**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 June 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 ].




**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 August 12, 2005: 39,983,983 shares of common stock.










PART
      I —
      FINANCIAL INFORMATION









Item
      1. FINANCIAL STATEMENTS




Consolidated
                  Balance Sheets as of June 30, 2005 and December 31, 2004;
              F-2Consolidated
                  Statements of Operations for the three and six months ended June
                  30, 2005
                  and 2004;
              F-3Consolidated
                  Statements of Cash Flows for three and six months ended June 30,
                  2005 and
                  2004;
              F-4Notes
                  to Consolidated Financial Statements
              F-5


F-1




**INYX,
      INC.**


**Consolidated
      Balance Sheets**


**(Expressed
      in thousands of U.S. dollars, except per share amounts)**




**June
                  30,**
              
              **December
                  31,****2005**
              
              **2004****(Unaudited)****Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              1,120
              
              $
              336Accounts
                  receivable, net
              
              
              2,088
              
              
              1,697Inventory,
                  net
              
              
              4,022
              
              
              1,520Prepaid
                  expenses and other current assets
              
              
              3,746
              
              
              2,571Total
                  current assets
              
              
              10,976
              
              
              6,124Property,
                  plant and equipment, net
              
              
              19,355
              
              
              6,230Deferred
                  financing costs, net
              
              
              854
              
              
              651Other
                  assets
              
              
              24
              
              
              45Purchased
                  intangible assets, net
              
              
              8,668
              
              
              1,70528,901
              
              
              8,631Total
                  assets
              
              $
              39,877
              
              $
              14,755**Liabilities
                  and Stockholders' Deficit**Current
                  liabilities:Bank
                  overdraft
              
              $
              404
              
              $
              -Accounts
                  payable
              
              
              4,804
              
              
              4,091Accrued
                  expenses and other current liabilities
              
              
              3,501
              
              
              1,636Customer
                  advance
              
              
              1,234
              
              
              108Debt
                  refinanced, net of discount
              
              
              -
              
              
              10,395Current
                  portion of long-term debt
              
              
              15,061
              
              
              4,277Total
                  current liabilities
              
              
              25,004
              
              
              20,507Long-term
                  debt, net of current portion
              
              
              29,997
              
              
              113Total
                  liabilities
              
              
              55,001
              
              
              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,
                  39,983,983 shares issued and outstandingat
                  June 30, 2005; 38,012,479 shares issued andand
                  outstanding at December 31, 2004
              
              
              40
              
              
              38Additional
                  paid-in capital
              
              
              27,006
              
              
              25,275Accumulated
                  deficit
              
              
              (41,456
              )
              
              (30,334
              )Subscriptions
                  receivable
              
              
              (343
              )
              
              (343
              )Accumulated
                  other comprehensive loss -foreign
                  currency translation adjustment
              
              
              (371
              )
              
              (501
              )Total
                  stockholders' deficit
              
              
              (15,124
              )
              
              (5,865
              )Total
                  liabilities and stockholders' deficit
              
              $
              39,877
              
              $
              14,755




The
      accompanying notes are an integral part of these consolidated financial
      statements.





F
            -2




**INYX,
      INC.**


**Consolidated
      Statements of Operations**


**(Expressed
      in thousands of U.S. dollars)**




**For
                  the Six Months Ended June 30,**
              
              **For
                  the Three Months Ended June 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****(Unaudited)**
              
              **(Unaudited)**Net
                  revenues
              
              $
              11,178
              
              $
              7,300
              
              $
              8,501
              
              $
              2,774Cost
                  of sales
              
              
              8,399
              
              
              6,821
              
              
              5,864
              
              
              2,910Gross
                  profit
              
              
              2,779
              
              
              479
              
              
              2,637
              
              
              (136
              )Operating
                  expenses:Research
                  and development
              
              
              947
              
              
              399
              
              
              590
              
              
              112General
                  and administrative
              
              
              6,426
              
              
              4,299
              
              
              4,585
              
              
              2,195Selling
              
              
              174
              
              
              160
              
              
              40
              
              
              76Depreciation
                  and amortization
              
              
              716
              
              
              276
              
              
              555
              
              
              124Amortization
                  of intangible assets
              
              
              409
              
              
              84
              
              
              362
              
              
              42Total
                  operating expenses
              
              
              8,672
              
              
              5,218
              
              
              6,132
              
              
              2,549Loss
                  from operations before interest and financingcosts
                  and income tax benefit and extraordinary item
              
              
              (5,893
              )
              
              (4,739
              )
              
              (3,495
              )
              
              (2,685
              )Interest
                  and financing costs (Note 12)
              
              
              6,146
              
              
              1,724
              
              
              1,534
              
              
              698Loss
                  before income tax benefit and extraordinary item
              
              
              (12,039
              )
              
              (6,463
              )
              
              (5,029
              )
              
              (3,383
              )Income
                  tax benefit
              
              
              -
              
              
              393
              
              
              -
              
              
              -Net
                  loss before extraordinary item
              
              $
              (12,039
              )
              $
              (6,070
              )
              $
              (5,029
              )
              $
              (3,383
              )Extraordinary
                  item, net of taxes
              
              
              917
              
              
              -
              
              
              917
              
              
              -Net
                  loss
              
              
              (11,122
              )
              
              (6,070
              )
              
              (4,112
              )
              
              (3,383
              )Basic
                  and fully diluted loss per share beforeextraordinary
                  item
              
              $
              (0.31
              )
              $
              (0.21
              )
              $
              (0.12
              )
              $
              (0.12
              )Basic
                  and fully diluted income from extraordinary item
              
              
              0.02
              
              
              -
              
              
              0.02
              
              
              -Basic
                  and fully diluted loss per share
              
              $
              (0.28
              )
              $
              (0.21
              )
              $
              (0.10
              )
              $
              (0.12
              )Weighted-average
                  number of shares used in computingbasic
                  and fully diluted loss per share amounts
              
              
              39,144,672
              
              
              28,747,582
              
              
              39,983,983
              
              
              28,747,582




The
      accompanying notes are an integral part of these consolidated financial
      statements.




F-3




**INYX,
        INC.**
 **Consolidated
        Statements of Cash Flows**
 **(Expressed
        in thousands of U.S. dollars)**




**For
                  the Six Months Ended June 30,**
              
              **For
                  the Three Months Ended June 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****(Unaudited)**
              
              **(Unaudited)**Cash
                  flows from operating activities:Net
                  loss before extraordinary item
              
              $
              (12,039
              )
              $
              (6,070
              )
              $
              (5,029
              )
              $
              (3,383
              )Income
                  from extraordinary item
              
              
              917
              
              
              -
              
              
              917
              
              
              -Net
                  loss for the period
              
              
              (11,122
              )
              
              (6,070
              )
              
              (4,112
              )
              
              (3,383
              )Adjustments
                  to reconcile net loss to net cashused
                  in operating activities:Depreciation
                  and amortization
              
              
              716
              
              
              276
              
              
              555
              
              
              124Amortization
                  of financing costs and debt discount
              
              
              2,455
              
              
              1,231
              
              
              65
              
              
              407Amortization
                  of intangible assets
              
              
              409
              
              
              84
              
              
              362
              
              
              42Deferred
                  tax asset
              
              
              -
              
              
              (393
              )
              
              -
              
              
              -Issuance
                  of stock for termination fees and
                conversion
                  of debt
              
              
              1,578
              
              
              -
              
              
              -
              
              
              -Provision
                  for bad debts
              
              
              (96
              )
              
              53
              
              
              (120
              )
              
              52Reserve
                  for inventory obsolescence
              
              
              239
              
              
              (217
              )
              
              175
              
              
              (603
              )Stock
                  option compensation
              
              
              131
              
              
              161
              
              
              65
              
              
              95Warrants
                  issued for financing & consulting fees
              
              
              162
              
              
              49
              
              
              -
              
              
              49Issuance
                  of shares for exercise of stock options
              
              
              -
              
              
              290
              
              
              -
              
              
              -Subscription
                  receivable
              
              
              -
              
              
              (293
              )
              
              -
              
              
              -Changes
                  in assets and liabilities:(Increase)
                  decrease in accounts receivables
              
              
              (295
              )
              
              1,867
              
              
              (1,106
              )
              
              1,763(Increase)
                  decrease in inventory
              
              
              (407
              )
              
              206
              
              
              (549
              )
              
              418(Increase
                  ) decrease in prepaid and other current assets
              
              
              (1,175
              )
              
              (2,681
              )
              
              (2,602
              )
              
              (1,373
              )(Increase)
                  in deferred financing costs
              
              
              (919
              )
              
              (126
              )
              
              (222
              )
              
              (19
              )Decrease
                  in other assets
              
              
              21
              
              
              -
              
              
              5
              
              
              -Increase
                  in bank overdraft
              
              
              404
              
              
              51
              
              
              404
              
              
              51Increase
                  in accounts payable and accrued liabilities
              
              
              2,229
              
              
              1,399
              
              
              548
              
              
              1,265Increase
                  (decrease) in customer advance
              
              
              1,126
              
              
              (276
              )
              
              (2,266
              )
              
              (85
              )Net
                  cash used in operating activities
              
              
              (4,544
              )
              
              (4,389
              )
              
              (8,798
              )
              
              (1,197
              )Cash
                  flows from investing activities:Purchase
                  of property, plant and equipment
              
              
              (163
              )
              
              (84
              )
              
              (43
              )
              
              (26
              )Acquisition
                  of Aventis Pharmaceuticals, Puerto Rico
              
              
              (23,035
              )
              
              -
              
              
              (291
              )
              
              -Net
                  cash used in investing activities
              
              
              (23,198
              )
              
              (84
              )
              
              (334
              )
              
              (26
              )Cash
                  flows from financing activities:Borrowings
                  under revolving line of credit, net of fees
              
              
              8,490
              
              
              3,363
              
              
              6,067
              
              
              157Proceeds
                  from issuance of long term debt to Westernbank
              
              
              29,918
              
              
              -
              
              
              731
              
              
              -Proceeds
                  from issuance of long term debt (current portion),to
                  Westernbank
              
              
              1,813
              
              
              -
              
              
              -
              
              
              -Proceeds
                  from issuance of long term debt to Laurus Funds
              
              
              -
              
              
              500
              
              
              -
              
              
              500Repayment
                  of long term debt and revolving line of credit toLaurus
                  Funds
              
              
              (10,395
              )
              
              -
              
              
              -
              
              
              -Payment
                  of fees on long-term debt and revolving line ofcredit
                  to Laurus Funds
              
              
              (1,739
              )
              
              -
              
              
              -
              
              
              -Proceeds
                  from issuance of demand notes to shareholders
              
              
              600
              
              
              -
              
              
              -
              
              
              -Repayment
                  of demand notes to shareholders
              
              
              (67
              )
              
              -
              
              
              -
              
              
              -Cost
                  of registering stock (SB2 registration)
              
              
              (138
              )
              
              -
              
              
              (56
              )
              
              -Repayment
                  of capital lease obligation
              
              
              (86
              )
              
              (76
              )
              
              (44
              )
              
              (42
              )Net
                  cash provided by financing activities
              
              
              28,396
              
              
              3,787
              
              
              6,698
              
              
              615Effect
                  of foreign exchange rate changeson
                  cash and cash equivalents
              
              
              130
              
              
              (74
              )
              
              277
              
              
              (109
              )Increase(decrease)
                  in cash and cash equivqlents
              
              
              784
              
              
              (760
              )
              
              (2,157
              )
              
              (717
              )Cash
                  and cash equivqlents at beginning of period
              
              
              336
              
              
              796
              
              
              3,277
              
              
              753Cash
                  and cash equivqlents at end of period
              
              $
              1,120
              
              $
              36
              
              $
              1,120
              
              $
              36




The
      accompanying notes are an integral part of these consolidated financial
      statements.




