally provide higher margins.
        Our
        Inyx USA facility also continues to be profitable due to the increasing demand
        for respiratory, allergy and cardiovascular products from that facility,
        as the
        Montreal Protocol is implemented in the United States. In addition two large
        multi-year contracts that have been delayed at our Inyx Pharma facility have
        now
        commenced and our HFA lines at that facility are in now in full
        production.
  We
        also
        expect to achieve profitability by continuing to intensify our sales and
        marketing efforts to increase the number of customer purchase orders and
        contracts for our development and manufacturing services, especially as our
        two
        recent acquisitions have significantly strengthened and enlarged our Company’s
        operating scope. Additionally, these acquisitions have led to new and profitable
        multi-year exclusive manufacturing contracts with large pharmaceutical clients
        that we did not have before.
  We
        also
        believe that we can establish new sources of revenue by marketing our own
        proprietary pharmaceutical products or selected clients’ products through
        collaborative agreements, such as our recent agreement with King
        Pharmaceuticals. Based on pharmaceutical industry profit margins for these
        types
        of proprietary products, we expect that the King Pharmaceuticals collaboration
        and product development agreements, including the promotion and marketing
        of
        Intal ® and
        Tilade ® ,
        and the
        successful commercialization and marketing of our own proprietary products
        that
        should offer similar profit margins will provide us with greater operating
        cashflow and improve our performance and overall profitability.
  Until
        that time, we will continue to depend on our Westernbank credit facilities
        (that
        we can adequately service with our current cash flow), contract manufacturing
        and product support customer revenues, and any required placements of equity
        and
        debt securities to assist us with our working capital requirements and to
        continue implementing our business development strategies, capital expenditure
        plans, and proprietary product development and commercialization
        initiatives.
  36
 **Capital
        Resources**
  For
        the
        three and nine months ended September 30, 2005, financings from Westernbank
        have
        provided us with sufficient capital to fund our immediate capital expenditure
        plans.
  On
        March
        31, 2005, we secured a non-dilutive asset based secured credit facility from
        Westernbank originally totaling $46 million and then increased to $51 million
        in
        aggregate (“First Westernbank Credit Facility”), on September 1, 2005.
  The
        First
        Westernbank Credit Facility is comprised of a Revolving loan (the “Revolver”) of
        up to $15.0 million for purposes of working capital, a series of three term
        loans (Term Loan “A”, “B” and “C”) amounting in aggregate to up to $31 million
        for purpose of refinancing the indebtedness to Laurus Funds and purchasing
        the
        business assets of Aventis PR, and a capital expenditure mezzanine credit
        facility (Term loan “D”) of up to $5.0 million for the purpose of funding the
        acquisition of new equipment for our plants.
  The
        term
        notes are collateralized by substantially all of our Company’s property and
        assets. All the term loans mature March 31, 2008. The loans are automatically
        renewable after the initial three year period ending on March 31, 2008, on
        a
        year-to-year basis, unless terminated by Westernbank or ourselves. The first
        three term loans bear interest at the Westernbank prime rate plus 2% payable
        monthly with monthly principal repayments commencing on July 1, 2005 through
        maturity. The mezzanine term loan bears interest at the rate of 15% with
        monthly
        principal payments commencing on July 1, 2005 through maturity. The Westernbank
        prime interest rate at September 30, 2005 was 6.5%.
  The
        Revolver is secured by Inyx Pharma’s and Inyx USA’s eligible receivables and
        inventory, has
        a
        three-year term and bears interest at the Westernbank prime rate plus 1.0%.
        The
        availability on the Revolver is based on a percentage of our accounts
        receivable, unbilled finished good inventory and raw and in-process inventory.
  In
        connection with the acquisition of Ashton, on August 31, 2005, we obtained
        an
        additional non-dilutive asset based secured credit facility from Westernbank
        totaling $36.5 million (“Second Westernbank Credit Facility”). This facility is
        comprised of a revolving loan of up to $11.7 million for purposes of working
        capital and a series of four term loans (Term loan “A”, “B”“C” and “D”),
        amounting in aggregate up to $24.8 million, and utilized to help fund the
        acquisition of Ashton. The Revolver is secured by Ashton’s eligible receivables
        and inventory. The term loans are collateralized by substantially all of
        our
        property and assets including those of the acquired Ashton business. Interest
        is
        based on Westernbank’s prime rate.
  The
        principal payments of loan “A”, “B” and “C” commence on December 1, 2005. All of
        the term loans mature on March 31, 2008, and are automatically renewable
        on a
        year-to-year basis unless, terminated by Westernbank or ourselves. Three
        of the
        term loans bear interest at Westernbank’s prime rate plus 2%. The fourth term
        loan (“D”) bears interest at the rate of 15% per annum; principal payments are
        based on an agreed upon formula commencing January 1, 2006.
  As
        of
        September 30, 2005 we also owed the previous owner of Ashton, UCB Pharma,
        approximately $9.8 million of the Ashton purchase price plus approximately
        $ 4.6
        million as payment for additional net current assets acquired but not considered
        when the purchase price was negotiated. The purchase price deferral is
        non-interest bearing and is payable to UCB Pharma in five equal monthly payments
        of $1,625,590 plus a final monthly payment of $1,650,050, such payments
        commencing on April 1, 2006 and ending on August 31, 2006. We do not have
        to pay
        any interest to UCB on the purchase price deferral. The excess working capital
        loan is payable in five equal installments commencing in November, 2005.
        Interest on that loan is payable on February 28, 2006 at a United Kingdom
        bank
        base rate.
 
