**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-K** ****


**** ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934




For
      the
      fiscal year ended December 31, 2005





Commission
      file number 333-83152




**INYX,
      INC.**


(Exact
      name of registrant as specified in its charter)






Nevada
              (State
                or other jurisdiction of
              incorporation
                or organization)
            75-2870720
              (I.R.S.
                Employer
              Identification
                No.)825
                Third Avenue, 40thFloor, New York, New York
              (Address
                of principal executive offices)
            10022
              (Zip
                Code)Registrant’s
                telephone number, including area code: (212) 838-1111


Securities
      registered pursuant to Section 12(b) of the Act: None.


Securities
      registered pursuant to Section 12(g) of the Act: None.




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o No x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes o No x




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


Yes x No o




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and
      will not be contained, to the best of registrant’s knowledge, in definitive
      proxy or information statements incorporated by reference in Part III of this
      Form 10-K or any amendment to this Form 10-K. x




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. (Check one):


Large
      accelerated filer o    Accelerated
      filer o   Non-accelerated
      filer x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act). Yes o No x




The
      aggregate market value of the voting common stock held by non-affiliates of
      the
      issuer, based on the average bid and asked price of such stock, was $24,744,585
      at June 30, 2005.




At
      December 31, 2005, the registrant had outstanding 43,389,922 shares of par
      value
      $0.001 common stock.




**Documents
      Incorporated by Reference:** None.







**INYX,
      INC.**


**ANNUAL
      REPORT ON 10-K**


**FOR
      THE YEAR ENDED DECEMBER 31, 2005**




**TABLE
      OF CONTENTS**







PART
                  IItem
                  1.
              Business
              3Item
                  1A.
              Risk
                  Factors
              28Item
                  1B.
              Unresolved
                  Staff Comments
              39Item
                  2.
              Properties
              39Item
                  3.
              Legal
                  Proceedings
              39Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              39PART
                  IIItem
                  5.
              Market
                  for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
                  Purchases of Equity Securities
              40Item
                  6.
              Selected
                  Financial Data
              40Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operation
              41Item
                  7A.
              Quantitative
                  and Qualitative Disclosures about Market Risk
              64Item
                  8.
              Financial
                  Statements and Supplementary Data
              64Item
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              64Item
                  9A.
              Controls
                  and Procedures
              65Item
                  9B.
              Other
                  Information
              66PART
                  IIIItem10.
              Directors
                  and Executive Officers of the Registrant
              66Item11.
              Executive
                  Compensation
              69Item12.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              73Item13.
              Certain
                  Relationships and Related Transactions
              75Item14.
              Principal
                  Accountant Fees and Services
              77PART
                  IVItem15.
              Exhibits,
                  Financial Statement Schedules
              77Index
                  to Consolidated Financial StatementsSignatures








2





**Cautionary
      Note Regarding Forward-Looking Statements**




Statements
      included in this Annual Report on Form 10-K that are not historical facts are
      “forward-looking statements” within the meaning of the Private Securities
      Litigation Reform Act of 1995. Such statements are based on current
      expectations, but involve risks and uncertainties that could cause actual
      results to differ from those projected. The use of terminology such as “expect,”
“believe,” “intend,” “continue,” “anticipate” and other similar expressions
      generally identify forward-looking statements. They include statements relating
      to, among other things, future capital, business strategies, expansion and
      growth of operations, cash flow, marketing of products and services, and
      development of new products and services. Factors that could cause actual
      results to differ materially include, but are not limited to, those described
      throughout this report, in particular those in Item 1A “Risk Factors”. The
      Company disclaims any obligation to update or revise any forward-looking
      statements to reflect events or circumstances occurring hereafter.





**PART
      I**




**ITEM
      1.** **BUSINESS**




General




Inyx,
      Inc. (“Inyx”, “we”, “us”, “our”, or the “Company”), through its wholly-owned
      subsidiaries, Inyx USA, Ltd. (“Inyx USA”), Inyx Pharma Limited (“Inyx Pharma”),
      Inyx Canada Inc. (“Inyx Canada”), Inyx Europe Limited (“Inyx Europe”), including
      Inyx Europe’s wholly-owned subsidiary, Ashton Pharmaceuticals Limited (“Ashton
      Pharmaceuticals” or “Ashton”) , and Exaeris Inc. (“Exaeris”), is a specialty
      pharmaceutical company that focuses on the development and manufacturing of
      prescription and over-the-counter (“OTC”) pharmaceutical products. We also
      provide specialty pharmaceutical development and manufacturing consulting
      services to the international healthcare market. By “specialty pharmaceutical”,
      we mean that we specialize in developing and producing niche pharmaceutical
      products and drug delivery applications for the treatment of respiratory,
      allergy, dermatological, topical and cardiovascular disease conditions. We
      intend to expand our product research and development activities with our own
      line of prescription and OTC pharmaceuticals, but we have not yet commercialized
      for sale our own products or drug delivery technologies. In late 2005, we
      commenced implementation of our product marketing and distribution capabilities
      and started to assemble our own sales force, which we will continue building
      in
      2006 as we emerge into a vertically integrated, specialty pharmaceutical
      company.




A
      material element of our growth strategy is to expand our existing business
      through strategic acquisitions of pharmaceutical products and drug delivery
      devices that are complementary to our expertise, including those through the
      acquisition of other pharmaceutical companies. We, therefore, continually
      evaluate opportunities to make strategic acquisitions of specialty
      pharmaceutical products, drug delivery technologies or businesses. We completed
      our first specialty pharmaceutical business acquisition, Inyx Pharma, pursuant
      to a stock exchange agreement in April 2003. On March 31, 2005, we completed
      the
      acquisition of the business assets of Aventis Pharmaceuticals Puerto Rico,
      Inc.
      (“Aventis PR”), part of the Sanofi-Aventis Group, for a purchase price of
      approximately $20.7 million and on August 31, 2005, we completed the acquisition
      of Celltech Manufacturing Services Limited (“CMSL”) for a purchase price of
      approximately $40.7 million. On September 9, 2005, we changed the “CMSL” name to
      Ashton Pharmaceuticals.




Inyx
      is a
      Nevada corporation headquartered in the United States. Our corporate address
      is
      825 Third Avenue, 40th Floor, New York, New York 10022, and our telephone number
      is (212) 838-1111; fax (212) 838-0060. Our wholly-owned subsidiaries
      are:




·
            Inyx
                Pharma, a corporation formed under the laws of England and Wales,
                with
                offices and product development and manufacturing facilities in Runcorn,
                Cheshire, England.




·
            Inyx
                Canada, a Canadian corporation, located in Toronto, Ontario, that
                we
                established in May 2003 to provide pharmaceutical manufacturing consulting
                services to the pharmaceutical industry and administrative and business
                development support to the rest of our Company.




3




·
            Inyx
                USA, an Isle of Man company that we established to operate as an
                off-shore
                company in Puerto Rico, in order to manage and operate our U.S.
                pharmaceutical operations, including the business assets acquired
                from
                Aventis PR on March 31, 2005.




·
            Inyx
                Europe, a corporation formed under the laws of England and Wales
                with
                offices in Manchester, England, that we established in May 2005 to
                pursue
                strategic business development activities in Europe. Inyx Europe’s
                wholly-owned subsidiary, Ashton Pharmaceuticals (f/k/a CMSL), is
                also a
                corporation formed under the laws of England and Wales with offices
                and
                manufacturing facilities in Ashton, Lancashire,
                England.




·
            Exaeris
                Inc., a corporation formed under the laws of Delaware, headquartered
                in
                Exton, Pennsylvania, a suburb of Philadelphia, which we established
                in
                March 2005 to manage and operate the Company’s pharmaceutical marketing
                and commercial business activities.









Most
      monetary amounts described herein are stated in either United States dollars
      ($)
      or Great Britain pounds (£). The exchange rate between the two currencies on
      December 31, 2005, was approximately £1 = $1.72, and the average exchange rate
      for the period from January 1, 2005, through December 31, 2005, was
      approximately £1 = $1.82. The exchange rate between the two currencies on
      December 31, 2004, was approximately £1= $1.93, and the average exchange
      rate for the period from January 1, 2004, through December 31, 2004, was
      approximately £1 = $1.83.




**Company
      History**




Inyx
      was
      formerly known as Doblique, Inc. (“Doblique”). Doblique was incorporated under
      the laws of Nevada in March 2000. In July 2002, Doblique became a
      publicly-traded company when we completed a registration statement for the
      sale,
      by our principal stockholder, of 2,450,000 shares of common stock. At that
      time,
      Doblique was in the business of owning and racing thoroughbred horses.




On
      March 24, 2003, in accordance with the terms of a stock exchange agreement,
      our controlling stockholder at the time, Ms. Pam Halter, accepted an
      unsolicited offer to sell a controlling block of 2,250,000 shares of our common
      stock, representing approximately 45% of our Company’s issued and outstanding
      shares, to Medira Investments LLC (“Medira”). Medira subsequently transferred
      such shares to its principal, Ms. Viktoria Benkovitch, the wife of
      Dr. Jack Kachkar, our Company’s Chairman and CEO. Also, as part of the sale
      of shares to Medira, Ms. Halter released and discharged all liabilities of
      the Company to her. Prior to that transaction, on March 6, 2003, all of
      Doblique’s thoroughbred horse racing business was sold to a third party.




On
      April 22, 2003, we announced that we had agreed to acquire all of the
      issued and outstanding securities of Inyx Pharma. Previously, on March 7,
      2003, Inyx Pharma had purchased the majority of the pharmaceutical business
      assets of Miza Pharmaceuticals (UK) Ltd. (“Miza UK”) out of Administration (a
      United Kingdom form of bankruptcy protection and reorganization) for a purchase
      price of approximately $8.3 million. The Miza UK assets acquired by Inyx Pharma
      consisted of one aerosol manufacturing site and a pharmaceutical development
      operation. As such, Inyx Pharma received all of the property, plant, machinery
      and equipment, inventory, customer base, employees, and know-how and
      intellectual property to continue to manage and run those acquired parts of
      the
      Miza UK operation as a going concern.




4




On
      April 28, 2003, we concluded our acquisition of Inyx Pharma. The
      transaction consisted of an exchange of 100% of the outstanding common stock
      of
      Inyx Pharma for 16,000,000 shares of our restricted common stock, representing
      approximately 64% of the approximately 25,000,000 shares issued and outstanding
      in our Company after the exchange. As a result of this exchange, Inyx Pharma
      became our wholly-owned subsidiary.




The
      Inyx
      Pharma acquisition was our first pharmaceutical acquisition. As such, to reflect
      our new operating business, we changed our corporate name on May 6, 2003
      from Doblique to Inyx. Our principal business following this acquisition was
      the
      activity of Inyx Pharma and its related pharmaceutical industry operations.
      Inyx
      Pharma focuses its expertise on development-led manufacturing in the sterile
      pharmaceutical, finished-dosage form, outsourcing sector. It specializes in
      niche products and technologies for the treatment of respiratory, allergy,
      dermatological, and topical and cardiovascular conditions. Inyx Pharma’s client
      base is comprised of blue-chip ethical pharmaceutical companies, branded generic
      firms and biotechnology groups.




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 approximately $20.7 million
        as a
        total purchase price comprising of a cash payment of approximately $19.7
        million
        paid upon closing, approximately $2.7 million in direct transaction costs
        (including approximately $90,000 of additional transaction costs incurred
        subsequent to closing), a subsequent purchase price adjustment of approximately
        $570,000 paid to Aventis PR in August 2005, and received a purchase price
        reduction amounting to approximately $2.3 million relating
        to the final value assigned to the commercial contracts transferred to the
        Company on acquisition as agreed by the Company and Aventis PR, pursuant
        to a
        purchase price settlement adjustment in November 2005. Aventis PR is a
        pharmaceutical manufacturing operation producing dermatological, respiratory
        and
        allergy products under contract manufacturing agreements with third party
        customers. The results of operations of the acquired Aventis PR business
        assets
        are included in the Company’s consolidated results of operations effective April
        1, 2005 (the day after completion of the acquisition of such business
        assets).


As
      a
      result of the purchase of the business assets of Aventis PR, Inyx owns all
      of
      the plant, machinery, equipment, land and buildings, tangible assets, books
      and
      records, permits and pharmaceutical, technical and regulatory know-how and
      computer software, data and documentation related to the Aventis PR operation
      in
      Manatí, Puerto Rico.




On
      August
      31, 2005, through our wholly-owned United Kingdom subsidiary, Inyx Europe,
      we
      completed the purchase of all of the outstanding shares of Celltech
      Manufacturing Services Limited (“CMSL”), a United Kingdom pharmaceutical
      manufacturing company, from UCB Pharma Limited (“UCB Pharma”), for approximately
      $40.7 million which included transaction costs of approximately $2.4 million,
      and thereby assumed possession and control of the operations of CMSL on
      September 1, 2005. On September 9, 2005, the Company changed the “CMSL” name to
      Ashton Pharmaceuticals Limited. Ashton currently operates as a wholly-owned
      subsidiary of Inyx Europe, and its operating results are included in our
      Company’s consolidated results of operations effective September 1, 2005 (the
      day after completion of the acquisition of all of the outstanding stock of
      Ashton).