F-4




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts are expressed in thousands of U.S. dollars)**
  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, dermatological and topical conditions. Inyx’s client base
      primarily consists of large ethical pharmaceutical corporations, branded generic
      pharmaceutical distributors, and biotechnology 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. (“Aventis
      Pharmaceuticals”) 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.
      Aventis PR previously manufactured pharmaceutical products in accordance with
      a
      contract manufacturing agreement with its parent company. The operating results
      of the acquired business are included in the Company’s consolidated results
      effective April 1, 2005 (day after acquisition).




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 our
      consolidated financial statements for the year ended December 31, 2004. The
      accompanying consolidated financial statements for the three and six months
      ended June 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 three and six months ended June 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 our annual report on Form 10-KSB for the
      year ended December 31, 2004.




All
      intercompany 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.




NOTE
      3 :  ACQUISITION
      OF AVENTIS PHARMACEUTICALS




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, 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 “Westernbank Credit
      Facility” (See Note 12).




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.




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:




F-5




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts are expressed in thousands of U.S. dollars)**


Fair
                      Value ofAssetsacquired
              
              Allocation
                      ofnegativegoodwill
              
              Allocation
                      ofPurchase priceof 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:  CASH
      AND CASH EQUIVALENTS




Cash
      and
      cash equivalents include cash in checking accounts and restricted cash in
      interest bearing escrow account. Cash and cash equivalents as of June 30, 2005
      included restricted cash held in an escrow account totaling approximately
      $606,000 and $500,000 committed for business development
      activities.




NOTE
      5:  ACCOUNTS RECEIVABLE, NET




Accounts
      receivable consist of the following:


June
                30,
              2005
              (Unaudited)
            
            December
                31,
              2004Trade
                receivables
            
            $
            2,144
            
            $
            1,849Less
                allowance for doubtful accounts
            
            
            (56
            )
            
            (152
            )$
            2,088
            
            $
            1,697







As
      of
      June 30, 2005 the Company had billed certain customers $8.0 million in advance
      for services to be provided pursuant to arrangements under contract
      manufacturing agreements that it has in place. These amounts have been offset
      against deferred revenues for financial statement presentation
      purposes.




There
      was
      a bad debt expense recovery of $120,000 (2004 - $52,000) and $96,000 (2004
      -
      $111,000) for the three and six months ended June 30, 2005,
      respectively.




NOTE
      6:  INVENTORY,
      NET




Inventory
      is comprised of the following:




June
                30,
              2005
              (Unaudited)
            
            December
                31,
              2004Finished
                goods
            
            $
            160
            
            $
            107Work
                in process
            
            
            90
            
            
            551Raw
                materials
            
            
            4,487
            
            
            1,3384,737
            
            
            1,996Less
                provision for obsolescence
            
            
            (715
            )
            
            (476
            )$
            4,022
            
            $
            1,520




F-6




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts are expressed in thousands of U.S. dollars)**


NOTE
      7:  PREPAIDS
      AND OTHER CURRENT ASSETS




Prepaid
      and other current assets as of June 30, 2005 and December 31, 2004 were
      approximately $3.7 million and $2.6 million, respectively. These balances
      represent amounts paid by the Company for business development activities and
      strategic acquisition activities that the Company is currently undertaking.
      The
      Company expects to complete such transactions within the next twelve
      months.




N OTE
      8 :  PROPERTY,
      PLANT AND EQUIPMENT, NET




Property,
      plant and equipment **** consist
      of the following:




June
                30,
              2005
              (Unaudited)
            
            December
                31, 2004Land
            
            $
            1,569
            
            $
            546Buildings
            
            
            5,336
            
            
            1,059Machinery,
                equipment and office furniture
            
            
            11,482
            
            
            3,541Computer
                hardware and software
            
            
            200
            
            
            10218,587
            
            
            5,248Less
                accumulated depreciation
            
            
            (1,583
            )
            
            (898
            )17,004
            
            
            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
            
            
            -$
            19,355
            
            $
            6,230




For
      the
      three and six months ended June 30, 2005, depreciation of property, plant and
      equipment was approximately $539,000 (2004 - $101,000) and $685,000 (2004 -
      $239,000), respectively. Amortization for equipment under capital leases was
      approximately $16,000 (2004 - $14,000) and $31,000 (2004 - $28,000) for the
      three and six months ended June 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. 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 $3.0
      million over the next two years. As of June 30, 2005, the Company has
      approximately $147,000 of outstanding commitments relating to these projects.




NOTE
      9 :  DEFERRED
      FINANCING 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 new 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
      June 30, 2005, the deferred financing costs, net are related to the Westernbank
      Credit Facility and will be amortized over a three year period.




Deferred
      financing costs, net consist of the following:






F-7




**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
        amounts are expressed in thousands of U.S. dollars)**




June
                30,
              2005
              (Unaudited)
            
            December
                31,
              2004Deferred
                financing costs
            
            $
            919
            
            $
            1,027Less
                accumulated amortization
            
            
            (65
            )
            
            (376
            )$
            854
            
            $
            651







For
      the
      three and six months ended June 30, 2005, the amortization of deferred financing
      costs approximated $65,000 (2004 - $86,000) and $716,000 (2004 - $163,000),
      respectively.




NOTE
      10 :  PURCHASED
      INTANGIBLE ASSETS, NET




Purchased
      intangible assets consist of the following:


June
                30,
              2005
              (Unaudited)
            
            December
                31,
              2004Intangible
                assets subject to amortization:Customer
                Relationships (accelerated 10 year life)
            
            $
            5,756
            
            $
            -Customer
                Contracts (straight line 3 year life)
            
            
            1,616
            
            
            -Customer
                list (straight line 12 year life)
            
            
            1,280
            
            
            1,280Know-how
                (straight line 10 year life)
            
            
            598
            
            
            598Patent
                (straight line 7 year life)
            
            
            132
            
            
            1329,382
            
            
            2,010Less
                accumulated amortization
            
            
            (714
            )
            
            (305
            )$
            8,668
            
            $
            1,705




Intangible
      assets subject to amortization




Purchased
      intangible assets are carried at cost less accumulated amortization. For the
      three and six months ended June 30, 2005, amortization expense related to
      intangible assets totaled approximately $362,000 (2004 - $42,000) and $409,000
      (2004 - $84,000), respectively. The aggregate estimated amortization expense
      for
      intangible assets as of June 30, 2005 for each of the following five years
      and
      thereafter is as follows:




2005
            
            $
            7222006
            
            
            1,4282007
            
            
            1,4072008
            
            
            9792009
            
            
            818Thereafter
            
            
            3,314Total
            
            $
            8,668







NOTE
      11:  CUSTOMER
      ADVANCE




As
      of
      June 30, 2005, the Company has a customer advance of approximately $1.2
      million  for services to be provided to sanofi-aventis Group.
      The advance will be recognized as revenue at a later date or repaid
      (including accrued interest at a rate of 10%) if services are not
      provided.




Customer
      advance of $108,000 at December 31, 2004 related to an advance from
      Stiefel
      Laboratories, Inc. (“Stiefel”) for services that were carried out during the
      first three months of 2005.




F-8




**NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
          amounts are expressed in thousands of U.S. dollars)**


NOTE
      12:  LONG-TERM
      DEBT, NET OF CURRENT PORTION




Long-term
      debt, net of current portion consists of the following:




June
                30,
              2005
              (Unaudited)
            
            December
                31, 2004Prime
                + 1% Secured Revolving loan due to Westernbank
            
            $
            8,490
            
            $
            -Prime
                + 2% Secured Term Promissory Note A issue to Westernbank
            
            
            731
            
            
            -Prime
                + 2% Secured Term Promissory Note B issue to Westernbank
            
            
            14,200
            
            
            -Prime
                + 2% Secured Term Promissory Note C issue to Westernbank
            
            
            11,800
            
            
            -15%
                Term loan D Promissory Note issued to Westernbank
            
            
            5,000
            
            
            -Revolving
                line of credit due to Laurus Funds, net of debt discount of $0 at
                March
                31, 2005
              and
                $740,000 atDecember
                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
            
            
            4,013
            
            
            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
            
            
            141
            
            
            22745,058
            
            
            14,785Less
                debt refinanced, net of discount
            
            
            -
            
            
            (10,395
            )Less
                current portion
            
            
            (15,061
            )
            
            (4,277
            )Long-term
                debt, net of current portion
            
            $
            29,997
            
            $
            113







On
      March
      31, 2005 the Company obtained a new non-dilutive asset based secured credit
      facility from Westernbank Puerto Rico totaling $46 million. The facility is
      comprised of a revolving loan (the “Revolver”) of up to $10 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 assets of Aventis PR, and a
      mezzanine loan (Term loan “D”) of up to $5 million for the purpose of funding
      construction or new equipment. The revolver is secured by the eligible
      receivables and inventory. The term notes are collateralized by substantially
      all the property of the Company and its subsidiaries whether now owned or
      thereafter to be acquired. Interest is based on Westernbank’s prime rate. The
      prime rate at June 30, 2005 was 6.0%. On July 1, 2005, the Company paid the
      first principal payment relating to the Secured Promissory Notes B, C and D,
      amounting in aggregate to approximately $386,000.




The
      Westernbank Credit Facility is 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.




On
      March
      31, 2005, the Company accelerated its amortization of deferred charges of
      approximately $651,000, debt discount of approximately $1.4 million and recorded
      an early termination fee of $1.6 million related to the repayment of the debt
      to
      Laurus Funds.




NOTE
      13:  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.




F-9




**NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
          amounts are expressed in thousands of U.S. dollars)**
  Accordingly,
          as of June 30, 2005 and December 31, 2004,
          the Company had common stock equivalents of approximately 25,055,687 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 June 30, 2005.