 As
        an
        emerging specialty pharmaceutical company, we are involved in a number of
        business development projects, including research and development activities
        and
        product and corporate acquisition activities, that may require the use of
        capital resources over extended periods of time. From time to time, these
        activities may also include the use of external resources that require
        prepayment or cash deposits for supplies, products or services that we
        require.
 
 37
 We
        expect
        to be able to meet our short-term liquidity requirements through net cash
        provided by operations and borrowings under the credit facilities with
        Westernbank. We believe that these sources of cash will be sufficient to
        meet
        our Company’s operating needs and planned capital expenditures for at least the
        next twelve months.
  **Analysis
          of Cash Flows**
  For
          the Three and Nine Months Ended September 30, 2005 and 2004
  At
          September 30, 2005, we had cash of approximately $4.2 million as compared
          to
          cash of $535,000 at September 30, 2004.
  Cash
          Flows from Operating Activities for the Three
          and Nine Months Ended September 30, 2005
  The
          net
          cash utilized by operating activities for three months ended September
          30, 2005
          was approximately $5.8 million compared to approximately $6.6 million for
          the
          three months ended September 30, 2004.
  For
          the
          three months ended September 30, 2005, the net cash used in operating activities
          included a net loss of approximately $4.9 million, adjusted for non-cash
          charges
          totaling $1.4 million and consisting of depreciation and amortization costs
          of
          approximately $905,000, amortization of financing costs and debt discount
          of
          approximately $105,000, the amortization of intangible assets of approximately
          $440,000, provisions for bad debts and for stock option compensation of
          approximately $35,000 and $65,000, respectively, and for warrants issued
          for
          financing and consulting fees of approximately $160,000. Such non-cash
          charges
          were offset by approximately $30,000 in reduced stock issuance costs, a
          reserve
          for inventory obsolescence of approximately $125,000 and a provision for
          the
          issuance of warrants of approximately $160,000.
  Working
          capital changes reducing cash flow from operations were due to increases
          to our
          accounts receivables amounting to approximately $4.6 million, an increase
          in
          inventory amounting to approximately $630,000, an increase in prepaid deposits
          and other current assets and deferred customer revenues of amounting to
          approximately $685,000 and $3.7 million, respectively, both resulting from
          increasing new sales and business development and acquisition activities,
          an
          increase in deferred financing costs of approximately $2.5 million, resulting
          from the financing of our Ashton acquisition, and a decrease in a bank
          overdraft
          of approximately $405,000. Working capital changes increasing cash flow
          from
          operations were due primarily to an increase in accounts payable and accrued
          liabilities of approximately $2.8 million, resulting from longer payment
          terms
          from our vendors.
  For
          the
          nine months ended September 30, 2005 and 2004, we utilized cash of approximately
          $10.5 million and $10.9 million, respectively, for our operating
          activities.
  For
          the
          nine months ended September 30, 2005, the net cash used in operating activities
          included a net loss or approximately $17 million, adjusted for non-cash
          charges
          totaling approximately $6.8 million and consisting of approximately $1.6
          million of
          depreciation and amortization costs, approximately $2.6 million for the
          amortization of financing costs and debt discount, approximately $850,000
          for
          the amortization of intangible assets, approximately $1.6 million for the
          provision of stock issuances, a reserve for inventory obsolescence of
          approximately $120,000, a provision for stock option compensation of
          approximately $200,000 and approximately $160,000 for warrants issued for
          financing and consulting fees. Such non-cash charges were offset by
          approximately $165,000 in reduced stock issuance costs and a reduction
          in a
          provision for bad debts of approximately $65,000.
  Working
          capital changes reducing cash flow from operations were due to increases
          in our
          accounts receivables amounting to approximately $4.9 million, an increase
          in
          inventory amounting to approximately $1.0 million, an increase in prepaid
          deposits and other current assets and deferred customer revenues of amounting
          to
          approximately $1.9 million and $3.7 million, respectively, both resulting
          from
          increasing new sales and business development and acquisition activities,
          an
          increase in deferred financing costs of approximately $3.5 million, resulting
          from the financing of our two business acquisitions. Working capital changes
          increasing cash flow from operations were due primarily to an increase
          in
          accounts payable and accrued liabilities of approximately $5.1 million,
          resulting from longer payment terms from our vendors and a customer advance
          of
          approximately $1.1 million.
 38
 Cash
          Flows from Investing Activities for the Three and Nine Months Ended September
          30, 2005
  The
          net