On
      March
      29, 2005, we incorporated Exaeris Inc. (“Exaeris”), a wholly-owned Delaware
      corporation, to manage and operate our pharmaceutical marketing and commercial
      activities, including those through collaborative agreements with other
      companies. By being headquartered in Exton, Pennsylvania, a suburb of
      Philadelphia, we believe that Exaeris may benefit from the state of
      Pennsylvania’s progressive programs that support emerging pharmaceutical and
      biotech organizations, as well as gain access to a significant base of
      pharmaceutical talent and development initiatives in the area.




On
      January 4, 2006, Exaeris commenced formal operations. Our strategy is to have
      Exaeris focus on the sales and marketing of niche or enhanced generic
      pharmaceutical products, including our clients’ products and our own planned
      proprietary products in the respiratory, allergy, dermatological, topical and
      cardiovascular treatment market sectors. Exaeris is currently organizing its
      management team and sales force, which is being established initially through
      a
      commercial relationship with a pharmaceutical contract sales representative
      organization.




5




In
      addition to continuing to develop a sales force, Exaeris’ management team’s
      initial primary focus will be to provide the sales, marketing and product
      promotion support required for our product development, manufacturing and
      marketing collaboration agreements with King Pharmaceuticals, Inc. (“King”)
      regarding King’s Intal® and
      Tilade® products.
      Intal ®and
      Tilade® are
      non-steroidal, anti-inflammatory agents (mast-cell stabilizers) for the
      management of asthma. Such multi-year agreements were signed on September 8,
      2005 and include the formation of an Alliance Management Committee (“AMC”),
      comprised of three senior executives from each company who will plan, administer
      and monitor the activities of parties under the noted agreements. Under the
      King
      marketing and collaboration agreements, Exaeris will commence co-promoting
      and
      marketing Intal® and
      Tilade® in
      2006.




Exaeris
      is pursuing other collaborative product marketing and promotion agreements,
      but
      at this time no such agreements have been formally agreed to or
      completed.





**Business
      Operations**




Our
      Company is focused on the development and contract manufacturing of prescription
      and over-the-counter (“OTC”) pharmaceutical products to our clients in the
      respiratory, allergy, dermatological, topical and cardiovascular markets. We
      also provide pharmaceutical development and manufacturing consulting and
      research services in these market sectors. We intend to expand our product
      research and development activities into our own lines of prescription and
      OTC
      pharmaceutical products, but we have not yet commercialized or marketed any
      of
      our own products or drug delivery applications. We are continuously attempting
      to complement our organic growth opportunities through strategic acquisitions
      of
      pharmaceutical products and drug delivery devices that are complementary with
      our expertise, including those through the acquisition of other pharmaceutical
      companies.




All
      of
      our material sales in 2005 were derived from one business segment: the contract
      manufacturing of pharmaceutical products. Although we also perform product
      research and development activities, at this time these business activities
      and
      our manufacturing consulting services primarily support our manufacturing
      operations for the benefit of our customers. By the end of 2006, we expect
      to be
      operating in three business segments: manufacturing outsourcing services,
      commercial marketing and distribution, and the sale of our own proprietary
      products.




Although
      we have started developing our own proprietary pharmaceutical products, we
      have
      not yet commenced the marketing or sale of any such products. We believe that
      once we have commercialized and started to market our own product lines, such
      products should offer greater profit margins than those provided by our contract
      manufacturing services. We are currently focusing our own research and
      development activities on inhalation-therapy drug delivery devices and
      inhalation methods, and generic prescription and over-the-counter aerosol
      pharmaceutical products for respiratory, allergy, dermatological, and topical
      and cardiovascular applications. Proprietary products under development include
      generic versions of non-chlorofluorocarbon (“CFC”) or hydrofluoroalkane (“HFA”)
      single molecule and combination drug respiratory inhalants, including those
      utilizing the lipid-binding matrix technology acquired from Phares, non-CFC
      propelled oral sprays for cardiovascular ailments, wound irrigation and
      cleansing sprays that utilize novel barrier technologies, and anti-inflammatory
      nasal pumps.




While
      we
      do not currently derive any revenues from the sale of our own products, it
      is
      anticipated that our first proprietary product should be ready for commercial
      marketing by the second half of 2006 (see “Product Development”). We plan to
      distribute our proprietary products through our own sales force, our customers’
distribution channels and/or in collaboration with strategic marketing partners,
      although we do not yet have any distribution agreements for our planned products
      formally finalized.




**The** **Pharmaceutical
      Manufacturing Outsourcing Sector**




According
      to an August 2005 report by Frost and Sullivan (the “Frost and Sullivan
      Report”), pharmaceutical companies are outsourcing their manufacturing and
      packaging requirements increasingly, allowing them to focus on core competencies
      such as the research and development of new drug products. During 2004, the
      secondary manufacturing outsourcing sector, which relates to the processing
      of
      active pharmaceutical ingredients (“API”) into finished dosage-form
      pharmaceutical products (and where our Company’s client manufacturing services
      focus), accounted for approximately $12.4 billion of revenues. The Frost and
      Sullivan report highlights that while outsourcing in the primary manufacturing
      segment, which refers to the manufacture of API in bulk, is a mature industry
      with relatively limited growth opportunities, secondary manufacturing
      outsourcing is a newer trend in the pharmaceutical industry. The Frost and
      Sullivan Report also states that demand in the secondary manufacturing
      outsourcing sector emerged mainly from escalating drug research, development
      and
      regulatory costs, and the need to access manufacturing capacity.




6




**Market
      Sectors**




The
      market sectors our company is focusing on include some of the fastest-growing
      today in the pharmaceutical industry and also sectors with high barriers to
      entry due to regulatory scrutiny.




***Asthma
      and Other Respiratory***




According
      to publicly available reports, the respiratory patient population is one of
      the
      fastest growing segments in the healthcare market. Over 600 million people
      worldwide are affected by chronic obstructive pulmonary disease (“COPD”), which
      includes chronic bronchitis and emphysema, and up to 300 million people suffer
      from asthma, according to the World Health Organization and others. A
      respiratory market report by the industry research group Datamonitor estimated
      that the global market for asthma/COPD prescription drugs will grow from $13.3
      billion in 2003 to $19 billion by 2009. The prescription market for other
      respiratory ailments - allergies, hay fever, rhinitis and sporadic bronchitis
      -
      is estimated to exceed $12 billion annually and the pace is expected to
      grow.




According
      to Datamonitor, the United States is the largest national market, accounting
      for
      approximately 35% of the global asthma market. The U.S. market is followed
      by
      the Japanese market, which accounts for approximately 13% of the global asthma
      market. However, the United Kingdom has the largest market size per capita,
      due
      to high diagnosis and treatment rates and higher product prices there.
      Additionally, due to the Montreal Protocol regarding the ban on ozone-depleting
      CFC sprays, there are new regulations that require companies to phase out
      CFC-containing inhalers and replace them with CFC-free inhalers, propelled
      by
      substances such as HFAs. Many countries, including the United States, have
      not
      yet implemented the phase-out of CFC propellants for medical products, whereas
      the European Community, Canada and Australia have generally phased out the
      use
      of CFC pharmaceuticals.




We
      believe that we are one the few pharmaceutical companies in the world that
      has
      both CFC and HFA manufacturing capabilities. We also believe that we are one
      of
      a small number of companies that have the development capabilities to assist
      our
      clients in the transition from CFC to HFA inhaler applications. In addition
      to
      CFC and HFA, our Company also has expertise in isobutane propelled aerosol
      pharmaceuticals products as well as nasal and oral forced air and mechanical
      pump sprays, and hydrocarbon aerosol foam or mousse formulations for
      dermatological and other topical pharmaceuticals.




***Inhalation
      Drug Delivery (Non-respiratory and Respiratory)***




The
      inhalation delivery technology industry is estimated to currently generate
      $22.6
      billion in annual revenues and is expected to grow to approximately $40 billion
      by 2013, led by growing use of inhalation therapy for non-respiratory medical
      conditions, according to industry reports by Frost & Sullivan and
      Datamonitor.




Traditionally,
      the vast majority of medicines have been administered orally, either in
      solid/tablet or liquid form. Not all drugs can be taken effectively through
      the
      digestive tract and, therefore, must be administered parenterally, usually
      by
      injection. The inherent draw back to injections is in patient compliance and
      risk of infection when utilizing needle devices. Drugs administered through
      the
      lungs and nasal passage, however, also reach the circulatory system very
      quickly, bypassing the digestive track the same way as an injection. Because
      there is no pain or reluctance associated with needle use, patient compliance
      should be much higher with inhalation delivery.




According
      to publicly available documents regarding the biotechnology industry, with
      the
      recent mapping of the human genome there has been an explosion in new drug
      discovery targeted for specific disease states. These new drugs tend to be
      large
      peptides and proteins. If these types of complex molecules were to be taken
      orally, the environment encountered in the human digestive tract would degrade
      them and render them ineffectual. As such, many of these new drugs may be
      excellent candidates for delivery through the lungs. In addition, some of these
      large molecule drugs may also be candidates to be administered
      nasally.




7




As
      a
      result, for treatment of acute and systemic conditions where speed and ease
      of
      delivery are important - from cardiovascular conditions to pain management
      to
      insulin for diabetes - inhalation therapy is seen as an attractive alternative
      to injections and pills. Based on our experience in pulmonary and nasal drug
      delivery systems, combined with our development capabilities in these areas,
      we
      believe that we are in an excellent position to capitalize on working with
      new
      molecules that lend themselves to these types of drug delivery systems.




***Dermatological
      and Other Topical***




The
      worldwide retail market for dermatological prescription products is estimated
      by
      our Company to be approximately $9 billion in annual revenues, and growing
      at 5%
      to 10% per year. The market is normally subdivided into five categories:
      retinoids (any of various synthetic or naturally occurring analogues of vitamin
      A), steroids, antifungals, antibiotics and other products. Such products are
      widely used to treat skin conditions, including acne and atopic dermatitis,
      fungal infections, inflammation and psoriasis, baldness and for hair removal.
      In
      addition, such drugs are used for diagnostic procedures and to treat symptoms
      of
      aging, photo-damage and photosensitivity.




According
      to publicly available reports, skin conditions requiring the use of medications
      often tend to be of a chronic nature with causes unknown. The drugs are often
      used in order to relieve symptoms rather than as a permanent cure. The result
      is
      a constant demand for continuing drug therapy from the patient base. Until
      recently, this market has lacked innovation in its drug delivery sector. Drugs
      were normally administered only in creams and ointments. Some patients are
      reluctant to use treatments that leave visible sticky or greasy spots on
      themselves or their clothing. With the advent of hydrocarbon aerosol technology,
      drugs can be delivered in a foam or mousse formulation that allows the active
      ingredient to be quickly absorbed into the skin leaving no residues. Foam can
      also be formulated in an odorless mode. This may result in better patient
      compliance and, in turn, greater usage and demand for the drugs administered
      in
      this fashion. In addition, foam formulations also provide an added marketing
      benefit by serving as “line extensions” to existing cream and lotion
      products.




We
      believe that with our hydrocarbon aerosol manufacturing capabilities, we are
      well positioned to take advantage of this trend in the dermatology marketplace.
      In addition, we possess the development capabilities to assist new clients
      to
      transition their drugs into hydrocarbon foam delivery.




**Competition**




According
      to the Frost and Sullivan Report and other publicly available documents, the
      global contract service industry was comprised of more than 5,000 contract
      manufacturing organizations (“CMOs”) and contract research organizations
      (“CROs”) combined. These reports further indicate that over 650 of these firms
      operate in North America and Europe, but fewer than 20 of these CMOs and CROs
      are major participants in the pharmaceutical outsourcing industry. The majority
      of such competitors provide contract manufacturing services to third parties
      only if manufacturing capacity is available. In some cases, these competitors
      may also present acquisition opportunities as consolidation in the
      pharmaceutical industry continues.




We
      believe that our major competition comes from in-house producers; i.e., those
      pharmaceutical companies that decide to commercialize and/or manufacture their
      required products at their own facility. These include major pharmaceutical
      companies, generic drug manufacturers and consumer health product companies.
      In
      the specialty pharmaceutical sector, we compete directly with several large
      and
      small pharmaceutical product development and manufacturing organizations. Many
      of our competitors, particularly large established pharmaceutical and
      biotechnology companies, have significantly greater resources than we do.




We
      believe that we are able to compete effectively because we provide our customers
      with a spectrum of products and services in specialized niche areas but on
      a
      broad scale. Additionally, by leveraging integrated scale-up and pilot
      facilities, we can assist clients in developing sterile-fill manufacturing
      processes to commercialize new or innovative products in the aerosol drug
      delivery market.




8




We
      believe that we are a leader in the development, commercialization and
      production of respiratory, dermatological and topical aerosols. We also believe
      that by focusing on selected niche sectors of the pharmaceutical market, we
      can
      effectively compete with our competitors by leveraging our experience, expertise
      and customer distribution channels on specialty pharmaceutical products that
      are
      positioned at a price point that is attractive to the payer community, including
      managed care, government formularies and the specialist physician population.