NOTE
      14:  COMMITMENTS
      AND CONTINGENCIES




Leases:




The
      Company has commitments under various long-term operating lease agreements
      for
      various premises. For the three and six months ended June 30, 2005, total rent
      of office space was approximately $41,000 (2004 - $36,000) and $81,000 (2004
      -
      $72,000), respectively. In addition to rent, the Company and its subsidiaries
      are responsible for operating costs, real estate taxes and insurance. As of
      June
      30, 2005, future minimum annual rental commitments under operating leases are
      as
      follows:




2005
            
            $
            2642006
            
            
            4032007
            
            
            3762008
            
            
            1792009
            
            
            94Thereafter
            
            
            1,099Total
            
            $
            2,415




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.




Other:




As
      of
      June 30, 2005, the Company has approximately $147,000 of outstanding commitments
      related to capital projects currently in progress.




NOTE
      15:  SUBSEQUENT
      EVENTS




The
      Company approached Stiefel Laboratories Inc. (“Stiefel”) in June 2005 with a
      request to restructure the payments under its 6% uncollateralized Promissory
      Note to Stiefel. In the course of such discussions the Company did not make
      the
      first restructured note payment on June 30, 2005, and Stiefel accelerated the
      repayment of the balance of the Stiefel Note. The
      Company subsequently paid the June 30 installment in July 2005, and on
      August 16, 2005, ,the Company reached an agreement with Stiefel to repay the
      outstanding balance on the Stiefel Note with interest no later than September
      9,
      2005.




Subsequent
      to June 30, 2005, the Company issued two Promissory notes for an aggregate
      amount of approximately $837,000 to Westernbank against the Term Loan A facility
      collateralized by the Company’s capital expenditures. The term loan bears
      interest of prime plus 2% with monthly principal repayments starting on August
      1, 2005. Interest payments are due monthly starting August 1, 2005.




Subsequent
      to June 30, 2005, the Company finalized the resolution of certain adjustments
      associated with the purchase of the business assets of Aventis Puerto Rico.
      The
      adjustments resulted in a payment of approximately $570,000 to
      sanofi-aventis Group. The purchase price allocation was adjusted accordingly.




F-10




**NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
          amounts are expressed in thousands of U.S.
          dollars)**




NOTE
      16:  STOCKHOLDERS’
      DEFICIT




Between
      the period of January 14, 2005 and January 26, 2005 the Company issued 380,000
      shares of its restricted common stock as payment of $304,000 of principal due
      under the Laurus Note. On February 28, 2005, the Company issued 300,000
      five-year stock purchase warrants to Laurus in conjunction with a waiver
      received for any Events of Default. 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. Subsequently, 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.




During
      the three and six months ended June 30, 2005, the Company recorded approximately
      $66,000 and $131,000, 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.




NOTE
      17:  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
      18 :  WARRANTS




The
      Company did not issue any warrants for the three months ended June 30, 2005. During
      the six months ended June 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 six months ended June 30, 2005.




Comparatively,
      for the three and six months ended June 30, 2004, the Company issued 182,500
      and
      495,000 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 prices ranging from $1.00 to $1.75 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 $84,000 and $413,000 for the three and six months ended June
      30,
      2004 and was charged as interest and financing costs to the Company’s
      consolidated statement of operations for the three and six months ended June
      30,
      2004.







F-11




**NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Tabular
          amounts are expressed in thousands of U.S. dollars)**


NOTE
      19:  SUPPLEMENTAL
      CASH FLOW INFORMATION




For
                  the Six Months Ended June 30,
              
              For
                  the Three Months Ended June 30,2005
              
              2004
              
              2005
              2004(Unaudited)
              
              (Unaudited)**Supplemental
                  Disclosure of Cash Flow Information:**Cash
                  paid during the period for interest
              
              $
              1,167
              
              $
              32
              
              $
              523
              
              $
              4**Supplemental
                  Disclosure of Non-Cash Financing Activities:**Issuance
                  of 380,000 shares as payment of debt and issuanceof
                  1,591,504 of shares for payment of termination fees toLaurus
                  Funds (conversion price of $0.80 per share)
              
              
              1,578
              
              
              -
              
              
              -
              
              
              -Issuance
                  of stock options
              
              
              131
              
              
              161
              
              
              65
              
              
              95Issuance
                  of stock for services
              
              
              162
              
              
              49
              
              
              -
              
              
              49Warrants
                  issued for consulting and financing fees
              
              
              -
              
              
              773
              
              
              -
              
              
              224Write-off
                  of unamortized beneficial conversion feature
                related
                  to retired  Laurus Funds debt.
              
              
              1,431
              
              
              -
              
              
              -
              
              
              -Write-off
                  of unamortized debt discount related toretiredLaurus
                  Funds debt
              
              
              651
              
              
              -
              
              
              -
              
              
              -**Supplemental
                  Disclosure of Non-Cash Investing Activities**Acquisition
                  of property, plant and equipment,
                under
                  construction in progress
              
              
              349
              
              
              -
              
              
              74
              
              
              -


NOTE
      20:  EXTRAORDINARY
      ITEM




On
        March
        31, 2005, 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 our Puerto Rico site. For the three months ended June 30, 2005,
        the Company recorded extraordinary income, net of costs and accrued interest,
        of
        approximately $917,000 for the services provided under the advance. As of
        June
        30, 2005, approximately $1.2 million of the advance remained deferred to
        be
        recognized as revenue at a later date or repaid if services are not
        provided.


The
      Company had no such extraordinary item for the three and six months ended June
      30, 2004.




F-12




**UNAUDITED
      PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS**




The
      following unaudited consolidated pro forma statements of operations presented
      herein for the six months ended June 30, 2005 and the three and six months
      ended
      June 30, 2004 give effect to the acquisition of the business assets of Aventis
      PR as if the acquisition had taken place at the beginning of the periods
      presented.




The
      pro
      forma results, as summarized below, include the actual results of the Company
      for the  three
      and
      six months ended June 30, 2004 combined with the results of the acquired
      business of Aventis PR for the three and six months ended June 30, 2004. The
      pro
      forma results for the six months ended June 30, 2005 include the actual results
      of the Company for the six months ended June 30, 2005 combined with the results
      of the acquired business of Aventis PR for the three months ended March 31,
      2005.




The
      historical financial data is derived from the historical financial statements
      of
      both companies which were prepared in accordance with generally accepted
      accounting principles in the United States of America. The preparation of the
      unaudited pro forma statement of operations for Aventis PR included the
      adjustment to back-out sales attributable to Aventis inter-company sales and
      customer contracts not renewed at the date of acquisition.




The
      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 are not intended to project the Company’s results of operations
      for any future period.




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.




**Statement
            of Operations**
 **For
            the Six Months Ended June 30, 2005**
 (Expressed
            in thousands of U.S. dollars)
 Aventis
                    Pharmaceuticals Puerto Rico, Inc.
                
                Adjustments(1)
                
                
                Aventis
                    Puerto Rico (acquired)
                
                Inyx,
                    Inc.
                
                Pro
                    forma Adjustments(2)
                
                
                
                CombinedNet
                    Revenues
                
                $
                15,575
                
                $
                (11,905
                )
                (a)
                
                $
                3,670
                
                $
                11,178
                
                $
                -
                
                
                
                $
                14,848Cost
                    of sales
                
                
                12,242
                
                
                (10,261
                )
                
                
                
                1,981
                
                
                8,399
                
                
                -
                
                
                
                
                10,3803,333
                
                
                (1,644
                )
                
                
                
                1,689
                
                
                2,779
                
                
                -
                
                
                
                
                4,468Operating
                    expenses:Research
                    and development
                
                
                -
                
                
                -
                
                
                
                
                -
                
                
                947
                
                
                -
                
                
                
                
                947General
                    and administrative expenses
                
                
                2,609
                
                
                (1,729
                )
                
                
                
                880
                
                
                6,426
                
                
                -
                
                
                
                
                7,306Selling
                    expenses
                
                
                -
                
                
                12
                
                
                
                
                12
                
                
                174
                
                
                -
                
                
                
                
                186Depreciation
                    and amortization
                
                
                -
                
                
                71
                
                
                
                
                71
                
                
                716
                
                
                220
                
                (a)
                
                
                1,007Amortization
                    of intangibles
                
                
                -
                
                
                226
                
                
                
                
                226
                
                
                409
                
                
                89
                
                (b)
                
                
                724Total
                    operating expenses
                
                
                2,609
                
                
                (1,420
                )
                
                
                
                1,189
                
                
                8,672
                
                
                309
                
                
                
                
                10,170Income
                    (loss) from continuing operations beforeinterest,
                    other, income tax benefit (expense)and
                    extraordinary item
                
                
                724
                
                
                (224
                )
                
                
                
                500
                
                
                (5,893
                )
                
                (309
                )
                
                
                
                (5,702
                )Interest
                    expense(income)
                
                
                (1,159
                )
                
                1,524
                
                
                
                
                365
                
                
                6,146
                
                
                (3,779
                )
                (c)
                
                
                2,732Other
                    expense (income)
                
                
                7,965
                
                
                (7,965
                )
                
                
                
                -
                
                
                -
                
                
                -
                
                
                
                
                -Loss
                    from continuing operations before incometax
                    benefit (expense) and extraordinary item
                
                
                (6,082
                )
                
                6,217
                
                
                
                
                135
                
                
                (12,039
                )
                
                3,470
                
                
                
                
                (8,434
                )Income
                    tax benefit (expense)
                
                
                -
                
                
                -
                
                
                
                
                -
                
                
                -
                
                
                -
                
                
                
                
                -Net
                    income (loss) before extraordinary item
                
                $
                (6,082
                )
                $
                6,217
                
                
                
                $
                135
                
                $
                (12,039
                )
                $
                3,470
                
                
                
                $
                (8,434
                )Basic
                    and fully diluted loss per share beforeextraordinary
                    item
                
                
                N/A
                
                
                N/A
                
                
                
                
                N/A
                
                $
                (0.31
                )
                
                N/A
                
                
                
                $
                (0.21
                )Weighted-average
                    number of shares used in computing basic
                    and fully diluted loss per share amounts
                
                
                -
                
                
                -
                
                
                
                
                -
                
                
                39,144,672
                
                
                839,311
                
                
                
                
                39,983,983




13


**Unaudited
                  Consolidated Pro Forma Statement of Operations****For
                  the Six Months Ended June 30, 2004**(Expressed
                  in thousands of U.S. dollars)Aventis
                  Pharmaceuticals Puerto Rico, Inc.
              
              Adjustments(1)
              
              
              
              Aventis
                  Puerto Rico (acquired)
              
              Inyx,
                  Inc.
              