          cash used in investing activities for three months ended September 30,
          2005 was
          approximately $28.8 million compared to approximately $13,000 for the three
          months ended September 30, 2004. Comparatively, for the nine months ended
          September 30, 2005 and 2004, the net cash used in investing activities
          amounted
          to approximately $52 million and approximately $100,000,
          respectively.
  For
          the
          three and nine months ended September 30, 2005, the primary investing activities
          were the respective acquisitions of the business assets of Aventis PR and
          the
          Ashton business. Capital expenditures for the respective periods of
          approximately $820,000 and $1.0 million, for the three and nine month periods,
          respectively, were related to construction in progress costs in preparation
          for
          a new customer contract to be serviced from our Puerto Rico manufacturing
          site.
  Cash
          Flows from Financing Activities for the Three and Nine Months Ended September
          30, 2005
  The
          net
          cash provided from financing activities for three months ended September
          30,
          2005 was approximately $38.5 million compared to approximately $6.3 million
          for
          the three months ended September 30, 2004. Comparatively, for the nine
          months
          ended September 30, 2005 and 2004, the net cash provided from financing
          activities amounted to approximately $67 million and $11 million,
          respectively.
  The
          proceeds for the three and nine months ended September 30, 2005 primarily
          consisted of proceeds and borrowings from Westernbank. Such proceeds amounted
          to
          approximately $40.8 million and approximately $81 million for the three
          and nine
          month periods, respectively. Such borrowings, including working capital
          borrowings and term debt, allowed us to purchase and operate Ashton and
          the
          business assets of Aventis PR. For the nine months ended September 30,
          2005, we
          utilized part of the proceeds from Westernbank to repay and terminate our
          convertible debt loan to Laurus Funds on March 31, 2005.
 External
          Sources of
          Liquidity
  Financing
        Activities
  For
        the
        three and nine months ended September 30, 2005, we had total indebtedness
        of
        approximately $80.5 million outstanding to Westernbank. Such outstanding
        debt
        amount consisted of approximately $24.3 million of borrowings under our working
        capital revolving line of credit, approximately $10.6 million comprising
        the
        current portion of our long term debt, and approximately $45.6 million of
        long-term debt owed to Westernbank.
  In
        aggregate and excluding a $1.0 million reserve balance, our loan limit under
        our
        credit facilities with Westernbank is approximately $87,500,000. Therefore,
        for
        the three and nine months ended September 30, 2005, we had approximately
        $7.0
        million of borrowing capacity, including approximately $2.4 million available
        under our working capital revolving line of credit, with
        Westernbank.
  For
        the
        three and nine months ended September 30, 2005, in connection with the Company's
        repayment of the $12.3 million Credit Facility with the Laurus Funds on March
        31, 2005, all of the liens and security interest in the assets of Inyx Pharma,
        held by Laurus Funds at the time, were unconditionally released and transferred
        to Westernbank pursuant to a Release Agreement between the Company and Laurus
        Funds.
  Certain
        Indebtedness and Other Matters
  As
        of
        September 30, 2005 we owed the previous owner of Ashton, UCB Pharma,
        approximately $9.8 million of the balance of the purchase price plus
        approximately $ 4.6 million as payment for additional net current assets
        acquired but not considered when the purchase price was negotiated.
  The
        purchase price deferral is non-interest bearing and is payable by us to UCB
        in
        five equal monthly payments of $1,625,590 plus a final monthly payment of
        $1,650,050, commencing on April 1, 2006 and ending on August 31, 2006. We
        do not
        have to pay any interest to UCB on the purchase price deferral. We are also
        entitled, at any time prior to payment in full of the purchase price deferral
        amount, to set-off against any of that deferral amount still due, any unpaid
        claim it may have against UCB under the share purchase agreement of Ashton.
        As
        security collateral for the purchase price deferral, and to be released upon
        full payment of that deferral, we granted UCB a secondary security position
        over
        our Company’s assets behind Westernbank’s current first security position.
        Westernbank and UCB have also agreed to an inter-creditor agreement to be
        terminated upon full payment of the purchase price deferral. The excess of
        the
        working capital loan, amounting to approximately $4.6 million, is payable
        in
        five equal installments commencing in November, 2005. Interest on this loan
        is
        payable on February 28, 2006 at a United Kingdom bank base rate.
  39
 In
        addition to our credit facilities, as noted above, our Company’s stockholders
        have periodically advanced and received repayment of funds loaned to our
        Company. We have utilized such stockholder loans to support operations, settle
        outstanding trade accounts payable and for general working capital purposes.
        Such loans are usually advanced on a short-term basis. As of September 30,
        2005,
        the outstanding amount owed to such stockholders was approximately $700,000
        in
        principal and interest.
  As
        of