**Production
      Focus**




Today,
      our Company develops and manufactures five types of complementary aerosol
      pharmaceutical products for our customers. In each case, we formulate the
      pharmaceuticals to our customers’ specifications and fill and package the
      delivery devices to produce a finished product. In addition, as a result of
      our
      acquisition of the Aventis PR operation, we now have the capabilities of
      developing and manufacturing dermatological creams, lotions and ointments.
      As a
      result of our Ashton acquisition, we also manufacture solid-dose products
      (tablets and capsules) as well as injectable pharmaceutical
      products.




***Metered
      Dose Inhalers (“MDIs”)*** **




We
      develop and manufacture metered dose inhalers (“MDIs”), used primarily for
      respiratory conditions, which employ both chlorofluorocarbon (“CFC”) and
      hydrofluoroalkane (“HFA”) propellant technologies. CFC-based products include
      albuterol (which is referred to as “salbutamol” outside the United States), the
      primary rescue medicine for asthma, and beclomethasone, a corticosteroid used
      as
      an anti-inflammatory for respiratory disease. HFA products include MDIs for
      respiratory ailments and a metered dose oral (“MDO”) spray, such as a “GTN”
spray, which is a nitrate propelled HFA aerosol that is used for prescription
      and over the counter products, primarily for cardiac ailments. Such products
      may
      provide certain therapeutic advantages because they are absorbed directly into
      the systemic circulation and bypass the gastrointestinal tract, which provides
      faster onset and also may reduce the dose requirements for the patient.




In
      the
      past, our CFC-propelled MDIs were sold throughout Europe, Australia, Canada
      and
      South America. Given growing global restrictions on ozone-depleting CFC
      pharmaceutical products, their use has been significantly curtailed around
      the
      world and the use of non-ozone-depleting HFA products is increasing.
      Specifically, we are now developing several HFA-MDIs for a number of our
      clients. Further, we plan to exploit the MDO-spray HFA product through sales
      to
      our primary customer in this area, Genpharm Inc., a Canadian-based subsidiary
      of
      the generic pharmaceutical division of Merck KGaA (“Merck Generics”).




Utilizing
      client-funded product and process development applications, we plan to continue
      changing to HFA MDI production in 2006, while continuing to utilize CFC-MDI
      manufacturing capabilities and CFC allocations for markets that have not yet
      banned CFC use. This includes capitalizing on our relationships with a number
      of
      our clients which have extensive distribution channels for such products in
      South America, Africa and the Middle East. We believe we have a competitive
      advantage in this sector as one of the few pharmaceutical companies with the
      capabilities to both develop and manufacture HFA-based inhalants.




***Dry
      Powdered Inhalers (*** ***“DPIs”)***




We
      assist
      in the development and production of dry powder inhalers (“DPIs”), which today
      are primarily used for respiratory ailments such as asthma. Specific products
      in
      this area include salbutamol (known as “albuterol” in the United States), which
      we believe is the leading generic product in the area, and beclomethasone,
      which
      we believe is the second leading generic product in the area. Our major
      customers in the DPI area have licensed a DPI device (the “Clickhaler”) that we
      currently manufacture under a license agreement from a U.K.-based biotechnology
      company. For example, we have recently commenced production of a formoterol
      Clickhaler and a budesonide Clickhaler for our client Merck Respiratory. Our
      DPI
      capabilities have been materially enhanced by our Ashton acquisition on August
      31, 2005.




Based
      on
      increasing consumer acceptance and the growth in diagnoses and incidences of
      asthma, we believe that DPIs are expected to grow in use. We also believe that
      manufacturing revenue opportunities in this product category will continue
      to
      expand, because inhalation delivery is beginning to enjoy increased use for
      non-respiratory systemic conditions where ease and speed of drug delivery are
      important, such as insulin for diabetes and pain management drugs.




9




***Metered
      Dose Pump Sprays (*** ***“MDPSs”)***




We
      develop and produce metered dose nasal and throat pumps and sprays (“MDPSs”) for
      nasal decongestion, anti-allergic and anti-inflammatory applications. Specific
      products within these areas include corticosteroid products such as a
      beclomethasone dipropionate for the treatment of allergy conditions. Allergy
      pump sprays are a seasonal product with the largest consumer use coming in
      the
      spring and late summer months. We plan to leverage the manufacturing upgrades
      that the previous owners of our U.K.-based manufacturing site performed on
      the
      pump spray filling line. We believe that such upgrades will provide us with
      an
      excellent production base to maintain our existing customer volumes, while
      developing new business in the growing seasonal allergy market sector. Further,
      we intend to capitalize on growth opportunities in this area by expanding
      product development and marketing activities that may lead to manufacturing
      opportunities. Such opportunities include pump sprays for complex proteins,
      pain
      medications, hormone applications and vaccines.




***Hydrocarbon
      Aerosols***




We
      develop and manufacture hydrocarbon aerosols as a delivery system for
      dermatological and topical drug applications. The drug (usually a corticosteroid
      or similar anti-inflammatory agent specifically formulated with excipients)
      is
      kept under pressure in a can with liquid hydrocarbons. These hydrocarbons are
      normally a mixture of propane, iso-butane and butane. As the product is
      dispensed and released from the can, the hydrocarbons spontaneously vaporize,
      turning the resulting mixture into a mousse or foam (depending on the exact
      formulation). This results in the drug taking a form suitable for rapid
      absorption into the skin, leaving no greasy residue on skin or clothing as
      conventional creams and lotions often do. In addition, the hydrocarbons used
      are
      deodorized, so the administration of the drug leaves no smell on the skin.
      We
      currently utilize two hydrocarbon aerosol filling lines. These manufacturing
      lines are equipped with fire suppressant equipment, protected gassing of
      hydrocarbons, remote safety monitoring equipment, and dedicated manufacturing
      areas.




Based
      upon our knowledge of the United Kingdom pharmaceutical industry, we believe
      that our contract share of the United Kingdom prescription and over-the-counter
      hydrocarbon aerosol market is substantial. In some instances, depending upon
      the
      product’s medical application (e.g., topical foams), we may be the only contract
      manufacturer for such products. Additionally, we believe that the specialized
      nature of the topical hydrocarbon aerosols market, which we believe has limited
      competition, will allow us to continue to maintain and expand our current market
      share in this sector.




We
      intend
      to expand our expertise and know-how in this area in order to be recognized
      as a
      world leader in hydrocarbon aerosols for pharmaceutical applications. In
      addition to our growing business base and the recent rise of new hydrocarbon
      aerosol business in the pharmaceutical industry, we believe that there are
      significant growth opportunities in aseptic hydrocarbon applications for other
      existing or potential customers as the use of this technology continues to
      grow.
      With significant experience in this area and regulatory compliant hydrocarbon
      aerosol filling lines, we believe we are well positioned to expand our contract
      market share in this sector. Additionally, as development runs for the
      introduction of new products vary, we believe that we have sufficient
      manufacturing flexibility to take on new products while addressing our
      customers’ volume requirements.




***Dermatological/Topical
      Creams, Lotions and Ointments***




In
      addition to hydrocarbon aerosols, we also have the capabilities of developing
      and manufacturing creams, lotions and ointments for dermatological and other
      topical drug applications. These drugs are usually a corticosteroid or similar
      anti-inflammatory agent specifically formulated with excipients and manufactured
      in different strengths depending on the potency required. Such corticosteroid
      creams and ointments are also absorbed at different rates from different parts
      of the body.




***Sterile
      Salines & Injectables*** ******




As
      a
      result of our Ashton acquisition, we believe that we may now be one of the
      largest combined manufacturers of both sterile saline and alcohol aerosols
      in
      the United Kingdom. We develop and manufacture products that are nitrogen
      propelled, buffered and non-buffered normal aerosols for eye and wound care.
      These include the water-for-injection/alcohol aerosols and non-alcohol based
      disinfectant aerosols. We use automated filling equipment to aseptically fill
      both aqueous and oil-based solutions and have the capability to automatically
      or
      manually inspect products. We also offer a variety of fully and semi-automated
      packaging lines for a full range of presentations. In addition, we are actively
      pursuing new technologies such as a “bag-in-can” wound spray that may provide
      enhanced spraying parameters for sterile wound aerosols.




10




Ashton
      also has expanded our development and production capabilities into sterile
      injectable pharmaceutical products. We fill ampoules and vials in batch sizes
      from sub 1 liter through 200 liters (soon to increase up to 400 liters). We
      also
      have the capability to automatically or manually inspect products.




***Solid
      Dose (Tablets and Capsules)***




Ashton
      also has expanded our development and production capabilities into solid dose,
      including sustained-release capsules. At Ashton, we have computer controlled
      compression machines capable of producing up to 200,000 tablets per hour. We
      also have film tablet coating areas that process aqueous and solvent
      formulations as well as sugar coating, and we have specialized facilities for
      handling potent and steroid materials. In addition, we have specialized
      packaging equipment that enables us to pack a wide range of formats and
      materials, including blister packaging that is becoming increasingly demanded
      for the proper daily dosing of tablet and capsule medications.




**Product
      Rights**




The
      processes we use to develop and commercialize our clients’ products utilize
      technologies are proprietary to our Company and can therefore be used to support
      other customer activities. Such technologies consist of the process of filling
      and packaging pharmaceutical products and the associated operating procedures
      and methods. However, specific product formulations and specifications supplied
      by the client, including such data acquired through acquisition of a
      pharmaceutical business, are deemed confidential to the providing client and
      are
      therefore not available for us to use in any other application.




**Major
      Customers**




Our
      revenues are currently derived from pharmaceutical manufacturing and associated
      product formulation and development outsourcing services, including product
      stability, commercial scale-up, and validation and regulatory support for our
      clients’ products. These contract revenues are dependent upon our customers’
maintaining or obtaining the necessary regulatory approvals and product
      specifications for the commercialization of their products in designated
      markets, and our vendors/suppliers being able to provide us with required raw
      materials and components to manufacture our clients’ products on a timely basis,
      and in line with our customers’ requirements and demands.




We
      have
      been actively marketing our capabilities to our own customer base and the
      pharmaceutical industry in general. In addition to the business we acquired
      as a
      result of our acquisitions of Ashton and the assets of Aventis PR, we have
      signed and commenced a number of new customer contracts and purchase orders.
      For
      the year ended December 31, 2005 our top three customers accounted for
      approximately $29.2 million in net revenues or approximately 59% of total net
      revenues. In comparison, for the year ended December 31, 2004, our top
      three customers accounted for $7.5 million in net revenues or approximately
      48%
      of total net revenues.




For
      the
      year ended December 31, 2005, our top three customers were Kos Pharmaceuticals,
      Inc. (“Kos”), a specialty pharmaceutical company headquartered in Cranbury, New
      Jersey; UCB Pharma Ltd., a UK subsidiary of UCB Group, a global
      biopharmaceutical firm headquartered in Brussels, Belgium; and Sanofi-Aventis
      Group (“Sanofi-Aventis”), the third largest pharmaceutical company in the world,
      headquartered in Paris, France.




Our
      roster of top customers changed in 2005 as a result of the acquisitions of
      Ashton and the assets of Aventis PR during the year. In 2004, our three largest
      customers were the Merck Generics group of companies (“Merck Generics”), that
      are part of an international pharmaceutical and chemical company (Merck KGaA)
      headquartered in Darmstadt, Germany; SSL International Plc (“SSL
      International”), a healthcare company headquartered in London, England; and
      Genpharm Inc., a generic drug company headquartered in Toronto, Canada. Each
      of
      these companies continues to be an important client to Inyx.




11




As
      part
      of our strategic growth objectives in the contract manufacturing area, we are
      continuing our efforts to broaden our relationship with these customers and
      others, and to generate revenues from our own product development and
      commercialization program to mitigate the risk of our economic dependence on
      any
      one client. We also believe that by utilizing our existing or potential
      customers’ distribution channels to distribute our own proprietary products,
      once we have completed the development and regulatory approval of such products,
      we can broaden and strengthen our relationship with such clients.  Our top
      three customers in 2005 were as follows:




***Kos
      Pharmaceuticals, Inc.*** **




Last
      year, our largest customer was Kos Pharmaceuticals, Inc. (“Kos”), headquartered
      in Cranbury, New Jersey, a fully integrated specialty pharmaceutical company
      engaged in the development of proprietary prescription pharmaceutical products,
      principally for the treatment of cardiovascular, respiratory and metabolic
      diseases. According to its website, Kos’ principal product development strategy
      is to reformulate existing pharmaceutical products with large market potential
      to improve safety, effectiveness and patient compliance. Kos currently markets
      several proprietary drugs for the treatment of various disorders, including
      an
      anti-inflammatory drug for asthma (Azmacort).




Pursuant
      to our March 31, 2005 acquisition of the business assets of Aventis PR, a
      manufacturing and supply agreement for the production of a CFC-version of
      Azmacort by Aventis PR for Aeropharm Technology, Inc. now Aeropharm Technology
      LLC., (“Aeropharm”), a Kos subsidiary, was assigned to our subsidiary, Inyx USA
      by Aventis PR (the “Aeropharm Supply Agreement”).