              Pro
                  forma Adjustment(2)
              
              
              
              CombinedNet
                  Revenues
              
              $
              35,086
              
              $
              (28,715
              )
              
              (a)
              
              $
              6,371
              
              $
              7,300
              
              $
              -
              
              
              
              
              $
              13,671Cost
                  of sales
              
              
              24,822
              
              
              (20,564
              )
              
              
              
              
              4,258
              
              
              6,821
              
              
              -
              
              
              
              
              
              11,07910,264
              
              
              (8,151
              )
              
              
              
              
              2,113
              
              
              479
              
              
              -
              
              
              
              
              
              2,592Operating
                  expenses:Research
                  and development
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              399
              
              
              -
              
              
              
              
              
              399General
                  and administrative expenses
              
              
              4,832
              
              
              (3,226
              )
              
              
              
              
              1,606
              
              
              4,299
              
              
              -
              
              
              
              
              
              5,905Selling
                  expenses
              
              
              -
              
              
              25
              
              
              
              
              
              25
              
              
              160
              
              
              -
              
              
              
              
              
              185Depreciation
                  and amortization
              
              
              2,313
              
              
              (2,109
              )
              
              
              
              
              204
              
              
              276
              
              
              354
              
              
              (a)
              
              
              834Amortization
                  of intangibles
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              84
              
              
              629
              
              
              (b)
              
              
              713Total
                  operating expenses
              
              
              7,145
              
              
              (5,310
              )
              
              
              
              
              1,835
              
              
              5,218
              
              
              983
              
              
              
              
              
              8,036Income
                  (loss) from continuing operations before interest, other and income
                  tax
                  benefit (expense)
              
              
              3,119
              
              
              (2,841
              )
              
              
              
              
              278
              
              
              (4,739
              )
              
              (983
              )
              
              
              
              
              (5,444
              )Interest
                  expense (income)
              
              
              (1,044
              )
              
              1,044
              
              
              
              
              
              -
              
              
              1,724
              
              
              66
              
              
              (c)
              
              
              1,790Other
                  expense (income)
              
              
              7
              
              
              (7
              )
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              
              
              
              -Loss
                  from continuing operations before income tax benefit
                  (expense)
              
              
              4,156
              
              
              (3,878
              )
              
              
              
              
              278
              
              
              (6,463
              )
              
              (1,049
              )
              
              
              
              
              (7,234
              )Income
                  tax benefit (expense)
              
              
              (701
              )
              
              701
              
              
              
              
              
              -
              
              
              393
              
              
              -
              
              
              
              
              
              393Net
                  income (loss)
              
              $
              3,455
              
              $
              (3,177
              )
              
              
              
              $
              278
              
              $
              (6,070
              )
              $
              (1,049
              )
              
              
              
              $
              (6,841
              )Basic
                  and fully diluted loss per share
              
              
              N/A
              
              
              N/A
              
              
              
              
              
              N/A
              
              $
              (0.21
              )
              $
              (0.53
              )
              
              
              
              $
              (0.22
              )Weighted-average
                  number of shares used in computing basic and fully
                  diluted loss per share amounts
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              28,747,582
              
              
              1,971,504
              
              
              
              
              
              30,719,086







**Unaudited
                Consolidated Pro Forma Statement of Operations****For
                the Three Months Ended June 30, 2004**(Expressed
                in thousands of U.S. dollars)Aventis
              Pharmaceuticals
              Puerto
                Rico, Inc.
            
            Adjustments(1)
            
            
            
            Aventis
              PuertoRico
              (acquired)
            
            Inyx,
                Inc.
            
            Pro
                forma
              Adjustment(2)
            
            
            
            CombinedNet
                Revenues
            
            $
            17,325
            
            $
            (13,988
            )
            
            (a)
            
            $
            3,337
            
            $
            2,774
            
            $
            -
            
            
            
            
            $
            6,111Cost
                of sales
            
            
            12,145
            
            
            (9,841
            )
            
            
            
            
            2,304
            
            
            2,910
            
            
            -
            
            
            
            
            
            5,2145,180
            
            
            (4,147
            )
            
            
            
            
            1,033
            
            
            (136
            )
            
            -
            
            
            
            
            
            897Operating
                expenses:Research
                and development
            
            
            -
            
            
            -
            
            
            
            
            
            -
            
            
            112
            
            
            -
            
            
            
            
            
            112General
                and administrative expenses
            
            
            2,478
            
            
            (1,758
            )
            
            
            
            
            720
            
            
            2,195
            
            
            -
            
            
            
            
            
            2,915Selling
                expenses
            
            
            -
            
            
            12
            
            
            
            
            
            12
            
            
            76
            
            
            -
            
            
            
            
            
            88Depreciation
                and amortization
            
            
            1,169
            
            
            (1,019
            )
            
            
            
            
            150
            
            
            124
            
            
            117
            
            
            (a)
            
            
            391Amortization
                of intangibles
            
            
            -
            
            
            -
            
            
            
            
            
            -
            
            
            42
            
            
            315
            
            
            (b)
            
            
            357Total
                operating expenses
            
            
            3,647
            
            
            (2,765
            )
            
            
            
            
            882
            
            
            2,549
            
            
            432
            
            
            
            
            
            3,863Income
                (loss) from continuing operations beforeinterest,
                other and income tax benefit (expense)
            
            
            1,533
            
            
            (1,382
            )
            
            
            
            
            151
            
            
            (2,685
            )
            
            (432
            )
            
            
            
            
            (2,966
            )Interest
                expense (income)
            
            
            (537
            )
            
            140
            
            
            
            
            
            (397
            )
            
            698
            
            
            782
            
            
            (c)
            
            
            1,083Other
                expense (income)
            
            
            -
            
            
            -
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            -Loss
                from continuing operations beforeincome
                tax benefit (expense)
            
            
            2,070
            
            
            (1,522
            )
            
            
            
            
            548
            
            
            (3,383
            )
            
            (1,214
            )
            
            
            
            
            (4,049
            )Income
                tax benefit (expense)
            
            
            (349
            )
            
            349
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            -Net
                income (loss)
            
            $
            1,721
            
            $
            (1,173
            )
            
            
            
            $
            548
            
            $
            (3,383
            )
            $
            (1,214
            )
            
            
            
            $
            (4,049
            )Basic
                and fully diluted loss per share
            
            
            N/A
            
            
            N/A
            
            
            
            
            
            N/A
            
            $
            (0.12
            )
            
            N/A
            
            
            
            
            $
            (0.14
            )Weighted-average
                number of shares used in computing basic
                and fully diluted loss per share amounts
            
            
            -
            
            
            -
            
            
            
            
            
            -
            
            
            28,747,582
            
            
            -
            
            
            
            
            
            28,747,582




**Notes
      to unaudited pro forma consolidated statement of
      operations**




**For
      the Six Months Ended June 30, 2005 and the Three and Six Months Ended June
      30,
      2004**




(1)  Reflects
      adjustments to back out certain revenues and expenses historically recorded
      or
      incurred by Aventis PR which related to 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 following pro forma adjustments:


a.
              Depreciation
                    expense was adjusted to reflect the fair value of assets acquired
                    as of
                    the closing of the acquisition on March 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 acquisition on
                March
                31, 2005, based on valuations provided by a third
                party.




c.
            Reflects
                additional interest expense from the new 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 on March
                31,
                2005.




14




**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. We focus our
      expertise on 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. Our client base primarily consists of
      ethical pharmaceutical corporations, branded generic pharmaceutical distributors
      and biotechnology companies. Although we perform some sales and marketing
      functions, we have limited product distribution capabilities and so we depend
      on
      our customers’ distribution channels or strategic partners to market and sell
      the pharmaceutical products we develop and manufacture for them.




During
      the six months ended June 30, 2005, the Company organized Exaeris Inc.,
      (“Exaeris”) a Delaware Corporation to manage and operate the Company’s
      contemplated product development and marketing activities and Inyx Europe
      Limited. (“Inyx Europe”) incorporated under the laws of England and Wales to
      pursue strategic business development activities, primarily in Europe. Neither
      company has commenced operations.




**The
      Aventis PR Transaction**




On
      March
      31, 2005, through our wholly-owned subsidiary, Inyx USA, we acquired the
      business assets of Aventis PR from Aventis Pharmaceuticals, Inc. (“Aventis
      Pharmaceuticals”) a subsidiary of Aventis Pharmaceuticals, part of the
      sanofi-aventis group, for approximately $23.0 million, including incremental
      costs of approximately $2.7 million. Aventis PR is a pharmaceutical
      manufacturing operation producing dermatological, respiratory and allergy
      products. Aventis PR manufactured 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;
      Exaeris Inc., incorporated in the state of Delaware; and Inyx Realty, Inc.
      (“Inyx Realty”), a Florida corporation owned by the company through April 14,
      2004. All intercompany accounts and transactions have been eliminated in
      consolidation.




15




**Combined
      Results for Comparative Purposes**




As
      we
      acquired certain business assets of Aventis PR on March 31, 2005, managements’
      Discussion and Analysis of results of operations will focus on both actual
      and  combined
      pro forma results.  Accordingly, the pro forma results, as summarized
      below, include the actual results of the Company for the  three
      and
      six months ended June 30, 2004 combined with the results of the acquired
      business of Aventis PR for the three and six months ended June 30, 2004. The
      pro
      forma results for the six months ended June 30, 2005 include the actual results
      of the Company for the six months ended June 30, 2005 combined with the results
      of the acquired business of Aventis PR for the three months ended March 31,
      2005.