        September 30, 2005, we have capital lease obligations amounting to approximately
        $141,000 for two capital leases. These leases include computer equipment
        and
        copier equipment. The major component of these capital lease costs is our
        new
        business information technology system, the Sage 500 Management Information
        System (Sage 500 MIS), which has now become operational. The lease for the
        Sage
        500 MIS will expire by 2006 and is guaranteed by our Chairman/CEO.
  For
        the
        nine and three months ended September 30, 2005, interest and financing costs
        amounted to approximately $6.1 million and $1.5 million, respectively, which
        included the acceleration of deferred charges, debt discount, an early
        termination penalty and additional warrants issued to Laurus Funds totaling
        approximately $3.8 million and approximately $451,000 and $915,000,
        respectively, in fees related to the Company’s 2004 equity financing activities.
        The weighted average interest rate paid on the gross outstanding debt during
        the
        period was approximately 8.0%.
  In
        comparison, for the nine and three months ended September 30, 2004, the total
        amount of interest and financing costs expensed on all of our Company’s
        borrowings amounted to approximately $1.3 million and $595,000, respectively.
        For the three months ended September 30, 2005, interest expense amounted
        to
        approximately $262,000 and approximately $436,000 in amortization of debt
        discount and beneficial conversion on the warrants to Laurus Funds. Similarly,
        for the nine months ended September 30, 2004, interest expense amounted to
        approximately $480,000 and approximately $1.2 million in amortization of
        debt
        discount and beneficial conversion on the warrants issued to Laurus Funds.
        For
        the nine months ended September 30, 2004, the weighted average interest rate
        paid on gross outstanding debt during the period was approximately 6.8%.
  Capital
        Expenditures
  For
        the
        three and nine months ended September 30, 2005, capital expenditures of
        approximately $42.2 million and approximately $65.4 million, respectively,
        related primarily to the acquisition of tangible and intangible identifiable
        assets associated with our acquisitions of the business assets of Aventis
        PR and
        the Ashton operation, on March 31, 2005 and August 31, 2005, respectively.
  On
        a
        short-term basis, the recent financings, including the capital expenditure
        and
        business acquisition and working capital credit facilities from Westernbank
        have
        provided us with sufficient capital to fund our immediate capital expenditure
        plans.
  We
        will
        require approximately $10.0 million in capital expenditure funding over the
        next
        twenty-four months in order to continue to improve our pharmaceutical
        manufacturing technologies, production capabilities, and plant quality and
        safety systems so that we are able to pursue expanding commercial and product
        manufacturing opportunities with existing and potential multinational
        pharmaceutical and biotechnology clients. Our current credit facilities with
        Westernbank provides for up to $5.0 million in funding new capital equipment
        purchases. For the three and nine months ended September 30, 2005, we have
        drawn
        approximately $1.9 million of that line for required capital
        expenditures.
  40
 On
        a
        longer term basis, in order to continue to strengthen our position in the
        pharmaceutical aerosol drug delivery sector, we will require further capital
        expenditures to enhance our aerosol manufacturing and quality control systems
        at
        our manufacturing facilities. We estimate that on a longer term basis we
        will
        require approximately $15 million over five years, for such expenditures.
        These
        include expenditures for new filling and packaging equipment and production
        facility enhancements to enhance our capabilities to introduce new
        pharmaceutical aerosol products for increasing market opportunities in the
        respiratory sector including dry powder inhaler manufacturing technology,
        isobutane filling capabilities and sterile filling technologies.
  Planned
        investments will also be to support the maintenance of our facilities to
        meet
        ongoing regulatory compliance requirements, including adherence to good
        manufacturing practice, and the health, safety and environmental aspects
        of our
        pharmaceutical operations.
  Future
        Commitments
  As
        of
        September 30, 2005, we have commitments under various long-term lease agreements
        for premises including those for our office and development and production
        facilities. These property leases range from one to fifteen years depending
        on
        the specific property. We also have a number of operating and capital leases
        for
        office equipment, fork lifts and staff automobiles in North America, the
        United
        Kingdom and in Puerto Rico.
  As
        of
        September 30, 2005, we had operating lease contractual obligations totaling
        approximately $3.7 million due to various vendors over the next ten years.
  As
        of
        September 30, 2005, the Company has billed approximately $11.8 million for
        services to be provided. The revenues are recognized into income as services
        are
        performed.
  With
        regard to our vendor and suppliers, due to the purchase of Inyx Pharma’s assets
        out of a United Kingdom bankruptcy protection process, we continue to be
        on
        pre-payments and cash on delivery (COD) payment terms with a number of our
        suppliers in Europe. These include all of our key component suppliers, including