Under
      the
      Aeropharm Supply Agreement, we manufacture and supply to Aeropharm commercial
      and sample units of Kos’ Azmacort in a CFC gas-propelled metered dose inhaler
      (“MDI”) for respiratory inhalation. The original Aeropharm Supply Agreement was
      entered into between Aventis PR and Aeropharm on March 5, 2004, carried a
      five-year term and had a minimum annual volume of 1.5 million units. On April
      15, 2005, Aeropharm and Inyx agreed to amend the Aeropharm Supply Agreement
      to
      expand the product and supply agreement to include an HFA version of Azmacort
      and to increase the term of the agreement to ten years. As a result of this
      Amendment and based on Aeropharm’s production requirements of at least 2.2
      million units per year, we believe that this contract will generate revenues
      of
      approximately $10 million annually, at a gross profit of approximately 20%.
      A
      minimum annual volume of 1.5 million units was provided.




For
      the
      year ended December 31, 2005, Kos accounted for $13.1 million in net revenues
      or
      approximately 26% of total net revenues for the year.




***UCB
      Pharma Ltd.***




UCB
      Pharma Ltd. (“UCB Pharma”) is a United Kingdom subsidiary of UCB Group, a
      biopharmaceutical company that develops, manufactures and markets pharmaceutical
      products for the therapy of severe diseases treated by specialists.
      Headquartered in Brussels, Belgium, UCB Group employs over 8,500 people in
      more
      than 40 countries across the world, with annual revenues in excess of €3
      billion.




Pursuant
      to our August 31, 2005 acquisition of Ashton, we received a five-year
      manufacturing contract from UCB Pharma as well as a long-term product support
      and services contract. For the year ending December 31, 2005, UCB Pharma was
      our
      second largest customer, generating $11.9 million in revenues for the four
      months subsequent to the Ashton acquisition, or approximately 24% of our
      Company’s total net revenues for the year.




We
      are
      producing approximately 70 products for UCB Pharma across three production
      streams: solid dose (tablets/capsules), sterile solutions and dry powder
      inhalers. In solid dose, the largest volume products are: Pregaday, an iron
      and
      folic acid supplement designed for use by pregnant women; Dexedrine, a central
      nervous system stimulant available in tablet or sustained-release capsule form,
      which is prescribed to treat attention deficit hyperactivity disorder (“ADHD”)
      and narcolepsy; and Equasym, another stimulant to treat ADHD. The largest volume
      products in the sterile solution category are: Predsol, a corticosteroid and
      antibiotic combination used to treat inflammatory eye and ear infections;
      Betnesol, another corticosteroid for short-term inflammation in the eye or
      ear;
      and a generic morphine sulphate
      narcotic analgesic in a pre-filled injectable product designed for use in
      emergency medical kits to treat severe pain from catastrophic
      injuries.  Among
      dry
      powder inhalers the largest volume products are: Asmasal, in the generic drug
      class known as salbutamol (called “albuterol” in the United States), the primary
      rescue medicine for asthma and chronic bronchitis; and Asmabec (beclomethasone),
      a corticosteroid used to reduce inflammation in the lungs caused by asthma.




12




***Sanofi-A*** ***ventis
      Group*** **




The
      Sanofi-Aventis Group is the largest pharmaceutical company in Europe and the
      third largest in the world. Headquartered in Paris, France, Sanofi-Aventis
      has
      over 100,000 employees worldwide with revenues in 2005 totaling in excess of
€27
      billion. Sanofi-Aventis was created as a result of the acquisition of Aventis
      Pharmaceuticals by Sanofi-Synthélabo in 2004.




On
      March
      31, 2005, we also entered into a long-term manufacturing and supply agreement
      with Aventis to manufacture and supply dermatological creams, lotions and
      ointments to Aventis from the Manatí, Puerto Rico manufacturing facility that we
      acquired from Aventis PR (the “Aventis Supply Agreement”). The Aventis Supply
      Agreement was established to allow Sanofi-Aventis to transition their production
      requirements into their other manufacturing sites while allowing them to
      continue utilizing the Manatí site as a back-up production site and for those
      products that they chose not to move. The agreement is for an initial period
      of
      three years with two successive automatic one year renewals, thereby creating
      a
      five year agreement in total. Under the Aventis Supply Agreement, Inyx, through
      its subsidiary Inyx USA, is to manufacture and supply to Aventis various
      dermatological products marketed by Aventis including Sulfacet lotion, Hytone
      lotion and cream, Benzagel wash, Vytone cream and Klaron lotion. There are
      no
      minimum quantity provisions or guarantees under the Aventis Supply
      Agreement.




For
      the
      year ended December 31, 2005, Sanofi-Aventis was our third largest customer,
      and
      accounted for $4.1 million in net revenues, or approximately 9% of our Company’s
      total net revenues for the year.






**Product** **Development**




Inyx’s
      business strategy also includes the development and sales of our own proprietary
      products, including both drug delivery devices and pharmaceutical products
      which
      are complementary to our manufacturing technologies. Although we have started
      developing our own proprietary pharmaceutical products, we have not yet
      commenced the marketing or sale of any such products. We expect that our first
      proprietary product, a consumer health pharmaceutical aerosol product, will
      be
      ready for commercial marketing in 2006.




We
      are
      focusing our own research and development activities on inhalation-therapy
      drug
      delivery devices and inhalation methods, and generic prescription and
      over-the-counter aerosol pharmaceutical products for respiratory,
      dermatological, topical and cardiovascular applications. Proprietary products
      under development include generic versions of non-CFC or HFA single molecule
      and
      combination drug respiratory inhalants, non-CFC propelled oral sprays for
      cardiovascular ailments, wound irrigation and cleansing sprays that utilize
      novel barrier technologies, and anti-inflammatory nasal pumps.




We
      plan
      to distribute our proprietary products through our own sales force under
      Exaeris, our customers’ distribution channels and/or in collaboration with
      strategic marketing partners, although we do not yet have any distribution
      agreements for our planned products finalized.




13




Currently,
      we are primarily focusing our product development efforts on generic versions
      or
      extensions of established and non-patented products and barrier delivery systems
      that overcome present product and propellant incompatibility and consumer use
      issues in the aerosol pharmaceutical sector. As such, our initial proprietary
      product will be a private-label wound care and wound irrigation spray utilizing
      a barrier-pack technology which allows a hermetical seal between the product
      and
      the propellant. This type of barrier may overcome any incompatibility issues
      between a particular drug product and propellant. Wound cleansing products
      contain ingredients that absorb drainage and/or deodorize a wound, and are
      utilized to cleanse a wound before the application of a dressing. Wound
      irrigation and cleansing sprays also remove dead tissue while keeping healthy
      tissue intact. We expect to have our wound-care product ready for commercial
      launch in Europe in 2006. We are currently testing our developed formulation
      for
      stability in a barrier pack container.




We
      are
      also developing both saline and steroidal plastic container nasal pump sprays
      for the treatment of allergic and non-allergic rhinitis, disorders characterized
      by inflammation of the mucous membranes lining the nasal passages. Both nasal
      sprays are being developed to help reduce the inflammation of the nasal passages
      and bring relief from the effects of rhinitis including sneezing, nasal itch,
      and obstruction and rhinorrhea. We expect to have these nasal pump sprays ready
      for distribution by the end of 2006. The formulation work on these products
      has
      been completed and we are currently performing compatibility studies on various
      pump sprays to be utilized in the plastic container.




We
      are
      also undertaking early stage feasibility studies on anti-inflammatory
      corticosteroid molecules, as single molecule or as combination drugs, for use
      as
      inhalant therapies in the treatment of asthma and sublingual aerosol pump sprays
      for the cardiovascular market. We plan to develop such inhalants as metered
      dose
      inhalers utilizing non-CFC propellants. If our feasibility studies are
      successful, we expect to be in a position to commence the commercialization
      of a
      single molecule corticosteroid anti-inflammatory for the treatment of asthma
      in
      2006, with commercial marketing launch planned for 2009. Feasibility studies
      include formulation stability and optimization, pre and post-formulation
      pharmaceutical analysis, and analytical method development and validation.




On
      September 21, 2004, we announced that we completed the acquisition of a
      patented platform technology in order to enable us to more readily develop
      inhalation-therapy drugs, including combination drugs, intended to be delivered
      in aerosol formats. The technology is based on the utilization of a
      lipid-binding matrix for delivering incompatible or unstable drug substances.
      We
      acquired the technology from Phares Technology B.V., the parent company of
      Phares Drug Delivery AG of Muttenz, Switzerland (“Phares”), which developed and
      originally patented the technology. As part of their agreement with us, Phares
      will provide related product development and technology support for a fee.
      We
      intend to immediately apply this acquired technology in our respiratory inhalant
      product development program to improve the delivery of inhalation-therapy drugs
      and overcome aerosol delivery incompatibility for combination drugs.




We
      plan
      to market our proprietary products in developed countries within the Western
      Hemisphere and Europe. In order to meet the regulatory requirements of such
      markets, our planned products must meet the regulatory requirements of the
      pharmaceutical regulatory agencies of the U.S. Food and Drug Administration
      (“FDA”), the United Kingdom Medicines and Healthcare Regulatory Agency (“MHRA”),
      the European Community Evaluation Agency (“EMEA”), and the Canadian Therapeutic
      Products Directorate (“TPD”). Each of these agencies publishes the regulatory
      requirements for respiratory drugs administered via oral, inhalation and/or
      nasal routes, and topical and dermatological applications. Our product
      development programs are designed to meet the combined requirements for these
      agencies. While the principal pharmaceutical standard and approval process
      requirements are similar, there are aspects of the regulatory requirements
      that
      are different. Therefore, in order to also meet the individual regulations
      of
      each respective regulatory agency, our development team conducts product
      development activities in parallel to ensure that each respective regulatory
      body’s approval requirements are met.




We
      have
      submitted amended filings to the MHRA for two products under review, and we
      anticipate that we will make additional filings within the next 12 months.
      While
      there is a risk that product approval regulatory requirements may change during
      the execution of a development program, we do not believe that this is likely
      to
      happen for the products that we are currently developing. We also possess a
      number of approved product licenses within the United Kingdom (see “Product
      Licenses” below). These products comply with the requirements of the MHRA. We
      presently are marketing some of these products, and we intend to commence
      marketing on the other products in the United Kingdom within the next 12 months.




14




We
      also
      believe that we can enhance our competitive position through the continuous
      acquisition of regulatory-approved pharmaceutical products and drug delivery
      devices for respiratory, dermatological and topical drug delivery applications
      or such products in development, including those through the acquisition of
      other pharmaceutical companies. We are presently analyzing a number of such
      product or drug delivery acquisitions, although no formal agreements have been
      finalized.




Our
      product development capabilities are located at our Inyx Pharma development
      and
      manufacturing facilities in the United Kingdom. Additionally, as a result of
      our
      March 31, 2005 acquisition of the Aventis PR operation, we will be implementing
      capabilities at that site for product development support (including scale-up
      and analytical work and stability support services) to better serve Western
      Hemisphere markets.




We
      have
      now also commenced enhancing our manufacturing and product development
      capabilities in our focus areas. This includes improving our manufacturing
      technologies for barrier pack aerosol sprays and CFC-free metered dose inhalers,
      and building out our laboratories and expanding our product development staff
      to
      implement this business strategy.




We
      anticipate the delay of the development and commercialization of our HFA
      nitroglycerin (GTN) spray product into late 2006 as a result of transferring
      that development and manufacturing work to our operations in Puerto Rico. We
      believe that our facility’s strategic location in Puerto Rico, its staffing
      levels and skill set and current regulatory status with the FDA will allow
      us to
      more readily capitalize on pharmaceutical product development and scale-up
      activities for the U.S. market.




**Manufacturing
      Facilities**




Our
      existing manufacturing facilities are located at Astmoor, Runcorn, Cheshire,
      in
      the United Kingdom; Ashton, Lancashire, also in the United Kingdom; and Manatí,
      Puerto Rico.




Our
      Runcorn production facility is operated by our UK subsidiary, Inyx Pharma.
      At
      that facility, we manufacture sterile aerosol products, including metered dose
      and dry powder respiratory inhalers, pump sprays, and saline and topical
      aerosols. Our Runcorn manufacturing operation consists of over 60,000 square
      feet of manufacturing, laboratory and warehouse space and we currently have
      103
      employees working at the facility. Among this personnel are 18 members of
      management, 15 members of our clerical staff and 70 employed in development,
      production and distribution. Highlights of our manufacturing operation include:
      two cGMP-compliant regulatory approved hydrocarbon aerosol manufacturing and
      filling lines; an HFA metered dose inhaler manufacturing and filling line,
      which
      is regulatory compliant and fully validated; and an innovative dry powder
      inhaler production facility.




Our
      recently acquired Ashton Pharmaceuticals Limited (“Ashton”) operation is a
      152,000 square foot cGMP plant which is compliant with United Kingdom, Europe,
      and Asia regulatory requirements. This site is located in North West England
      near Manchester and is about an hour drive from the Inyx Pharma facility in
      Runcorn. The Ashton facility, which has benefited from £15 million in capital
      investment over the past five years from its previous owners, focuses on three
      production streams: dry powder inhalation, sterile injectable and solid-dose
      pharmaceutical products. This site employs 308 people, which includes 72 members
      of management and clerical staff and 236 production personnel.