**Unaudited
      Consolidated Statements of Operations and Unaudited Pro Forma Statements of
      Operations**





**Actual
                  Results**
                **For
                  the Six**
                **Months
                  Ended**
                **June
                  30,**
              
              **Pro
                  Forma**
                **for
                  the Six**
                **Months****Ended**
                **June
                  30,**
              
              **Actual**
                **Results**
                **For
                  the Three**
                **Months****Ended**
                **June
                  30,**
              
              **Pro
                  Forma**
                **for
                  the**
                **Three
                  Months**
                **Ended**
                **June
                  30,****2005**
              
              **2004**
              
              **2005**
              
              **2004**
              
              **2005**
              
              **2004**
              
              **2004**Net
                  revenues
              
              $
              11,178
              
              $
              7,300
              
              $
              14,848
              
              $
              13,671
              
              $
              8,501
              
              $
              2,774
              
              $
              6,111Cost
                  of sales
              
              
              8,399
              
              
              6,821
              
              
              10,381
              
              
              11,079
              
              
              5,864
              
              
              2,910
              
              
              5,214Gross
                  profit
              
              
              2,779
              
              
              479
              
              
              4,467
              
              
              2,592
              
              
              2,637
              
              
              (136
              )
              
              897Operating
                  expenses:Research
                  and development
              
              
              947
              
              
              399
              
              
              947
              
              
              399
              
              
              590
              
              
              112
              
              
              112General
                  and administrative
              
              
              6,426
              
              
              4,299
              
              
              7,306
              
              
              5,905
              
              
              4,585
              
              
              2,195
              
              
              2,915Selling
              
              
              174
              
              
              160
              
              
              186
              
              
              185
              
              
              40
              
              
              76
              
              
              88Depreciation
                  and amortization
              
              
              716
              
              
              276
              
              
              1,007
              
              
              834
              
              
              555
              
              
              124
              
              
              391Amortization
                  of intangible assets
              
              
              409
              
              
              84
              
              
              724
              
              
              713
              
              
              362
              
              
              42
              
              
              357Total
                  operating expenses
              
              
              8,672
              
              
              5,218
              
              
              10,170
              
              
              8,036
              
              
              6,132
              
              
              2,549
              
              
              3,863Loss
                  from operations before interest and financing costs, income tax
                  benefit
                  and extraordinary item
              
              
              (5,893)
              
              
              (4,739
              )
              
              (5,703
              )
              
              (5,444
              )
              
              (3,495
              )
              
              (2,685
              )
              
              (2,966
              )Interest
                  and financing costs (Note 12)
              
              
              6,146
              
              
              1,724
              
              
              2,732
              
              
              1,790
              
              
              1,534
              
              
              698
              
              
              1,083Loss
                  before income tax benefit and extraordinary item
              
              
              (12,039
              )
              
              (6,463
              )
              
              (8,435
              )
              
              (7,234
              )
              
              (5,029
              )
              
              (3,383
              )
              
              (4,049
              )Income
                  tax benefit
              
              
              -
              
              
              393
              
              
              -
              
              
              393
              
              
              -
              
              
              -
              
              
              -Net
                  loss before extraordinary item
              
              
              (12,039
              )
              
              (6,070
              )
              
              (8,435
              )
              
              (6,841
              )
              
              (5,029
              )
              
              (3,383
              )
              
              (4,049
              )Extraordinary
                  item, net of taxes
              
              
              917
              
              
              -
              
              
              917
              
              
              -
              
              
              917
              
              
              -
              
              
              -Net
                  loss
              
              $
              (11,122
              )
              $
              (6,070
              )
              $
              (7,518
              )
              $
              (6,841
              )
              $
              (4,112
              )
              $
              (3,383
              )
              $
              (4,049
              )Basic
                    and fully diluted loss per share before extraordinary
                    item
              
              $
              (0.31
              )
              $
              (0.21
              )
              $
              (0.27
              )
              $
              (0.22
              )
              $
              (0.12
              )
              $
              (0.12
              )
              $
              (0.14
              )Basic
                  and fully diluted income from extraordinaryitem
              
              
              0.02
              
              
              -
              
              
              0.03
              
              
              -
              
              
              0.02
              
              
              -
              
              
              -Basic
                  and fully diluted loss per share
              
              $
              (0.28
              )
              $
              (0.21
              )
              $
              (0.24
              )
              $
              (0.22
              )
              $
              (0.10
              )
              $
              (0.12
              )
              $
              (0.14
              )Weighted-average
                  number of shares used in computing basic
                  and fully diluted loss per share amounts
              
              
              39,144,672
              
              
              28,747,582
              
              
              30,719,086
              
              
              30,719,086
              
              
              38,983,983
              
              
              28,747,582
              
              
              28,747,582




**For
      the Three and Six Months Ended June 30, 2005 compared to the Three Months and
      Six Months Ended June 30, 2004, and for the Three Months Ended June 30, 2005
      compared to the Pro Forma Three Months ended June 30, 2004**






Our
      discussion focuses on our actual results for the three and six months ended
      June
      30, 2005 as compared to our actual results for the three and six months ended
      June 30, 2004, and for comparative purposes, our actual results of operations
      for the three months ended June 30, 2005 compared to the pro forma results
      of
      operations for the three months ended June 30, 2004.




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.




**NET
      REVENUES**




Our
      revenues 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.




16




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
      margins through the addition of our own product lines in selected pharmaceutical
      market sectors, with marketing to be conducted through certain strategic
      customers. We expect that these types of revenues would include direct sales,
      royalty payments and licensing fees of our planned products. At this time,
      we
      have not commercialized any of our own proprietary products and we have no
      agreements for such fees or distribution agreements finalized.




Net
      revenues for the three months ended June 30, 2005 increased by approximately
      $5.7 million or 206% to approximately $8.5 million as compared to net revenues
      of $2.8 million for the same period a year ago. On a pro forma basis, net
      revenues increased by $2.4 million or 39% to $8.5 million from approximately
      $6.1 million for the three months ended June 30, 2004.




The
      increase in net revenues between the comparative periods is related to our
      March
      31, 2005 acquisition of certain assets and business of Aventis PR.




Net
      revenues for the six months ended June 30, 2005 increased by approximately
      $3.9
      million or 53% to approximately $11.2 million from net revenues of approximately
      $7.3 million for the six months ended June 30, 2004.




This
      increase in net revenues for the three and six months ended June 30, 2005 is
      related to the acquisition, partially offset by lower revenue from our base
      business in the first and second quarters of 2005. The reduced core revenues
      were the result of delay in regulatory approvals for two of our customers’
      products and a vendor material qualification delay for a third customer. These
      delays have now been resolved and production is now scheduled to commence in
      the
      third quarter of 2005. Due to the required timely scale-up activities and
      component staging requirements related to these contracts, these customers
      have
      allowed us to invoice them for their production requirements. As of June 30,
      2005, the Company has approximately $8.0 million in deferred revenues related
      to
      these contracts that we expect to receive primarily in the third quarter of
      2005.




For
      the
      three months ended June 30, 2005, our three top customers accounted for
      approximately $5.8 million or approximately 68% of our total net revenues.
      During this period, these three customers were sanofi-aventis, Kos
      Pharmaceuticals and SSL International, Plc. For the six months ended June 30,
      2005, the same three customers accounted for approximately $6.1 million in
      net
      revenues or approximately 54% of total revenues. As a result of our acquisition
      of Aventis PR, we have broadened our business base, including adding a number
      of
      new clients, such as Kos Pharmaceuticals, which is now our largest customer.
      We
      also expect sanofi-aventis will continue to have production requirements from
      the Puerto Rico manufacturing site we acquired from them.




As
      noted
      above, a delay in the production for any one of our major clients or the loss
      of
      any such client 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 Puerto
      Rico
      site, which now gives our Company an operating base in the United States, 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 converting from CFC to CFC-free aerosol
      pharmaceuticals, particularly the production of hydrofluoroalkane (“HFA”)
      non-ozone-depleting aerosol pharmaceutical products, should generate increasing
      business as the Montreal Protocol continues to be implemented around the world
      and especially now in the United States, the largest pharmaceutical market
      in
      the world.




**COST
      OF GOODS SOLD**




Cost
      of
      goods sold is associated with manufacturing and development revenues and
      includes materials, labor, factory overheads and technical affairs, including
      quality control and quality assurance regulatory support functions, and other
      contract servicing functions associated with certain contracts assumed as a
      result of our acquisition of certain business assets of Aventis PR.




17




Cost
      of
      sales for the three months ended June 30, 2005 amounted to approximately $5.9
      million or approximately 69% of net revenues. In
      comparison, for the three months ended June 30, 2004, cost
      of
      goods sold on an actual basis amounted to approximately $2.9 million or
      approximately 105% of net revenues and on a pro forma basis amounted to $5.2
      million or approximately 85% of net revenues.




The
      improvement in cost of sales between the comparative periods was driven by
      the
      mix of higher-profit business for the three months ended June 30, 2005, related
      primarily to product support services, including product testing and stability
      work, and regulatory compliance revenues, versus a higher content of lower
      margin manufacturing revenues in 2004.




Cost
      of
      sales for the six months ended June 30, 2005 amounted to approximately $8.4
      million or approximately 75% of net revenues. For
      the
      six months ended June 30, 2004, cost
      of
      goods sold amounted to approximately $6.8 million or approximately 93% of net
      revenues.




The
      cost
      of goods sold has improved as a percentage of revenues in 2005, but still
      remains higher than we are targeting due to the following factors:




(1)
      A
      lower than required manufacturing capacity utilization has continued into 2005
      as it has taken us time during this year to commence two major client projects
      due to their own required regulatory approvals for new CFC-free (or HFA) metered
      dose inhaler products to be distributed in Europe, and the normal production
      commissioning and validation processes involved in the pharmaceutical
      manufacturing industry. We expect our cost of goods sold to be reduced as these
      projects are ramped up to full production by the end of 2005. One of those
      projects that were waiting for regulatory approval has commenced in the third
      quarter of 2005. With more volume throughput at our manufacturing facility,
      we
      can absorb more overhead costs and therefore reduce our manufacturing
      costs.




(2)
      A
      delay in the supply of cans from a key vendor in the first quarter of 2005
      led
      to less than expected manufacturing capacity utilization, which has led to
      less
      overhead absorption and a concomitant increase in cost of goods sold during
      the
      first six months of 2005. This supply delay has been resolved and our scheduled
      production has resumed in the third quarter of 2005.




(3)
      The
      newly acquired facilities in Puerto Rico have additional capacity that is not
      currently being utilized and therefore the operating cost is spread over the
      current production. We expect to increasingly utilize that capacity as we
      continue to integrate that operation into our business.




(4)
      Labor
      costs were higher than anticipated due to the utilization of temporary help
      to
      perform pre-manufacturing testing plus development staging work for our
      customers’ conversion from CFC gas to alternate propellants, in order to meet
      their production scheduling requirements.




Even
      though we have experienced moderate raw material and labor price increases
      in
      our United Kingdom operations, since our reverse acquisition of Inyx Pharma,
      due
      to inflation and new vendor relationships, we expect the cost of goods sold
      percentage to be maintained or reduced as more customer contracts are initiated
      or renewed, and our capacity utilization is enhanced. With improved fixed
      overhead cost absorption, we expect to improve our profit margins.




**GROSS
      PROFIT**




Gross
      profit for the three months ended June 30, 2005 increased by $2.8 million to
      approximately $2.6 million on net revenues of $8.5 million or approximately
      31%
      of net revenues. In comparison, for the three months ended June 30, 2004, we
      had
      a gross loss of approximately $136,000 on net revenues of approximately $2.8
      million.




On
      a pro
      forma basis, gross profit for the three months ended June 30, 2005 increased
      by
      $1.7 million to approximately $2.6 million on net revenues of $8.5 million
      or
      approximately 31% of net revenues. In comparison, for the pro forma three months
      ended June 30, 2004, we had a gross profit of approximately $897,000 or
      approximately 15% on pro forma net revenues of approximately $6.1 million.