        Cebal, which provides us with cans; Perfect Valois, which provides valves
        for
        aerosol pharmaceutical products; Lablabo, which provides actuators for steroidal
        foam products; Bespak, which provides valves for pharmaceutical respiratory
        inhaler devices; Precision Valve which provides aerosol valves; and Nussbaum
        & Guhl, which also provides cans. As a number of these vendors also supply
        Aventis PR, our Inyx USA subsidiary is also on such pre-payment or COD payment
        terms with Perfect Valois and Bespak.
  As
        a
        specialty pharmaceutical company, we are also involved in a number of business
        development projects including research and development activities, intellectual
        property and business acquisitions and investments, and strategic product
        marketing collaborations, that may require the use of capital resources over
        extended periods of time. From time to time, these activities may also include
        the use of external resources that require prepayment or cash deposits for
        supplies, products or services that we require. As we continue to intensify
        such
        activities in order to grow our Company, our capital requirements and/or
        future
        commitments may increase accordingly.
  **Subsequent
        Events**
  Subsequent
        to September 30, 2005, the Company issued three Promissory notes for an
        aggregate amount of approximately $607,000 to Westernbank against the Term
        Loan
        A facility collateralized by our Company’s capital expenditures. The term loan
        bears interest of prime plus 2% with monthly principal repayments starting
        on
        April1, 2007. Interest payments are due monthly commencing November 1,
        2005.
  On
        March
        31, 2005, pursuant to our acquisition of the business assets of Aventis PR
        and
        in relation to certain customer contracts transferred to us, sanofi-aventis
        Group advanced us, on a one time basis, $3.5 million for manufacturing, product
        support and business transition and development services to be provided from
        our
        Inyx USA Puerto Rico facility. For the nine months ended September 30, 2005,
        our
        Company recorded extraordinary income, net of costs and accrued interest,
        of
        approximately $917,000 for the services provided under such advance. As of
        September 30, 2005, approximately $1.2 million of the advance remained deferred.
        On November 14, 2005, we agreed to repay that advance to sanofi-aventis.
        Including accrued interest and related financing costs of approximately
        $411,000, the Company has agreed to repay $1,645,000 to
        sanofi-aventis.
  41
 **Item
        3. Quantitative and Qualitative Information About Market
        Risk**
  In
        the
        ordinary course of our business, we could be subjected to a variety of market
        risks, examples of which include, but are not limited to, interest rate
        movements as borrowings under our credit facilities bear interest based on
        prime
        rate and foreign currency fluctuations as we have operations in the United
        Kingdom and trade in the European community. We continuously assess these
        risks
        and have established policies and procedures to protect against the adverse
        effects of these and other potential exposures. Although we do not anticipate
        any material losses in these risk areas, no assurance can be made that material
        losses will not be incurred in these areas in the future.
  Foreign
        Exchange Rate Risk. Our functional currency is the U.S. Dollar; the financial
        statements of our Company’s operating subsidiaries with a functional currency
        other than U.S. dollars are translated into U.S. dollars using the current
        rate
        method. Accordingly, assets and liabilities are translated at period-end
        exchange rates, while revenues and expenses are translated at the period’s
        average exchange rates. Adjustments resulting from these translations are
        accumulated and reported as a component of accumulated other comprehensive
        loss
        in stockholders’ equity.
  We
        neither hold nor issue financial instruments for trading purposes and we
        do not
        currently engage in any hedging activities designed to stabilize the risks
        of
        foreign currency fluctuations. Such fluctuations could adversely affect the
        value of our revenues and the results of our operations stated in U.S. Dollars.
        We intend to implement hedging transactions with a major financial institution
        in 2006 in order to alleviate such risks.
  Interest
        Rate Risk. The principal value of long-term debt as of September 30, 2005,
        including current maturities approximated $80.5 million, primarily the
        Westernbank debt. A hypothetical 1% increase in the prime interest rate
        applicable to our long-term debt at September 30, 2005 would be approximately
        $850,000 or 11% of the carrying value.
  **Item
        4. Controls and Procedures**
  a) Management is responsible for establishing and maintaining adequate internal
        control over financial reporting. Internal control over financial reporting
        is a
        process designed to provide reasonable assurance regarding the reliability
        of
        financial reporting and the preparation of financial statements for external
        purposes in accordance with generally accepted accounting principles. All
        internal control systems have inherent limitations. Therefore, internal control
        over financial reporting, no matter how well-designed, may not prevent or
        detect
        misstatements. Also, controls may become inadequate in future periods because
        of
        changes in conditions, or the degree of compliance with the policies or
        procedures may deteriorate.
 