Our
      Puerto Rico operation is a 140,000 square foot pharmaceutical manufacturing
      facility consisting of five buildings extending over 9.5 acres. The site is
      located in the town of Manatí, in north central Puerto Rico, about 30 miles
      outside of San Juan. The Manatí site manufactures respiratory inhalers,
      utilizing both CFC and HFA propellants, nasal and allergy pumps and
      dermatological creams, lotions and ointments. All raw materials, components
      and
      finished goods produced are stored on site in an approximately 27,000 square
      foot warehouse housed in one of the five buildings. We employ 144 persons at
      this site, 111 production personnel, 9 members of clerical staff and 24
      managers.




**Manufacturing
      Capacities**




With
      respect to metered dose inhalers, we employ two filling lines at our Runcorn
      facility and a third line at our Puerto Rico site. At Runcorn, the first MDI
      manufacturing line produces environmentally-friendly HFA inhalers and is capable
      of manufacturing 15.0 million units annually, based on three shifts. Our
      capacity utilization on this line has been averaging 19% on an annual basis,
      based on one shift. The other Runcorn MDI manufacturing line produces CFC-based
      inhalers and has a capacity of 49.4 million units annually, based on three
      shifts. Due to the Montreal protocol our capacity utilization on this line
      has
      been averaging 4% on an annual basis, based on one shift, both lines consist
      of
      valve placements, filling, check-weighing and packing operations. These lines
      are also capable of bulk manufacture feeding and come with integrated downstream
      packaging.




15




Our
      Puerto Rico MDI manufacturing line produces CFC and HFA based inhalers and
      has a
      total capacity of 33.9 million units annually, based on three shifts. Due to
      the
      Montreal Protocol’s phase-out of CFC inhalers, demand for this product has been
      diminished, resulting in a capacity utilization of 25% based on one
      shift.




In
      producing dry powder inhalers, we utilize semi-automatic processes that include
      bulk manufacture, device assembly and printing, filling and packaging. Our
      annual output capacity for DPIs at our Runcorn facility is 4.8 million units
      based on three shifts. Based on one shift, our current production at Runcorn
      is
      running at approximately 6%. The annual output capacity at our Ashton facility
      is 1.5 million units based on three shifts. Based on one shift at Ashton, our
      current production is currently running at 73% of capacity for this line.
      Collectively the DPI capacity is currently at 6.3 million units based on three
      shifts. Based on one shift, our current production is running at approximately
      28% of capacity for our DPI production lines.




With
      respect to pump spray production, our Runcorn facility employs newly installed
      equipment capable of bulk manufacturing, filling/crimping or filling/screw
      capping and final packaging. We are capable of producing these products in
      glass
      or plastic bottles. Current maximum capacity for the pump spray line is
      26.1 million units annually, based on three shifts. Based on one shift, our
      current production is running at approximately 10% of capacity for this line.
      Our Puerto Rico facility also has two pump spray lines with a capability for
      processing of Pump Sprays with a maximum capacity of 77.4 million units. We
      are
      not currently utilizing this line.




The
      acquisition of the assets of Aventis PR has expanded our development and
      production capabilities into dermatological pharmaceutical products in the
      form
      of gels, creams, ointments, and lotions. These two production lines at Manatí
can manufacture such semi-solids in container sizes ranging from 0.5 oz to
      4 oz. Current
      maximum capacity for this line is 84.6 million units annually, based on three
      shifts. This work center is also capable of handling creams and ointments in
      presentation format ranging from plastic and aluminum tubes in various sizes
      from 3 gms through 60 gms. Our capacity utilization on this line has been
      averaging 4% on an annual basis, based on one shift.




Our
      Ashton acquisition has introduced sterile injectable pharmaceuticals into the
      portfolio of products we manufacture. We are able to produce up to 29 million
      units per year based on two shifts. We fill ampoules and vials in batch sizes
      from 10 liters through to 200 liters (with plans to increase capacity up to
      400
      liters) per year based on two shifts. We also have the capability to
      automatically or manually inspect products. Based on one shift, our current
      production is running at approximately 35% of capacity for this
      line.




Ashton
      also has expanded our development and production capabilities into solid dose
      pharmaceuticals, and we are able to produce up to 1.7 billion tablets and
      capsules annually based on three shifts, with computer controlled compression
      machines capable of producing up to 200,000 tablets per hour. We have film
      tablet coating facilities able to process aqueous and solvent formulations
      as
      well as sugar coating, and we have specialized facilities for handling potent
      and steroid materials. In addition, we have specialized packaging equipment
      that
      enables us to pack a wide range of formats and materials, including blister
      packaging that is becoming increasingly demanded for the proper daily dosing
      of
      tablet and capsule medications. Our capacity utilization on this line has been
      averaging 83% on an annual basis, based on one shift. At our Puerto Rico site
      we
      also have some solid dose capabilities; current maximum capacity for this
      facility is 21.7 million units annually, based on three shifts. We are not
      currently utilizing this line.




With
      respect to saline aerosol spray production, our Runcorn facility employs
      equipment capable of bulk manufacturing, filling/crimping and final packaging.
      We are capable of producing these products in aluminum canisters. The current
      maximum capacity for the saline aerosol line is 19.3 million units
      annually, based on three shifts. Based on one shift, our current production
      is
      running at approximately 27% of capacity for this line.




16




With
      respect to topical hydrocarbon aerosol spray production, our Runcorn facility
      employs equipment capable of bulk manufacturing, filling/crimping and final
      packaging and are capable of producing these products in aluminum or tinplate
      canisters. The current maximum capacity for the topical hydrocarbon aerosol
      line
      is 19.3 million units annually, based on three shifts. Based on one shift,
      our current production is running at approximately 46% of capacity for this
      line. Our Puerto Rico facility also employs equipment capable of bulk
      manufacturing, filling/crimping and final packaging. We are capable of producing
      these products in glass bottles, aluminum or tinplate canisters. The current
      maximum capacity for the hydrocarbon aerosol line is 3.3 million units
      annually, based on three shifts. Based on one shift, our current production
      is
      running at approximately 25% of capacity for this line




Finally,
      with respect to secondary packaging, we utilize two discrete packaging areas
      at
      our Runcorn site each capable of handling a wide range of products and packaging
      materials on an automatic, semi-automatic, and manual basis. The two MDI
      packaging lines are capable of packaging material via check-weighers, function
      testers, labeling, cartoning, shrink-wrap, coding and palletizing equipment.
      Based on three shifts, these packaging lines are capable of packaging
      approximately 51.8 million MDI units annually, and our capacity utilization
      is
      currently 5% for these two lines collectively based on one shift. Our Puerto
      Rico facility also has an MDI packaging line with a capacity of 29 million
      units
      annually, based on three shifts. Based on one shift, our current production
      is
      running at 29% of capacity for this line.




**Capital
      Improvements**




We
      continuously make capital improvements to our development and production
      facilities in order to improve operating efficiencies, increase automation,
      improve quality control and keep pace with regulatory requirements and market
      demand. In 2005, we committed to spend and have commenced spending approximately
      $1.3 million in capital expenditures at our U.K. sites, including a substantial
      upgrade to our dry powder inhaler (DPI) and solid dose processing areas to
      facilitate an increase in potential capacities. Additional capital was committed
      to insure that the capabilities of our equipment and facilities were maintained
      to acceptable health, safety and regulatory levels. At our Puerto Rico site
      we
      committed to spend and have commenced spending approximately $365,000 to
      purchase the necessary equipment to automate the manufacturing process related
      to a manufacturing and supply agreement we were awarded by NovaDel Pharma Inc.
      (“NovaDel”) to produce its NitroMist nitroglycerin spray in a CFC-free oral
      metered dose dispenser for NovaDel and its designated marketing partners under
      a
      ten-year contract. Approximately $1.8 million was also committed to provide
      additional substantial upgrades at each of our sites, including additional
      packaging capabilities, critical utilities such as purified water, electrical
      systems and business protection equipment.




In
      2006,
      we plan to spend a total of approximately $8.3 million in capital expenditures.
      Approximately $5.3 million will be spent in our two U.K. facilities, which
      will
      provide increased capabilities in our metered dose inhaler (MDI), DPI,
      hydrocarbon topical aerosols, solid dose manufacturing and related packaging
      facilities, and expanding our sterile injectable capacity. Approximately $2.2
      million will be committed at our Puerto Rico plant, which includes upgrading
      of
      solid dose capabilities, the installation of new processing facilities for
      expanded MDI capabilities, and commencement of the installation of eye care
      manufacturing capabilities scheduled to be completed in 2007. The capital
      budgets at all three sites also include expenditures to ensure that each site
      maintains acceptable health, safety and regulatory standards. Approximately
      $750,000 has also been budgeted corporate-wide, mostly related to the
      integration of all our operations and the expansion of our information
      technology systems.




In
      2007
      we may require additional capital expenditures totaling approximately $12
      million to further enhance our development, manufacturing and quality control
      systems not only related to contract business but also to the production and
      commercialization of our company’s own proprietary products.




**Suppliers**




We
      utilize a variety of suppliers as indicated by our own and our customers’
respective requirements. There are eight critical suppliers for a number of
      our
      products, primarily related to our can, and valve and spray actuator
      requirements for aerosol products. The loss of any of these key suppliers,
      or
      the interruption or delay in the supply of materials and components would force
      us to seek an alternative source, which could result in an interruption of
      our
      sales. Agreements with these suppliers are through routine purchase orders
      and,
      as noted above, in the case of the Bespak and 3M we pay a royalty fee to those
      suppliers for the use of their respective valves in an HFA GTN aerosol product
      we manufacture for one of our clients. If we fail to meet these suppliers’
payment terms, we may face delays or interruption of critical supplies for
      our
      production requirements.




17




As
      of
      December 31, 2005, our key suppliers and their terms of payment were:




·
            Cebal
                UK Limited: Provides various types of cans. We pay Cebal on a pro
                forma
                basis, meaning that we pay in advance for our supply of valves from
                this
                company prior to production.




·
            Valois
                UK Ltd.: Provides valves for MDIs. We pay Perfect Valois on a pro
                forma
                basis.




·
            LABLABO:
                Provides actuators for steroidal foam products. Payment terms are
                30%
                deposit prior to manufacture and the 70% balance from date of invoice.




·
            Bespak
                Europe Ltd.: Provides actuators/valves for MDIs and the Clickhaler
                device.
                Payment terms are pro forma prior to manufacture. Royalty fees to
                Bespak
                (0.5% of HFA GTN sprays) and 3M (5.5% of HFA GTN sprays) are due
                quarterly.




·
            Precision
                Valve (UK) Ltd.: Provides aerosol can valves. Payment terms are 30
                days
                from the date of invoice.




·
            Nussbaum
                (UK) Ltd.: Provides cans. Payment terms are 30 days from the date
                of
                invoice.




·
            Eurand
                SpA: Provides tablets. Payment terms are 30 days from the date of
                invoice.




·
            Innovata
                Biomed plc: Provides machinery for use in the DPI facility. Payment
                terms
                are 30 days from the date of
                invoice.




**Inventories**




We
      maintain various levels of inventories of pharmaceuticals, raw materials and
      components to produce our products and drug delivery devices, which are stored
      in warehouses at our production sites. Inventories are reconciled monthly and
      security measures are in place to avoid theft and unauthorized access.
      Additionally, in accordance with regulatory requirements finished products,
      are
      quarantined in specific areas within our warehouse facilities before shipping
      to
      our customers. We do this to allow the completion of quality assurance testing
      on finished goods prior to shipping such products to our customers.




**Product** **Development** **Capabilities**




Our
      development operation is comprised of a 13-person pharmaceutical research and
      development center, located at a 30,000 square foot leased laboratory and office
      complex in Manor Park, Cheshire, England. This development and testing center
      is
      a five minute drive from our Runcorn manufacturing site and provides analytical
      and formulation development, stability testing, scale-up and validation
      outsourcing services to our clients. With our acquisition of the Puerto Rico
      site, we plan to establish strong development capabilities in all critical
      functions there to serve the marketplace in the Western Hemisphere.




On
      a
      contract or fee-for-service basis, we provide product research and development
      services to our customers in the respiratory, allergy, dermatological, and
      cardiovascular and topical disease areas. In addition to these services, our
      research and development group is now also actively involved in developing
      our
      own proprietary products, and seeking drug delivery extensions and improvement
      for existing marketed products. Our research and development group also provides
      our manufacturing services group with integrated support for product scale-up
      and commercialization activities, and explores ways to improve the quality
      and
      efficiency of our manufacturing processes. Our development scientists and
      associated laboratories have developed a number of pharmaceutical products
      for
      our clients. Such products are currently being supplied to these clients in
      a
      number of international markets. Early-stage development activities are
      outsourced when necessary to independent clinical research organizations to
      reduce overhead costs and increase efficiency.




18




Our
      development operation, comprised of five separate areas listed below, is
      vertically integrated into our manufacturing operation, thereby allowing us
      to
      provide complementary scale-up and commercialization services for our
      manufacturing clients and allowing us to scale-up our own products, when
      developed, to commercial production.




***Formulation
      Development*** **.** We have
      the capability to formulate a wide range of therapeutic dosage forms. We
      presently concentrate on those dosage forms that complement our core
      manufacturing skills, such as orally inhaled products (metered dose and dry
      powder inhalers), nasal pump actuated formulations and topical and dermal
      pharmaceuticals.