18




This
      improvement between the comparative three months is driven by the noted
      favorable mix of services revenues as well as the additional manufacturing
      volume and business and transition support services required by one of our
      new
      clients in Puerto Rico for the three months ended June 30, 2005.




Gross
      profit for the six months ended June 30, 2005 amounted to approximately
      $ 2.8
      million on net revenues of $11.2 million or approximately 25% of net revenues. In
      comparison, the gross profit for the six months ended June 30, 2004 amounted
      to
      approximately $479,000 on net revenues of approximately $7.3 million or
      approximately 7% of net revenues. Again, this improvement is driven by the
      favorable mix of services revenue as well as the additional volume from one
      of
      the new clients in Puerto Rico during the second half of the reporting period.




We
      believe that our gross profit will continue to improve with a more favorable
      product mix and with the additional manufacturing volume, expected later this
      year. We believe we can also 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 believe that our first proprietary product may be ready for
      commercial marketing by late 2005.




**OPERATING
      EXPENSES**




Our
      operating expenses consist of product research and development costs, general
      and administrative, selling, depreciation and amortization, as well as
      amortization of intangible assets expenses.




Operating
      expenses for the three months ended June 30, 2005 amounted to approximately
      $6.1
      million or approximately 72% of net revenues of $8.5 million. In comparison,
      for
      the three months ended June 30, 2004, our operating expenses amounted to
      approximately $2.5 million or approximately 92% of net revenues of $2.8 million,
      and on a pro forma basis, operating expenses for the pro forma three months
      ended June 30, 2004 amounted to approximately $3.9 million or approximately
      63%
      of pro forma net revenues of $6.1 million.




Operating
      expenses for the six months ended June 30, 2005 amounted to approximately $8.7
      million or approximately 78% of net revenues of $11.2 million. In comparison,
      operating expenses for the six months ended June 30, 2004 amounted to
      approximately $5.2 million or approximately 71% of net revenues of $7.3 million.




We
      had
      higher operating expenses for the three and six months ended June 30, 2005
      in
      comparison to both the actual and pro forma periods in 2004 as a result of
      our
      increased business size subsequent to our acquisition of the business assets
      of
      Aventis PR. In addition to an expanded management team and staff, we have
      enhanced our business support functions. We have also intensified our research
      and development activities in anticipation of launching our own proprietary
      products later this year and into 2006. The balance is the result of increased
      training, insurance costs, legal fees, audit fees and other expenses related
      to
      ongoing corporate and business development activities.




**Research
      and Development Costs**




Research
      and development costs for the three months ended June 30, 2005 were
      approximately $590,000 or approximately 10% of our operating expenses and 7%
      of
      our net revenues for the period. In comparison, for the three months ended
      June
      30, 2004, our research and development costs amounted to approximately $112,000
      or approximately 4% of our operating expenses and approximately 4% of our net
      revenues for the comparable period. On a pro forma basis, research and
      development costs for the pro forma three months ended June 30, 2004 amounted
      to
      approximately $112,000 or approximately 3% of pro forma operating expenses
      and
      approximately 2% of pro forma net revenues.




19




Research
      and development costs for the six months ended June 30, 2005 were approximately
      $947,000 or approximately 11% of our operating expenses and approximately 8%
      of
      our net revenues. In comparison, research and development costs for the six
      months ended June 30, 2004 were approximately $399,000 or approximately 8%
      of
      our operating expenses and approximately 5% of our net revenues.




As
      we
      plan to commence commercial marketing of our initial two proprietary
      pharmaceutical aerosol products, a wound irrigation and cleansing spray
      utilizing novel barrier technologies and an anti-inflammatory nasal
      pump, either in the latter part of this year or early next year, 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 for these products 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
      also
      believe that we can 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 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 although as of June 30, 2005 we had not finalized
      any such agreements.




**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 June 30, 2005 amounted
      to
      approximately $4.6 million or approximately 75% of our operating expenses and
      approximately 54% of our net revenues for the period. In comparison, for the
      three months ended June 30, 2004, our general and administrative expenses
      amounted to approximately $2.2 million or approximately 86% of our operating
      expenses and approximately 79% of our net revenues for the comparable period.
      On
      a pro forma basis, general and administrative expenses for the pro forma three
      months ended June 30, 2004 amounted to approximately $2.9 million or
      approximately 75% of our pro forma operating expenses and approximately 48%
      of
      pro forma net revenues.




General
      and administrative expenses for the six months ended June 30, 2005 amounted
      to
      approximately $6.4 million or approximately 74% of our operating expenses and
      approximately 57% of net revenues. In comparison, general and administrative
      expenses for the six months ended June 30, 2004 were approximately $4.3 million
      or approximately 82% of operating expenses and approximately 59% of our net
      revenues for the comparative period.




20




The
      general and administrative expenses for the three and six months ended June
      30,
      2005 included costs related to the acquisition of Aventis PR amounting to
      approximately $137,000 and $437,000, respectively. 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, none of which have been completed. Other contributing factors
      to
      our increased general and administrative expenses are increased staff
      compensation and insurance costs due to acquisition of the assets associated
      with Aventis PR.




As
      we
      continue to implement our corporate development and growth strategy, we also
      expect to incur additional 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.




We
      believe that as we 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 offset such
      anticipated incremental 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, presently
      such
      activities are primarily focused on expanding our pharmaceutical aerosol
      manufacturing business with existing or potential clients.




We
      believe that once we commence marketing our own proprietary products, we may
      also need to build or contract our own sales force. We expect to incur
      substantial additional selling expenses once we undertake these types of
      commercial activities. Initially though, until we can adequately afford the
      cost
      of building or contracting our own sales force, we will depend on our customers’
      distribution channels or strategic partners to market and sell the
      pharmaceutical products that we are presently developing or planning to develop.




Selling
      expenses for the three months ended June 30, 2005 amounted to approximately
      $40,000 or approximately 1% of our operating expenses and approximately less
      than 0.5% of our net revenues for the period. In comparison, for the three
      months ended June 30, 2004, our selling expenses amounted to approximately
      $76,000 or approximately 3% of our operating expenses and approximately 3%
      of
      our net revenues for the comparable period. On a pro forma basis, selling
      expenses for the pro forma three months ended June 30, 2004 amounted to
      approximately $88,000 or approximately 2% of pro forma operating expenses and
      approximately 1% of pro forma net revenues.




Selling
      expenses for the six months ended June 30, 2005 were approximately $174,000
      or
      approximately 2% of our operating expenses and approximately 2% of net revenues.
      In comparison, selling expenses for the six months ended June 30, 2004 were
      approximately $160,000 or approximately 3% of operating expenses and
      approximately 2% of net revenues for the comparable period.




Although
      we continue to expand our own proprietary product development programs, we
      have
      not yet commercialized or marketed our own products or drug delivery
      applications. Therefore, our selling and marketing expenses, consisting
      primarily of costs associated with developing and expanding our pharmaceutical
      aerosol manufacturing and product support business with existing or other
      potential clients, have remained relatively consistent over the comparative
      periods. As we continue to ramp-up our business development and commercial
      activities, we expect our selling expenses to increase concomitantly with
      expected revenue expansion.




21




We
      expect
      that our selling expenses, as a percentage of our revenues, may also potentially
      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 existing or potential customers.




**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 June 30, 2005 amounted
      to
      approximately $555,000 or approximately 9% of our operating expenses and
      approximately 7% of net revenues for the period. In comparison, for the three
      months ended June 30, 2004, depreciation and amortization expenses amounted
      to
      approximately $124,000 or approximately 5% of operating expenses and
      approximately 4% of net revenues for the comparable period. On a pro forma
      basis, depreciation and amortization expenses for the pro forma three months
      ended June 30, 2004 amounted to approximately $391,000 or approximately 10%
      of
      pro forma operating expenses and approximately 6% of pro forma net
      revenues.




Depreciation
      and amortization expenses for the six months ended June 30, 2005 were
      approximately $716,000 or approximately 8% of operating expenses or
      approximately 6% of net revenues. In comparison, depreciation and amortization
      expenses for the six months ended June 30, 2004 were approximately $276,000
      or
      approximately 5% of operating expenses and approximately 4% of net revenues
      for
      the comparable period.




The
      primary reason for the increase in depreciation and amortization expenses for
      the three and six months ended June 30, 2005 as compared to the same period
      in
      2004 is the acquisition of the property, plant and equipment assets from Aventis
      PR amounting to approximately $13.3 million.




**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 the Company operates.




The
      amortization expense for intangible assets for the three months ended June
      30,
      2005 was approximately $362,000 or approximately 6% of operating expenses and
      approximately 4% of net revenues for the period. In comparison, for the three
      months ended June 30, 2004, the amortization expense for intangible assets
      amounted to approximately $42,000 or approximately 2% of operating expenses
      and
      approximately 1% of our net revenues for the comparable period. On a pro forma
      basis, such amortization expense amounted to approximately $357,000 or
      approximately 9% of pro forma operating expenses and approximately 6% of pro
      forma net revenues.




The
      amortization expense for intangible assets for the six months ended June 30,
      2005 was approximately $409,000 or approximately 5% of our operating expenses
      and approximately 4% of net revenues. In comparison, the amortization expense
      for the six months ended June 30, 2004 was approximately $84,000 or
      approximately 2% of operating expenses and approximately 1% of net revenues
      for
      the comparable six month period.




Our
      amortization expenses for intangible assets originally related to the Company’s
      purchased intangible assets as they related to the Inyx Pharma acquisition
      of
      Miza UK’s assets (the predecessor company to Inyx Pharma). Those intangible
      assets included the acquired Miza UK’s 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.




22




The
      subsequent increase in the amortization expense related to intangible assets
      between the comparative 2005 and 2004 three month and six months periods is
      due
      to the acquisition of intangible assets associated with the acquisition of
      certain business assets of Aventis PR which we closed on March 31, 2005. 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 ten years.




**OPERATING
      INCOME/LOSS BEFORE INTEREST AND FINANCING COSTS** **,
      INCOME TAX BENEFIT AND EXTRAORDINARY ITEM**




For
      the
      three months ended June 30, 2005, the loss from operations before interest
      and
      financing costs, income tax benefit and extraordinary item amounted to
      approximately $3.5 million as compared to a loss from operations before interest
      and financing costs and income tax benefit of approximately $2.7 million for
      the
      three months ended June 30, 2004. For the pro forma three months ended June
      30,
      2004, the pro forma loss from operations before interest and financing costs
      and
      income tax benefit amounted to approximately $3.0 million.




Loss
      from
      operations before interest and financing costs, income tax benefit and
      extraordinary item amounted to approximately $5.9 million for the six months
      ended June 30, 2005 compared to a loss of $4.7 million for the six months ended
      June 30, 2004.