 b) Based
        on
        information presented to them by our management team, the two Executive Officers
        responsible for the financial reporting and disclosure are involved in the
        decision making process for our Company’s material transactions. Within the
        90-day period prior to the date of this report, we carried out an evaluation,
        under the supervision and with the participation of our management and
        independent board members of the effectiveness of the design and operation
        of
        our disclosure controls and procedures pursuant to Rule 13a-14 of the Securities
        Exchange Act of 1934 (the "Exchange Act"). Based upon that evaluation, we
        have
        concluded that our disclosure controls and procedures are effective in timely
        alerting management to material information relating to our Company required
        to
        be included in our Exchange Act filings.
 
 c)
        There
        have been no significant changes in our internal controls or in other factors,
        which could significantly affect internal controls subsequent to the date
        we
        carried out our evaluation.
  42
 
 **PART
        II — OTHER INFORMATION**
  **Item
        5.  Exhibits**
 10.4.11
                
                Employment
                    Agreement with Stephen Beckman*10.38.1
                
                Collaboration
                    Agreement dated September 8, 2005 between Registrant and King
                    Pharmaceuticals, Inc.*10.38.2
                
                Manufacturing
                    and Supply Agreement dated September 8, 2005 between Registrant
                    and King
                    Pharmaceuticals, Inc.*10.38.3
                
                Technical
                    Transfer Agreement dated September 8, 2005 between Registrant
                    and King
                    Pharmaceuticals, Inc.*10.38.4
                
                Marketing
                    and Promotion Agreement dated September 8, 2005 between Registrant
                    and
                    King Pharmaceuticals, Inc.*10.38.5
                
                Development
                    Agreement dated September 8, 2005 between Registrant and King
                    Pharmaceuticals, Inc.10.38.6
                
                Pharmaceutical
                    Quality Agreement dated September 8, 2005 between Registrant
                    and King
                    Pharmaceuticals, Inc.31.1
                
                Certification
                    of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
                    2002.31.2
                
                Certification
                    of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
                    2002.32.1
                
                Certification
                    of CEO pursuant to 18 USC Section 1350 as adopted by Section
                    906 of the
                    Sarbanes-Oxley Act of 2002.32.2
                
                Certification
                    of CFO pursuant to 18 USC Section 1350 as adopted by Section
                    906 of the
                    Sarbanes-Oxley Act of 2002
 
  *Confidentiality
        has been requested with respect to certain provisions of this
        Agreement.
  **SIGNATURES**
  In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
  Date:  November
        22, 2005
 INYX,
                INC.By:
              /s/ Rima
                GoldshmidtRima
                Goldshmidt,Vice
                    President and Chief Accounting Officer
 
  43