***Analytical
      Development*** **.** Our
      development group also has the ability to work closely with existing and new
      customers to provide method development and validation services that support
      pre-formulation and stability testing. This group is equipped with required
      analytical instrumentation including automated High Performance Liquid
      Chromatography (HPLCs), gas liquid chromatography, malvern particle sizer,
      and
      Anderson cascade impactors. Generated methods and reports are used to support
      worldwide regulatory submissions.




***Stability.*** Our
      development group also provides extensive time-point testing expertise, enabling
      the group to guide our clients to the appropriate stability protocol for a
      particular type of dosage form or targeted geographic market. Large walk-in
      stability chambers offer the flexible capacity to meet world-wide market
      requirements, all operating within guidelines for the International Conference
      on Harmonization of Technical Requirements for Registration of Pharmaceuticals
      for Human Use (ICH). We intend to expand our stability capabilities and services
      as we believe that customer demand for this type of development service is
      growing.




***Regulatory
      Support.*** This
      development service is comprised of four functions: 1) technical guidance,
      which
      involves ensuring that all agreed technical protocols will achieve license
      approval in the target geographic market; 2) license submission support, where
      we generate a comprehensive product technical file, which is then transferred
      to
      the client for inclusion in a regulatory file submission; 3) technical
      assistance, which involves assisting the client to respond promptly to queries
      and questions from the regulatory authorities; and 4) license maintenance,
      which
      involves supporting renewal and license variations including manufacturing
      licenses.




***Integrated
      Project Management*** **.** We also
      provide full turnkey project management services at our Manor Park development
      center. These services include formulation and analytical development through
      production scale process validation and batch stability, and to license
      submission support and production for commercial marketing. Alternatively,
      our
      development clients can contract for any combination of the individual component
      services provided by our development group.




**Seasonality**




A
      number
      of our products are seasonal. Such products include the metered dose pump sprays
      such as the beclomethasone aqueous nasal products that are supplied to the
      allergy market. Such products are predominantly produced early in the first
      quarter for sale in the spring season and then again in the third quarter for
      sale in the late summer (harvest season) of each year. We also manufacture
      a
      hydrocarbon-based product that is used in the treatment of head lice and this
      is
      produced during specific periods to allow its sale to coincide with the
      beginning of school terms. Our sales levels are also affected by plant closings
      for year-end holidays.




**Business
      Strategies**




We
      believe that our competitive strengths lie in our experienced management, our
      ability to offer specialized pharmaceutical development and manufacturing
      services, including product transition consulting services, and our blue-chip
      customer base. We intend to employ the following key strategic initiatives
      in
      order to leverage our strengths:




***Provide
      comprehensive sterile fill manufacturing and developmental services in the
      aerosol and topical spray market sector:***




We
      believe that the outsourcing of finished dosage form drugs is a growing trend
      in
      the pharmaceutical industry, resulting in an increasing demand for our services.
      By capitalizing on our niche sterile-fill pharmaceutical aerosol manufacturing
      technologies, we intend to provide our clients with commercial manufacturing
      capabilities that may be largely unavailable to our clients’ competitors.
      Additionally, through integrated late-stage drug development and manufacturing
      scale-up capabilities, we believe that we can enhance our clients’ competitive
      position by accelerating the time to market for their new pharmaceutical
      products. Due to the ensuing site-specific, regulatory authorizations for the
      manufacture of these products at our production facility, we believe we can
      retain the subsequent commercial manufacturing opportunities from clients.




19




***Develop
      and invest in specialized sterile-fill manufacturing processes that have
      significant barriers to entry:***




We
      believe that we must continue to expand our customer base by developing and
      investing in specialized sterile-fill manufacturing processes that constitute
      significant barriers to entry. We believe that most of our contract services
      growth opportunities will come from pharmaceutical companies’ requirements for
      highly specialized manufacturing technologies, for which they lack the required
      niche expertise or capacity. In particular, due to their increased presence
      in
      the healthcare market, we expect that biopharmaceutical and virtual
      pharmaceutical companies, which typically lack an in-house manufacturing
      infrastructure, will increasingly rely on us for their process development
      and
      production requirements. We believe that as we further develop our specialized
      manufacturing capabilities, we can maintain greater pricing power and margin
      growth as a result of increased demand. Based on our experience within the
      industry, we anticipate that potential clients may be unable to secure these
      specialized manufacturing capabilities elsewhere, while competitors may not
      be
      inclined to invest in specialized non-core manufacturing competencies that
      may
      take significant time and capital to develop.




***Enhance
      clients*** ***’
      competitive position by accelerating time to market for new and innovative
      pharmaceutical products:***




We
      believe that one of our strengths is our ability to provide our customers with
      a
      full spectrum of products and services in development, formulation, analytical
      testing and trial, and large-scale production phases within the pharmaceutical
      aerosol sector. By leveraging integrated scale-up and pilot facilities, we
      feel
      that we can assist our clients develop sterile-fill manufacturing processes
      to
      commercialize new or innovative products. We also expect that as a result of
      their limited financial resources, which are focused on clinical development
      and
      clinical testing, biotechnology and small, specialized pharmaceutical clients
      will increasingly rely on our integrated product development and manufacturing
      capabilities to bring their products to market.




***Focus
      on quality, versatility, innovative solutions and outstanding customer service:***




Our
      success is critically dependant upon achieving results for our clients by
      providing comprehensive and versatile development and manufacturing services
      in
      our targeted market sectors, which include the respiratory, allergy,
      dermatological and topical disease areas. We have integrated our development
      and
      scale-up capabilities with our manufacturing operations in order to allow
      ourselves to efficiently introduce new products or product line extensions
      into
      a targeted market area. Based on our experience, regulatory agencies such as
      the
      FDA and the MHRA are continuously enacting new policies requiring more high
      quality control and quality assurance systems in the global pharmaceutical
      industry. As a result of these policies by the regulatory agencies, we feel
      that
      we must continually invest to maintain and upgrade our manufacturing and quality
      systems to meet the evolving requirements of such regulatory agencies, our
      customer’s needs, and our own requirements. Furthermore we believe that we must
      also continue to enhance our staff training systems in order to improve our
      staff’s performance in line with our customers’ changing needs. It is our view
      that manufacturing flexibility, along with a well-trained staff and high quality
      systems, will allow us to provide good customer service, and thereby enhance
      our
      competitive position and growth opportunities.




***Improve
      the organic growth of the business by introducing volume products that
      complement the existing product portfolio, especially via the introduction
      of
      our own proprietary products:***




We
      believe that we possess a blue-chip customer base that has an international
      presence and multinational distribution channels. Based on our review of
      publicly available documents, many of our customers are lacking one or more
      key
      pharmaceutical aerosol products in their product portfolio or are looking for
      product line extensions in niche market areas. We expect that by developing
      and
      licensing these types of niche products to our client base, we can significantly
      increase our manufacturing volume and enhance the commercial relationships
      we
      have with these customers. It is our belief that the Company can also take
      advantage of key strategic relationships with a number of our customers to
      exploit key and profitable niche market sectors in the aerosol pharmaceutical
      market. We believe that these customers would prefer to allocate capital and
      resources to sales and marketing functions, while leaving the manufacturing
      to
      companies like us. This trend may become even more prevalent in cases where
      highly specialized development processes or equipment is required. We believe
      that such factors also facilitate the introduction of our Company’s own
      proprietary products, which will allow us to focus on materially higher
      profitable business opportunities while departing from lower profit activities.




20




***Capitalize
      on the increasing conversion from ozone-depleting CFC aerosol pharmaceutical
      products to non-CFC pharmaceuticals:***




Having
      conducted the transition from CFC to CFC-free aerosol pharmaceuticals for
      clients in Europe and Canada, we believe that we are one of the few
      pharmaceutical companies in the world that has proven experience in such
      conversions. As the United States and countries in Asia and Latin and South
      America implement the phase-out of CFC pharmaceutical products in coming years,
      we plan to increase our contract development and manufacturing services in
      this
      area and also to leverage our CFC-to-HFA expertise into strategic partnering
      relationships, as well as to cultivate our Company’s own CFC-free proprietary
      products.




***Where
      feasible, acquire under-exploited, complementary pharmaceutical products and
      businesses that would benefit from our development and production expertise:***




We
      also
      seek growth opportunities through strategic product and business acquisitions
      that would benefit from our aerosol pharmaceuticals development and production
      expertise, including our capabilities in the conversion of CFC-based
      pharmaceutical aerosol productions to CFC-free pharmaceutical aerosols. We
      anticipate that there is an increasing trend in the pharmaceutical industry,
      particularly by big pharmaceutical companies, to license or sell outright
      products that they deem to no longer be core assets. We also believe that the
      acquisition of strategic products and businesses would accelerate the building
      of our Company.




***Become
      a vertically integrated, specialty pharmaceutical company to leverage our niche
      drug delivery technologies, proprietary development platforms and strategic
      industry relationships:***




Exaeris
      commenced formal operations in January 2006 as Inyx’s marketing and commercial
      arm in North America. Although it operates independently of Inyx’s client
      manufacturing operations, we believe that Exaeris will create more possibilities
      for business collaborations and greater opportunities to commercialize both
      client’s products and our own planned proprietary products in the United States
      and Canada. Exaeris will also seek to capitalize on opportunities to acquire
      products of other pharmaceutical companies which are no longer core assets.
      Exaeris’ focus is on the sales and marketing of niche or enhanced pharmaceutical
      products in the respiratory, allergy, dermatological, topical and cardiovascular
      treatment market sectors. Exaeris is presently organizing its management team
      and sales force, which is being established initially through a commercial
      relationship with a pharmaceutical contract sales representative organization.
      The Exaeris sales force is initially focused on the marketing of King
      Pharmaceutical’s Intal® product,
      under the long-term, collaborative alliance that Inyx has with King. Currently,
      too, Exaeris is actively seeking other product-marketing opportunities. We
      believe that Exaeris provides the commercial and marketing resources to
      complement Inyx’s development and manufacturing operations, making our Company a
      vertically integrated, specialty pharmaceutical company.





**Insurance
      Coverage and Risk Management**




We
      maintain insurance coverage, including property, major weather catastrophes,
      casualty and business interruption; foreign medical costs; freight; motor
      vehicles; title insurance on owned real properties; errors and omissions
      including general liability; product liability; workers’ compensation and
      personal accident and business/union travel insurance. We also maintain director
      and officer liability coverage. We currently maintain product liability
      insurance with coverage limits of $20 million per occurrence on claims made
      basis with a maximum $20 million aggregate per policy year. We believe such
      coverage is adequate for our present level of operations.




21




Our
      products must comply with the strict requirements of pharmaceutical
      manufacturers including those required by the United States’ FDA, the United
      Kingdom’s MHRA, the Canadian government’s TPD, and the European Union’s EMEA,
      plus general current good manufacturing practices (“cGMPs”) required in the
      pharmaceutical industry.




We
      also
      maintain a quality assurance group to ensure that production quality and
      associated documentation meet the requirements of our customers and regulatory
      authorities alike. The quality control group performs in-line testing during
      the
      manufacturing operations to ensure that the necessary standards are met and
      finished product testing to ensure that the products were manufactured in
      accordance to our customers’ specifications and regulatory requirements. All
      filled and packaged product is placed in quarantine to verify and ensure
      sterility before it is shipped to the customers. Regulatory agencies, local
      environment, health and safety authorities and the customers themselves, inspect
      and audit our facilities and operations on a regular basis.




**Trademarks,
      Patents and Licenses**




When
      we
      acquired Inyx Pharma on April 28, 2003, we acquired a number of licenses
      and other forms of intellectual property. Since that acquisition, we have also
      acquired a number of product licenses and drug delivery technologies that we
      believe will allow us to effectively compete in our targeted market sectors.




***Pharmaceutical
      Manufacturing Licenses***




Inyx
      Pharma possesses a Manufacturer’s License, ML20165, granted by the MHRA and also
      possesses all the necessary authorities, approvals and certifications to conduct
      normal business activities within the United Kingdom.  See “Government
      Regulation.”  The license must be renewed every five years, and the next
      renewal is due in February 2008.




Ashton
      also possesses a Manufacturer’s License, ML11816/01M, granted by the MHRA and
      possesses all the necessary authorities, approvals and certifications to conduct
      normal business activities within the United Kingdom.  See “Government
      Regulation.”  The license must be renewed every five years, and the next
      renewal is in July 2006.




Inyx
      USA
      possesses the necessary licenses and registration certificates, granted by
      the
      FDA and also possesses all the necessary authorities, approvals and
      certifications to conduct normal business activities within the United
      States.  See “Government Regulation.”  The license must be renewed
      annually, with the next renewal in April 2006 in accordance with
      21CFR207.21.




***Product
      Licenses***




Inyx
      Pharma owns product licenses granted by the MHRA in the U.K. market for
      oxymetazoline decongestant nasal spray, chlorhexidine gluconate mouth spray
      and
      beclomethasone dipropionate nasal spray.  Every license in the United
      Kingdom is granted for a period of five years.  At that time, the product
      license is subject to a review by the U.K. Medicine and Healthcare products
      Regulatory Agency (“MHRA”).  The MHRA reviews product stability, adverse
      event reports and any legislative changes that may have taken place within
      that
      five-year period that may have affected the licensing requirements for that
      product.  During the review process, the subject company may continue to
      market the licensed product.  Once the MHRA completes its review, it
      extends the expiration date on the license for another five years, when the
      licensing review cycle is repeated again.