Our
      loss
      from operations before interest and financing costs, income tax benefit and
      extraordinary item has remained consistent despite our increased revenues and
      improved gross margins between the comparative three and six month periods
      as a
      result of the increased expenses we have had during the three months ended
      June
      30, 2005, primarily associated with our acquisition of the business assets
      of
      Aventis PR.




**INTEREST
      AND FINANCING COSTS**




Interest
      and financing costs consist of interest expense primarily related to the long
      term debt provided by Westernbank and Stiefel, as well as 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”).




For
      the
      three months ended June 30, 2005, interest and financing costs totaled
      approximately $1.5 million or 18% of net revenues as compared to interest and
      financing costs of approximately $698,000 or approximately 25% of net revenues
      for the three months ended June 30, 2004. For the pro forma three months ended
      June 30, 2004, pro forma interest and financing costs amounted to approximately
      $1.1 million or 18% of pro forma net revenues.




For
      the
      six months ended June 30, 2005, interest and financing costs totaled
      approximately $6.1 million or 54% of net revenues compared to interest and
      financing costs of approximately $1.7 million or 24% of net revenues of $7.3
      million for the six months ended June 30, 2004.




Our
      interest and financing costs have increased primarily due to the increased
      level
      of debt associated with the non-dilutive asset
      based secured $46 million credit facility obtained from Westernbank on March
      31,
      2005. This credit facility was utilized to acquire the business assets of
      Aventis PR and for our current working capital and capital expenditure
      requirements.




**INCOME
      TAX BENEFIT**




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.




23




**NET
      LOSS** **BEFORE EXTRAORDINARY ITEM**




The
      net
      loss before extraordinary item for the three months ended June 30, 2005 was
      approximately $5.0 million as compared to a net loss before extraordinary item
      of approximately $3.4 million for the three months ended June 30, 2004. For
      the
      pro forma three months ended June 30, 2004, the pro forma net loss before
      extraordinary item was approximately $4.0 million.




The
      net
      loss before extraordinary item for the six months ended June 30, 2005 was
      approximately $12.0 million as compared to a net loss before extraordinary
      item
      of $6.1 million for the six months ended June 30, 2004.




The
      net
      loss before extraordinary item for the three and six months ended June 30,
      2005
      was primarily attributed to the early repayment of the Laurus Funds convertible
      debt, associated termination fees and interest costs, and the lower than
      expected production levels at our Inyx Pharma operation during 2005, as a result
      of certain customer contract production delays attributable to the regulatory
      approval processes such customers were undertaking for their respective
      products. As noted above, such delays have now been resolved and production
      is
      now scheduled to commence in the third quarter of 2005. We anticipate that
      this
      will significantly improve our capacity utilization at our Inyx Pharma
      operation, which in turn should improve our gross profit margin and
      profitability opportunities.




In
      addition to the low manufacturing capacity utilization at our Inyx Pharma
      operation, the net losses we incurred for the three and six months ended June
      30, 2004 were also as a result of our high general and administrative costs
      as a
      percentage of our overall net revenues. We believe that as we increase the
      capacity utilization at both our Inyx Pharma and Inyx USA operations, the
      concomitant increase in our profit margins will increasingly offset our general
      and administrative expenses and other business support costs.




As
      noted
      above, we believe we can also improve our profitability opportunities 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 believe that our first proprietary product may be ready for
      commercial marketing by late 2005.




In
      addition, as a result of our acquisition of Aventis PR on March 31, 2005, we
      have broadened our business base including adding a number of new clients.
      These
      include Kos Pharmaceuticals, now our largest client, and sanofi-aventis that
      we
      expect will still have production and product support requirements from the
      Puerto Rico manufacturing site we acquired from them. We also expect our
      profitability opportunities to improve with a more favorable product mix as
      the
      Aventis PR site has diversified and expanded our manufacturing and product
      support capabilities, including those for the US market.




**EXTRAORDINARY** **ITEM**




On
      March
      31, 2005, 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 our Puerto Rico site. For the three months ended June 30, 2005,
      the Company recorded extraordinary income, net of costs and accrued interest,
      of
      approximately $917,000 for the services provided under the advance. As of June
      30, 2005, approximately $1.2 million of the advance remained defered to be
      recognized as revenue at a later date or repaid if services are not
      provided.





**NET
      LOSS**




The
      net
      loss for the three months ended June 30, 2005 was approximately $4.1 million
      as
      compared to a net loss of approximately $3.4 million for the three months ended
      June 30, 2004. For the pro forma three months ended June 30, 2004, the pro
      forma
      net loss was approximately $4.0 million.




The
      net
      loss for the six months ended June 30, 2005 was approximately $11.1 million
      as
      compared to a net loss of $6.1 million for the six months ended June 30,
      2004.




24




**LIQUIDITY
      AND CAPITAL RESOURCES**




**General**




We
      are
      financing our operations primarily through our credit facilities with our
      lenders, revenues from multi-year contract manufacturing and product development
      contracts and purchase orders, and as may be required, the sale of equity
      securities, stockholder loans and capital lease financing.




As
      of
      June 30, 2005, we had approximately $58.6 million in contractual obligations
      that are due through 2019. These financial obligations include both short-term
      and long-term debt interest and principal repayments, and amounts owed for
      operating leases.




As
      of
      June 30, 2005, our current assets, including cash and cash equivalents, accounts
      receivable, inventory and other current assets amounted to approximately $10.9
      million. Current liabilities amounted to approximately $25.0 million and include
      approximately $404,000 in bank overdrafts, $8.3 million in accounts payable
      and
      other current liabilities, $1.2 million in deferred customer revenues and
      approximately $15.0 million for the current portion of our long-term debt
      obligations, which includes approximately $8.5 million on a revolving line
      of
      credit with our senior secured lender, and $4.0 million due under a customer
      loan.




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.




We
      also
      believe that as we intensify the development of our own proprietary products,
      our capital requirements to fund such development activities may increase
      accordingly. The profit margins on our proprietary products and consulting
      services are expected to be higher than our contract manufacturing services,
      although the time line for the commencement of revenues and earnings from these
      newly evolving business activities may be longer than that of our established
      contract manufacturing operations.




We
      also
      continue to incur operating losses since our reverse acquisition of Inyx Pharma
      on April 28, 2003. For the three and six months ended June 30, 2005, such losses
      amounted to approximately $4.1 million and $11.1 million, respectively. These
      losses are primarily as a result of low gross profit margins due to the
      underutilization of our manufacturing capacity, research and development costs
      as we continue the development of our own proprietary pharmaceutical products,
      interest and financing costs, additional payroll, compensation and insurance
      costs, and a number of business and corporate development costs including travel
      and external consulting costs and fees associated with our efforts to grow
      our
      Company and evolve into an integrated specialty pharmaceutical company.




In
      2005,
      we believe that we can achieve profitability by continuing to intensify our
      sales and marketing efforts to increase the number of customer purchase orders
      and contracts for our contract development and manufacturing services. As noted
      above, we also believe that we can establish new sources of revenue by providing
      pharmaceutical consulting and product support services to the industry, and
      by
      marketing our own proprietary pharmaceutical products. Based on pharmaceutical
      industry profit margins for proprietary products, we expect that the successful
      development and manufacturing of our own proprietary products will provide
      us
      with greater operating margins and improve our performance and overall
      profitability opportunities.




Until
      that time, we will continue to depend on our credit facilities, and 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.




25





**Capital
      Resources**




On
      March
      31, 2005 the Company obtained a new non-dilutive asset based secured credit
      facility from Westernbank Puerto Rico totaling $46 million. The facility is
      comprised of a Revolving loan (the “Revolver”) of up to $10 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 assets of Aventis PR, and a
      mezzanine loan (Term loan “D”) of up to $5 million for the purpose of funding
      construction or new equipment. The revolver is secured by the eligible
      receivables and inventory. The term notes are collateralized by substantially
      all the property of the Company and its subsidiaries whether now owned or
      thereafter to be acquired. Interest is based on Westernbank’s prime
      rate.




The
      amounts drawn on the above credit facility on the date of closing were used
      to
      pay $19.7 million for the acquisition of the assets of Aventis PR, approximately
      $12.3 million was used to refinance the indebtedness due to Laurus funds,
      approximately $681,000 was used to pay for various acquisition transaction
      related costs and approximately $643,000 for financing costs .




The
      revolver 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. The first three term loans bear interest at the Westernbank prime
      rate plus 2.0% payable monthly with monthly principal repayments commencing
      on
      July 1, 2005 through maturity. The mezzanine term loan bears interest at the
      rate of 15.0% with monthly principal payments commencing on July 1, 2005 through
      maturity. The Westernbank prime interest rate at June 30, 2005, was
      6%.




In
      connection with the Company's repayment of the $12.3 million Credit Facility
      with Laurus Funds, all of the liens and security interest in the assets of
      our
      wholly-owned subsidiary, Inyx Pharma Limited, held by Laurus Funds were
      unconditionally released and transferred to Westernbank Puerto Rico pursuant
      to
      a Release Agreement dated March 31, 2005.




On
      March
      31, 2005, the Company also received a $3.5 million advance from Aventis PR,
      on
      behalf of sanofi-aventis, for strategic and business development activities
      to
      be carried out by the Company during 2005. This amount was recorded as deferred
      revenue on the Company’s consolidated balance sheet and approximately $2.0
      million has been recognized into income during the three months ended June
      30,
      2005. The remaining amount will be recognized into income as it is earned.
      As a
      condition to this advance, the Company has agreed to compensate sanofi-aventis
      in the form of contract service fees associated with
      certain customer contracts assumed as a result of our acquisition of the
      business assets of Aventis PR.




We
      expect
      to meet our short term liquidity requirements through net cash provided by
      operations and borrowings under the Loan and Security Agreement with
      Westernbank. We believe that this source of cash will be sufficient to meet
      the
      Company’s operating needs and planned capital expenditures for at least the next
      twelve months.





**Analysis
      of Cash Flows**




**For
      the Three and Six Months Ended June 30, 2005 and 2004**




At
      June
      30, 2005, we had cash of approximately $1.1 million as compared to cash of
      $36,000 at June 30, 2004.




Cash
      Flows from Operating Activities for the Three
      and Six Months Ended June 30, 2005




The
      net
      cash utilized by operating activities for three months ended June 30, 2005
      was
      approximately $8.8 million compared to approximately $1.2 million for the three
      months ended June 30, 2004. Comparatively, for the six months ended June 30,
      2005 and 2004, the Company utilized cash of approximately $4.5 million and
      $4.4
      million, respectively.