As
      part
      of our Ashton acquisition on August 31, 2005, we acquired three product licenses
      granted by the MHRA, for the treatment of hyperthyroidism (propylthiouracil
      and
      thyroxine tablets) and acute gout (colchicine).




On
      April
      26, 2004, we announced that we acquired a group of parenteral pharmaceutical
      product licenses (i.e., injections and irrigations that are administered
      intravenously) enabling our Company to enter the hospital supply market in
      the
      United Kingdom. These product licenses were issued by the MHRA and gave us
      the
      production and distribution rights in the U.K. through 2005 /6 for a
      group of hospital products used in infusion, irrigation and injection
      applications. The products were acquired for a nominal fee from a pharmaceutical
      company that was placed in U.K. Administration in 2002.  These products
      were acquired royalty-free, are currently under review for extension, and are
      summarized as follows:




22




Product
            
            Solution
            
            IndicationSterile
                Chlorhexidine Gluconate
            
            
            0.2
            %
            
            DisinfectantSterile
                Chlorhexidine Gluconate
            
            
            0.05
            %
            
            DisinfectantSterile
                Chlorhexidine Gluconate
            
            
            0.1
            %
            
            DisinfectantSterile
                Chlorhexidine Gluconate (Pink)
            
            
            0.05
            %
            
            DisinfectantSterile
                Chlorhexidine Gluconate (Pink)
            
            
            0.5
            %
            
            DisinfectantSterile
                Chlorhexidine Gluconate & Centrimide
            
            
            0.15
            %
            
            DisinfectantSterile
                Chlorhexidine Gluconate & Centrimide
            
            
            0.05
            %
            
            DisinfectantMetrozol
                Injection
            
            
            -
            
            
            AntibioticSodium
                Chloride
            
            
            0.9
            %
            
            IV
                InfusionGlucose
            
            
            5%(1
            )
            
            IV
                InfusionUroclens
                Chlorhexidine
            
            
            N/A
            
            
            DisinfectantUroclens
                Saline
            
            
            N/A
            
            
            Saline
                Solution





(1)Other
      concentrations up to 50% are undergoing licensing renewals




We
      are
      currently in discussions with a number of parties regarding the use of their
      sales and marketing and distribution capabilities to sell the above listed
      products through their sales channels, although currently no such agreements
      have been formalized. We plan to manufacture these products at our Ashton site
      commencing in 2007.




Pursuant
      to our 2005 acquisition of the intellectual property of Carr Pharmaceuticals,
      Inc., a pharmaceutical company that went through bankruptcy proceedings, we
      obtained ophthalmic pharmaceutical product licenses that will enable our Company
      to manufacture a variety of over-the-counter (“OTC”) and prescription eye care
      products. Among these are OTC eye drops and eye care solutions used for reducing
      redness in the eyes; eye wash which helps relieve irritation, burning and
      itching; artificial tears which protect the eyes and relieve dryness and
      irritation; and saline solution used for contact lens maintenance. We also
      obtained the intellectual property and know-how to manufacture the following
      prescription eye care products, utilized for treating and diagnosing eye
      disorders:




·
            Atropine
                Sulfate (1%)


·
            Carbachol
                (3%)


·
            Phenylephrine
                HCl (2.5%)


·
            Pilocarpine
                HCl (0.5%; 1%; 2%; 3%; 4%; 6%)


·
            Sulfacetamide
                Sodium (10%)


·
            Tetracaine
                HCl (0.5%)


·
            Tropicamide
                (0.5% and 1%)





We
      intend
      to commence manufacturing these eye care products at our Inyx USA manufacturing
      site in Puerto Rico in 2007, and to have Exaeris market the products when they
      are ready for commercialization.







***Medical
      Devices***




Inyx
      Pharma is also an ISO9001/EN 46001 registered company and as such is approved
      for the design, manufacture and inspection of pharmaceutical medical devices.
      Such medical devices include sterile saline for wound irrigation, ringers
      irrigation solution, sterile saline in a polyethylene bottle, sterile buffered
      saline for contact lens use, sterile saline aerosol for contact lens use, two
      step lens care system stage one-disinfecting solution and two step lens care
      system stage two-rinsing and neutralizing solution. Our certifications were
      recently renewed and do not expire until 2007.




23




***Registered
      Marks and Logos***




We
      use
      and have filed trademarks on Inyx, Inyx Pharma and the associated logo (i.e.,
      six square orange and grey boxes). In April 2005, we received confirmation
      that
      our application to trademark the Inyx name and logo had been approved for the
      United States market. Subsequent to year end, in March 2006, we received
      confirmation that approval for our trademark had similarly been made in the
      Japan market. We are currently continuing such applications in other major
      countries. We are also pursuing trademark protection worldwide for our Ashton
      Pharmaceutical and Exaeris brands.




***Patents
      and Registered Design Rights***




Our
      customers’ patents and product licenses are owned by the respective client. On a
      contract basis, we manufacture products according to our customers’
specifications. Until we successfully develop and begin to market our own
      products, we will not have any design rights that are registered to our own
      brand items. At that time, we will seek trademark protection for any design
      rights or brand names for such products.




On
      September 21, 2004, we announced that we had completed the acquisition of
      the patent rights to a novel platform technology, from Phares Technology B.V.
      (“Phares”), which we believe will enable us to more readily develop
      inhalation-therapy drugs, including combinations of inhalation drugs that cannot
      be readily combined in one drug delivery device. The Phares technology is based
      on the utilization of a lipid-binding matrix for delivering incompatible or
      unstable drug substances. For example, in November 2004, we received positive
      results from a two-year Phares stability study utilizing the lipid-binding
      matrix on an HFA-propelled formulation of salbutamol (albuterol) for use in
      an
      MDI. We intend to now test the matrix on other types of respiratory drugs.




Pursuant
      to our acquisition of the technology for use in inhalation-therapy drugs, Phares
      assigned all relevant patents to us. Such patents include “Methods of preparing
      proliposome dispersions and aerosols” and “Membrane lipid composition and method
      for its preparation.” The Phares technology is patented in the United States
      (U.S. Patent No. 5,141,674); Japan (Japanese Patent No. 2779 165); and
      Europe (EP Patent No. 0 309 464) and its major countries, including the United
      Kingdom, Sweden, Switzerland, Germany, France and Holland. The respective
      patents for Sweden, Switzerland, Germany, France, Holland and the United Kingdom
      were originally registered to Phares Pharmaceutical Holland B.V., which
      subsequently merged with Phares Technology B.V. on December 12, 2000.




As
      additional consideration for the transfer of these patent rights, we paid Phares
      approximately $86,000 in transfer fees plus approximately $67,500 as support
      and
      management fees.




**Confidential
      Information, Industrial Secrets, Trade Secrets and Know-how**




We
      have
      entered into confidentiality agreements with our employees and third parties
      including customers, suppliers and contractors. Confidential information, such
      as business proposals and/or plans, customer lists, profit projections, budgets,
      economic or market information and specific manufacturing methods, is limited
      to
      staff and customers on a “need to know” basis. Data such as manufacturing
      formulas and methods, forecasts etc. are held within databases under individual
      password control. We retain and control all associated soft copy and hard copy
      documentation.




Our
      product formulation group has certain know-how in the development of new
      formulations and comparative brand leader testing, including associated testing
      for product submissions, in the pharmaceutical aerosol sector. Such core skills
      include polymer chemistry, colloid chemistry, drug design, powder technology,
      and formulation and device interactions. We also possess analytical skills
      to
      support these activities.




Additionally,
      we believe that we have certain know-how and applicable expertise in the
      manufacturing scale-up and industrialization of certain pharmaceutical products,
      including:




·
            Metered
                dose inhalers - utilizing HFA 134a or CFC as propellants




·
            Sublingual,
                oral and throat sprays - utilizing propellants or as pump sprays




24




·
            Dry
                powder inhalers




·
            Hydrocarbon
                topical and foam products




·
            Nasal
                pump sprays




·
            Barrier
                pack systems




·
            Sterile
                saline solutions and injectables




·
            Solid
                dose (tablets and capsules), including sustained release pills




Currently,
      we protect this know-how and expertise through trade secrets and confidentiality
      agreements although we are in the process of further protecting our proprietary
      information with applicable patents. At this time, no such patents have been
      granted.




As
      a
      result of our acquisition of the business assets of Aventis PR, we received
      certain pharmaceutical know-how and technical data required to manage and
      operate an FDA-approved, regulatory compliant pharmaceutical operation in the
      respiratory, allergy and dermatological sectors.




As
      a
      result of our acquisition of Ashton, we received certain pharmaceutical know-how
      and technical data required to manage and operate a facility in regulatory
      compliance for the production of inhalation delivery, solid dose and injectable
      pharmaceutical products to be marketed in the United Kingdom, Europe and Asia.




**Databases
      and Software Protection**




Our
      information technology and database systems, including PEMAC (Planned
      Maintenance program), Prolog 4 (Payroll system), Maximizer (Customer
      Relationship Management system) and other Microsoft-based systems, are all
      individually licensed, and controlled and supported by our internal information
      technology group.




As
      a
      result of our acquisition of the business assets Aventis PR, we acquired a
      JD
      Edwards Enterprise Management system ,
      as well
      as computer
      software, data and documentation related to the former Aventis PR aerosol and
      dermatological pharmaceutical operation at the Manatí  site.
      All
      necessary licenses to operate our information systems at the Manatí site,
      including the JD Edwards system, were transferred to Inyx USA by Aventis
      PR.




As
      a
      result of our acquisition of Ashton, we acquired an Oracle Enterprise
      Manager  system,
      which Celltech had purchased in 2004 for approximately €8 million. All necessary
      licenses to operate these Oracle information systems at Ashton were transferred
      to our Company as part of that purchase.




During
      2006, we will continue to integrate our operating sites and support offices,
      both from a financial and operational controls standpoint. This integration
      includes making a decision on which Enterprise technology system we will utilize
      on a companywide basis.




**Domain
      Names**




We
      have
      registered several domain names, including “inyxgroup.com”, “inyxinc.com”,
“inyx-pharma.co.uk”, “inyx-pharma.com”, “exaeris.com” and “inyxusa.com.” The
      address of our primary website is “www.inyxgroup.com.”




**SOX
      404 Compliance**




We
      are
      regulated by laws which oversee our corporate governance and financial
      disclosure.  In particular, section 404 of the Sarbanes-Oxley Act (“SOX
      404”) requires extensive procedures for establishing and maintaining internal
      controls for publicly traded corporations.  To date this regulation has not
      applied to our Company because our market capitalization has been under $75
      million, but this exemption is being lifted for all companies in 2007. 
Consequently we are pursuing the implementation of procedures that we
      believe will place us in full compliance with SOX 404.  The Company
      expects that it will incur costs as a result of such actions.




25




**Government
      Regulation**




Our
      business as a pharmaceutical company is regulated by government authorities
      in
      jurisdictions where we and our customers market and distribute products,
      including the United States, the United Kingdom, Canada and various parts of
      Europe and Latin America. We must ensure that our products and services
      continuously comply with strict requirements designed to ensure the quality
      and
      integrity of pharmaceutical products. These requirements include the United
      States Federal Food, Drug and Cosmetic Act (“FDC Act”) governed by the FDA and
      the United Kingdom’s Medicines Act governed by the MHRA. Our products and
      services must also continuously comply with the requirements of the European
      Union’s EMEA, and the Canadian TPD. These regulations apply to all phases of our
      business, including drug testing and manufacturing; record keeping; personnel
      management; management and operations of facilities and equipment; control
      of
      materials, processes and laboratories; and packaging, labeling and distribution.




All
      of
      the pharmaceutical products supplied to the United States market are approved
      and regulated by the FDA and are approved under, and subject to, the FDC Act.
      In
      the U.S., the FDA requires extensive testing of new and existing pharmaceutical
      products to demonstrate safety, efficacy and purity, ensuring that the products
      are effective in treating the indications for which approval is granted. Where
      products are under development, testing in humans may not commence until either
      an investigational new drug application has been approved or an exemption is
      given by the FDA.




Where
      a
      drug is acquired that has been previously approved by the FDA, both the Company
      and the former application holder are required to submit certain information
      to
      the FDA. This information, provided it is adequate, enables the transfer of
      manufacturing and/or marketing rights to take place. The Company is also
      required to advise the FDA about any changes that may affect the approved
      application as set forth in FDA’s regulations. Our strategy focuses on acquiring
      existing approved products or those in late-stage development, transferring
      manufacture to our own facilities to leverage our existing expertise and
      know-how where this is considered both economic and advantageous. In order
      to
      perform such transfers, we must demonstrate by filing information with the
      FDA
      that we are able to manufacture the product in accordance with current good
      manufacturing practices (“cGMPs”) and the specifications and conditions of the
      approved marketing application. For changes where prior approval is required
      under FDA regulations, there is no assurance that such approval will be granted
      by FDA.