26




For
      the
      three months ended June 30, 2005, the net cash generated in operating activities
      included a net loss of $4.1 million which included an extraordinary gain of
      $917,000, adjusted for non-cash charges totaling $1.1 million consisting
      primarily of depreciation and amortization costs of approximately $555,000,
      amortization of intangibles of approximately $362,000, $65,000 related to the
      amortization of financing costs, an additional $175,000 provision for inventory
      obsolescence and $117,000 of all other changes. Working
      capital changes reducing cash flow from operations were due to increases to
      our
      accounts receivables amounting to approximately $1.1 million, increase to
      inventory amounting to approximately $550,000, and an increase to our prepaid
      deposits and other current assets amounting to approximately $2.6 million,
      resulting from increasing new sales and business development activities and
      a
      decrease in customer advances amounting of approximately $2.3 million. Working
      capital changes increasing cash flow from operations were due primarily an
      increase in accounts payable and accrued liabilities of approximately
      $548,000.




The
      net
      cash used in operating activities for the six months ended June 30, 2005
      amounted to approximately $4.5 million. Our net cash used in operations was
      primarily the result of a $12.0 million net loss which included an extraordinary
      gain of $917,000, adjusted by non-cash charges including amortization of
      financing costs and debt discount of $2.5 million, depreciation and amortization
      of approximately $1.1 million, a reserve for bad debts and obsolete inventory
      amounting to approximately $143,000, and net securities issuance costs of
      approximately $200,000. Working capital changes reducing cash flow from
      operations were due to increases to our accounts receivables amounting to
      approximately $295,000, an increase to inventory amounting to approximately
      $400,000, and an increase to our prepaid deposits and other current assets
      amounting to approximately $1.2 million, resulting from increasing new sales
      and
      business development activities. Working capital changes increasing cash flow
      from operations were due primarily an increase in accounts payable and accrued
      liabilities of approximately $2.2 million, in customer advances totaling
      approximately $1.1 million.




Cash
      Flows from Investing Activities for the Three and Six Months Ended June 30,
      2005




The
      net
      cash used in investing activities for the three months ended June 30, 2005
      amounted to approximately $334,000 compared to approximately $26,000 for the
      comparative period in 2004. For the six months ended June 30, 2005 and 2004,
      the
      net cash used in investing activities amounted to approximately $23.2 million
      and $84,000, respectively.




For
      the
      three and six months ended June 30, 2005, capital expenditures of approximately
      $33,000 and $153,000 related to construction in progress costs in preparation
      for a new customer contract to be serviced from our newly acquired Puerto Rico
      plant and $10,000 related to the acquisition of computers, office furniture
      and
      leasehold improvements.




Additionally,
      for the six months ended June 30, 2005, $23.0 million of the capital
      expenditures related to property, plant and equipment as well as purchased
      intangibles acquired by Inyx USA in the Aventis PR transaction completed on
      March 31, 2005.




For
      the
      three and six months ended June 30, 2004, we spent approximately $26,000 and
      $84,000 on the acquisition of office equipment and computers.




Cash
      Flows from Financing Activities for the Three and Six Months Ended June 30,
      2005




For
      the
      three months ended June 30, 2005, the net cash provided by financing activities
      approximated $6.7 million compared to approximately $615,000 for the three
      months ended June 30, 2004. For the six months ended June 30, 2005 and 2004,
      net
      cash provided by financing activities approximated $28.3 million and $3.8
      million, respectively.




The
      proceeds for the three months ended June 30, 2005 included $6.8 million from
      the
      new Westernbank credit facility and was offset by capital lease repayments
      of
      $44,000 and equity registration costs of approximately $56,000. Comparatively,
      for the three months ended June 30, 2004, cash from investing activities
      included $657,000 from the issuance of new debt offset by capital lease
      repayments of $42,000.




27




For
      the
      six months ended June 30, 2005, cash flows from investing activities included
      $40 million from the issuance of debt compared to $3.8 million for the six
      months ended June 30, 2004. The borrowings were offset by the repayment of
      short-term and long-term debt and financing fees totaling approximately $12.3
      million for the six months ended June 30, 2005 compared to $76,000 for the
      comparative six months ended June 30, 2004.




**External
      Sources of Liquidity**




Financing
      Activities




On
      March
      31, 2005 the Company obtained a new non-dilutive asset based secured credit
      facility from Westernbank totaling $46 million. On March 31, 2005, we drew
      approximately $33.4 million under the facility. The facility is comprised of
      a
      Revolving loan of up to $10 million for purposes of working capital, a series
      of
      three term loans amounting in aggregate to up to $31 million for purposes of
      refinancing the indebtedness to Laurus Funds and purchasing the assets of
      Aventis PR, and a Mezzanine loan of up to $5 million of purposes of funding
      construction or new equipment. The facility is collateralized by all the
      property of the Company and its subsidiaries whether now owned or acquired
      hereafter.




As
      of
      June 30, 2005, we have total availability of approximately $6.3 million under
      the credit facility (including a reserve balance of $500,000 maintained by
      the
      Company)




The
      revolver 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. The first three term loans bear interest at the Westernbank prime
      rate plus 2.0% with monthly repayments commencing on July 1, 2005 through
      maturity. The mezzanine term loan bears interest at the rate of 15.0% with
      monthly principal payments commencing on July 1, 2005 through maturity.




In
      connection with the Company's repayment of the $12.3 million Credit Facility
      with the Laurus Funds, all of the liens and security interest in the assets
      of
      Inyx Pharma, Ltd held by Laurus Funds were unconditionally released and
      transferred to Westernbank Puerto Rico pursuant to the Release Agreement dated
      March 31, 2005.




Certain
      Indebtedness and Other Matters




Inyx
      Pharma received a (GBP)₤2.5 million working capital credit facility on March 6,
      2003, in the form of an unsecured convertible debt instrument (the “Stiefel
      Loan”) from one of its customers, Stiefel Laboratories, Inc. (“Stiefel”).
      Headquartered in Coral Gables, Florida, Stiefel is a privately held
      pharmaceutical company which has a number of domestic and international
      operations.




The
      Stiefel Loan was restructured on April 6, 2005 to repay the Stiefel Loan in
      three equal installments starting on June 30, 2005 and to terminate its Option
      to convert their debt into 4 million shares of the Company’s stock. As of June
      30, 2005, the outstanding amount owed under the Stiefel Loan totaled
      approximately $4.3 million in principal and interest.




The
      Company approached Stiefel in June 2005 with a request to restructure the
      payments under its 6% uncollateralized Promissory Note to Stiefel. In the course
      of such discussions the Company did not make the first restructured note payment
      on June 30, 2005, and Stiefel accelerated the repayment of the balance of the
      Stiefel Note. The Company subsequently paid the June 30 installment in July
      2005, and on August 16, 2005, as part of our ongoing commercial discussions
      with Stiefel, the Company agreed to repay the Stiefel Note in full on September
      9, 2005.




In
      addition to our credit facilities, as noted above, our Company’s stockholders
      have periodically advanced and received repayment of funds loaned to the
      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 June 30, 2005,
      the
      outstanding amount owned to such stockholders was approximately $700,000 in
      principal and interest.




28




As
      of
      June 30, 2005, we have capital lease obligations amounting to approximately
      $141,000 for two capital leases. These leases include computer equipment and
      copier. 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
      three and six months ended June 30, 2005, interest and financing costs amounted
      to approximately $1.5 million and $6.1 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 three and six months ended June 30, 2004, the total amount
      of interest expensed on all of our Company’s borrowings amounted to
      approximately $698,000 and $1.7 million. The interest for the three months
      ended
      June 30, 2005 consisted of approximately $262,000 of interest expense and
      $436,000 in amortization of debt discount and beneficial conversion on the
      warrants to Laurus Funds. Similarly, for the six months ended June 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 six months ended June 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 six months ended June 30, 2005, the capital expenditures related
      primarily to the acquisition of tangible and intangible identifiable assets
      from
      Aventis PR, which was completed on March 31, 2005.




On
      a
      short-term basis, recent equity financings and customer funding have provided
      us
      with sufficient capital to fund our immediate capital expenditure
      plans.




Commencing
      in the second half of 2005, we will require an additional $5.0 million in
      funding over twenty four months, for capital expenditures, in order 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 new credit facility
      with Westernbank provides for up to $5.0 million in funding new capital
      equipment purchases




On
      a
      longer term basis, in order to continue to strengthen our position in the
      pharmaceutical aerosol 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 5 years, for such expenditures. These
      include expenditures for new filling and packaging equipment and production
      facility enhancements to improve our capabilities to introduce new
      pharmaceutical aerosol products for increasing market opportunities in the
      respiratory sector including dry powder inhaler manufacturing technology and
      isobutene filling capabilities.




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
      June 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 the United Kingdom.




29




As
      of
      June 30, 2005, we had operating lease contractual obligations totaling
      approximately **$** 2.4
      million due to various vendors over the next ten years.




As
      of
      June 30, 2005, the Company has billed approximately $9.2 million for services
      to
      be provided, of which, $8.0 million have been offset against their respective
      accounts receivables. The revenues are recognized into income as services are
      performed.




With
      regard to our vendor and suppliers, due to the purchase of the business assets
      of Miza UK out of Administration, 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 us with aerosol valves; and Nussbaum & Guhl, which also
      provides us with 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 that 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 intensify the development of our own proprietary products, our capital
      requirements and/or future commitments may increase accordingly.




**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. 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. We neither hold nor issue financial instruments
      for
      trading purpose




Interest
      Rate Risk. The principal value of long-term debt as of June 30, 2005, including
      current maturities approximated $35.2 million. A hypothetical 1% increase in
      the
      prime interest rate applicable to our long-term debt at June 30, 2005, would
      be
      approximately $350,000 or 8.2% of the carrying value.




Foreign
      Exchange Rate Risk. Our functional currency is the U.S. Dollar; the financial
      statements of the 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 revenue 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
      do not
      currently engage in any hedging activities designed to stabilize the risks
      of
      foreign currency fluctuations. However, we intend to implement hedging
      transactions in the future. Such fluctuations could adversely affect the value
      of our revenues and the results of our operations stated in U.S. Dollars.




**Item
      4. Controls and Procedures**




a)   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,
      including the Chief Executive Officer and Chief Financial Officer, 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, the Chief Executive Officer and
      Chief Financial Officer concluded that our disclosure controls and procedures
      are effective in timely alerting management to material information relating
      to
      the Company required to be included in our Exchange Act filings. The two
      Executive Officers responsible for the financial reporting and disclosure are
      in
      direct control of the books and records of the Company and are involved
      first-hand in the decision making process for material
      transactions.




30




b)   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




**PART
      II — OTHER INFORMATION**




**Item
      6.  Exhibits**




10.9.7   Renewal
      6% Promissory Note due September 9, 2005 to Stiefel Laboratories, 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.




**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: August
                19, 2005INYX,
              INC.By:
            /s/John
              HamerskiJohn
                Hamerski,
              Vice
                President and CFO






31