The
      U.S.
      government has extensive enforcement powers over the activities of
      pharmaceutical manufacturers, including the authority to withdraw approvals,
      to
      prohibit sales of unapproved or non-conforming products, seize product and
      to
      halt manufacturing operations that are not compliant with cGMPs in addition
      to
      monetary penalties, both civil and criminal. Such restrictions may materially
      adversely affect our business, financial performance and results of operations.




In
      addition, modifications to or enhancements of manufacturing facilities may
      be
      subject to further additional approval by the FDA that may require a lengthy
      approval process. The Company’s manufacturing facility is subject to continual
      inspection from regulatory bodies and other government agencies such as the
      FDA,
      and manufacturing operations can be interrupted or halted if such inspection
      proves unsatisfactory.




Our
      United Kingdom manufacturing facilities also hold Manufacturer’s Licenses
      granted by the U.K.’s Medicines and Healthcare products Regulatory Agency
      (‘MHRA”). These licenses permit the Company to manufacture, control and supply
      pharmaceutical products to all markets provided that individual products meet
      with the specification in force within the particular territory that the product
      is marketed. The MHRA is very similar to the FDA in that it operates under
      formal legislation that controls the approval of all medicinal products used
      within the U.K. Due to the U.K.’s membership of the European Union, the MHRA
      also regulates products manufactured for sale both within the U.K. and the
      E.U.
      The MHRA is responsible for the review and approval of all license applications
      and, via its inspection and enforcement division, the inspection and control
      of
      manufacturing, assembly and labeling requirements for all medicinal products.
      As
      with the FDA, the MHRA has a legal jurisdiction whereby companies who are not
      compliant with license particulars (known as marketing authorizations within
      the
      E.U.) or cGMP can be heavily penalized, including seizure, cessation of
      manufacture, product recall or, in extreme cases, the cancellation of the
      manufacturer’s license. In this latter case, the manufacturing facility is
      unable to manufacture for any market. Monetary penalties can also be enforced
      subject to the judicial system approval within the U.K.




26




Our
      operations are also subject to numerous and increasingly stringent regulations,
      whether scientific, environmental or labor related, and can be applied via
      central government or at state or local level. The standards required by
      regulatory authorities as a result of changes in statutes, regulations or legal
      interpretations cannot be determined in advance by us. Such future changes
      could
      have a material effect upon our business in the future. Changes may, among
      other
      aspects, require modification to manufacturing facilities or processes, amend
      labeling, result in product recall, replacement or discontinuation of products,
      increase the requirements for control and record keeping or require additional
      scientific substantiation. Such changes may affect our business, financial
      condition and results of operations.




Our
      U.S.
      and U.K. plants are inspected by the regulatory authorities on a periodic basis
      and all three sites comply with the principles of good manufacturing practice
      to
      date.




In
      addition to regulations that govern the manufacture and supply of pharmaceutical
      products, our U.K. facilities are also subject to regulation by other agencies
      such as the United Kingdom’s Health and Safety, Executive Environmental Agency
      and other legislation within the U.K. (e.g. Labour Relations Act, etc.) that
      are
      applicable under the laws of the United Kingdom. Periodic inspection by the
      appropriate agencies occurs to ensure that we are in compliance with the
      requirements within the appropriate regulations whether these are local, state
      or national.




**Employees** ****




As
      of
      December 31, 2005, we employed a total of 572 personnel, consisting of 9
      senior executives, 21 senior managers, 41 other members of management, 84
      clerical staff, 167 technical personnel (including 13 scientific research and
      development personnel), and 250 production, maintenance and distribution staff.




Our
      success is heavily dependent on the performance of our executive officers and
      managers. We have entered into employment agreements with these individuals,
      including our top five paid executives which include Dr. Jack Kachkar, our
      Chairman and Chief Executive Officer; Steven Handley, our President; Colin
      Hunter, our Chief Scientific and Regulatory Officer; Jay M. Green, Executive
      Vice President and Director of Corporate Development; and Stephen Beckman,
      Vice
      President of Commercial Development for Inyx and President and Chairman of
      Exaeris, Inc., our wholly-owned marketing subsidiary. None of such persons
      has
      signified any intention to retire or leave the Company. Our growth and future
      success will depend, in large part, on the continued contributions of these
      key
      individuals as well as our ability to motivate and retain these personnel.
      In
      addition, our proposed plan of product development and sales activities will
      require an increase in scientific, management and sales and marketing personnel,
      and an investment in the professional development of the expertise of our
      existing employees and management. We are currently seeking business development
      personnel to join our Company.




Our
      United Kingdom operations, Inyx Pharma and Ashton, consult with their employees
      through a Joint Consultation Committee comprised of representatives across
      all
      levels of the business, and which is chaired by a senior manager. The purpose
      of
      that committee is consultative only. We believe that we enjoy favorable
      relations with our employees. We make available to our employees benefits
      consisting of a contributing and matching pension plan, available after one
      year
      of service, and life insurance benefits and stock options based upon the
      Company’s value and meeting performance targets.




Ashton
      has 28 unionized employees, all members of the TGWU (Transport & General
      Workers Union). Ashton employs an additional 276 staff who are not members
      of
      any union. A Staff Consultation Forum is in place that represents all 306 staff
      on site.




Our
      Inyx
      USA operation in Manatí, Puerto Rico has approximately 46 unionized employees in
      the engineering and manufacturing areas pursuant to a collective bargain
      agreement in effect through March 31, 2008. Inyx USA also has approximately
      100
      non-union employees across in management, quality control and quality assurance,
      supply chain, finance, support and administrative functions. All Inyx USA
      employees receive medical insurance and other benefits, including stock options
      based upon the Company’s value and meeting performance targets.




27




**Environmental
      Impact**




We
      utilize a variety of chemicals in our business, many of which are dangerous
      if
      used or handled improperly due to their toxicity, corrosiveness and ability
      to
      cause irritation or flammability. Wastes from our manufacturing and testing
      processes are either collected in drums and removed by a waste contractor or
      discharged into public sewers pursuant to a Trade Effluent Discharge Consent.
      The Company takes stringent precautions in the storage and use of these
      materials and constantly trains its personnel in their use. Because of this,
      we
      have not caused any release of hazardous materials into the environment or
      exposed any of our employees to health risks. We maintain liability and product
      liability insurance covering the risks of such exposure, in amounts we deem
      to
      be adequate.




Under
      government regulations governed by the Montreal Protocol on Substances That
      Deplete the Ozone Layer, chlorofluorocarbon (“CFC”) compounds are being phased
      out because of environmental concerns. We presently manufacture respiratory
      inhalers that utilize CFC gas as a propellant. Although, we have expertise
      in
      converting such products to non-CFC based respiratory inhalers and have
      commenced manufacturing non-CFC or hydrofluoroalkane (“HFA”) respiratory
      inhalers at our Inyx Pharma production facility, a small number of our customers
      continue to require CFC respiratory inhalers. These customers sell these
      products in a number of countries that still allow the import and marketing
      of
      CFC-based respiratory inhalers. We believe that we are able to successfully
      implement a complete transition to the use of CFC-free gas or HFA gas as a
      propellant in the development and production of respiratory aerosols, as may
      be
      required by the respective governing agencies.




Additionally,
      a material element of our growth strategy is to expand our existing business
      through strategic acquisitions of other pharmaceutical manufacturing operations.
      Prior to making any such acquisition, we expect to first complete stringent
      environmental studies through the use of expert consultants to ensure that
      there
      are no existing or potential environmental hazards at the site or the potential
      to environmentally contaminate neighboring sites from the acquired site.




**Available
      Information**




Our
      internet address is www.inyxgroup.com. At this website, the Company makes
      available, free of charge, its annual report on 10-K, its quarterly reports
      on
      10-Q, its current reports on 8-K and any amendments to these reports. The public
      may also read and copy any materials we file with the SEC at the SEC’s Public
      Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on
      the
      operation of the Public Reference Room can be obtained by calling the SEC at
      1-800-SEC-0330. Additionally, the SEC maintains at www.sec.gov an internet
      site
      that contains reports, proxy and information statements, and other information
      regarding issuers that file electronically with the SEC.




**ITEM
      1A.** **RISK
      FACTORS**




The
      Company is subject to numerous risks. You should carefully review and consider
      the following risks as well as all other information contained in this report.
      Additional risks and uncertainties of which we are currently unaware or which
      we
      believe are not material could also impair our business.




**RISKS
      RELATED TO OUR BUSINESS**




***We
      depend on our customers to continue outsourcing development and manufacturing.***




Our
      revenues are derived from manufacturing expenditures, and production-related
      compliance and testing and product development expenditures by pharmaceutical,
      biotechnology and medical device companies who are our clients. Currently,
      approximately 92% of our revenues are derived from contract manufacturing of
      pharmaceutical products and 8% from associated product development in support
      of
      our primary business. Our competitive position could be adversely affected
      if
      one or more of our major customers decided to manufacture their own products
      and/or move their associated product development and support requirements
      in-house. A general economic decline in these industries or a reduction in
      the
      outsourcing of research, development, testing, or production activities by
      our
      customers would result in a loss of revenues and produce a material adverse
      effect on our business, financial condition, results of operations and cash
      flows.




28




***We
      have experienced recent operating losses and will require additional financing
      to fulfill our business plan.***




We
      have
      experienced operating losses in each quarter since our predecessor company
      was
      placed into Administration. For the year ended December 31, 2005, we had a
      net
      loss of approximately $31.0 million compared to a net loss of $16.9 million
      for
      the year ended December 31, 2004. See Item 7, “Management’s Discussion and
      Analysis of Financial Condition and Results of Operation” for further details on
      our operations.




Contributing
      to our net losses in both respective years were operating expenses, consisting
      of product research and development costs, and general and administrative,
      selling, depreciation and amortization and amortization of intangible assets
      expenses, and interest and financing costs. Although our operating expenses
      as a
      percentage of net revenues improved by 15 percentage points during 2005 as
      compared to 2004, due to the allocation of corporate overhead over a larger
      revenue base, our losses increased between the comparative years as a result
      of
      the operating expenses and transaction costs associated with our respective
      acquisitions of
      the
      business assets of Aventis PR on
      March
      31, 2005, and
      all
      of the outstanding shares of Ashton through our subsidiary Inyx Europe, on
      August
      31, 2005 . Further
      adding to the 2005 net loss was low manufacturing capacity utilization at our
      Inyx Pharma U.K. site. This was caused by delayed implementation of production
      contracts and projects due to delays in regulatory approvals received by
      customers and acceptable supplies from approved vendors which subsequently
      commenced late in the year. In addition, at our new Inyx USA site, there were
      delays due to the extended time required for new business development in the
      contract pharmaceutical sector.




We
      expect
      to begin benefiting from our noted acquisitions including offsetting a
      significant part of our operating expenses as a result of the diverse client
      base, commercial collaborations and business development opportunities that
      we
      believe these business assets will begin to provide to our overall operation
      in
      2007 and future years. Once we fully integrate these new business acquisitions
      and continue to ramp-up our business and marketing efforts, we believe that
      we
      can obtain new contracts and purchase orders from existing and new customers,
      thereby setting off our operating expense and improving our profitability
      opportunities. We also expect our profitability opportunities to improve once
      we
      have commercialized for sale our own proprietary products or those through
      collaborative agreements with other pharmaceutical companies.




Additionally,
      we believe that we can enhance our competitive position through the acquisition
      of regulatory-approved pharmaceutical products and drug delivery devices for
      respiratory, dermatological, and topical and cardiovascular drug delivery
      applications or such products in development, including those through the
      acquisition of other pharmaceutical companies.




Furthermore,
      as we need additional funds to expand our sales and marketing activities and
      fully develop, manufacture, market and sell our potential products, we may
      have
      to delay our product development, commercialization and marketing programs
      if we
      are unable to continue to obtain the necessary capital to fund these operations.
      We cannot predict exactly if, or when, additional funds will be needed. We
      may
      obtain funds through a public or private financing, including equity financing,
      debt financing, a combination of debt and equity financing, and/or through
      collaborative arrangements. Additionally, we cannot predict whether any such
      financing will be available on acceptable terms. If our funding requirements
      are
      not met, we may have to delay, reduce in scope or eliminate some or all of
      our
      planned sales and marketing, and product development and commercialization
      activities.




***We
      are highly leveraged and will need to generate positive cash flow to service
      our
      debt.***




As
      of
      December 31, 2005, our total indebtedness outstanding (including current
      portion and amounts due to Seller of Ashton) was approximately
      $99.5 million, consisting primarily of approximately $85.4 million under
      two credit facilities with Westernbank Business Credit, a Division of
      Westernbank Puerto Rico (“Westernbank”) related to the two acquisitions made in
      2005, and $14.0 million owed to UCB Pharma related to our acquisition of
      Celltech Manufacturing Services Limited. The sum owed to UCB Pharma is comprised
      of a non-interest bearing amount of $9.5 million relating to deferred purchase
      price, to be repaid in six monthly installments between April and August 2006;
      and the balance owing for additional net current assets acquired not considered
      when the purchase price was negotiated between the parties amounting to $4.5
      million, payable on May 31, 2006, interest on which is accrued and payable
      at
      Barclay’s Bank base rate.




29




As
      of
      December 31, 2005, our annual debt service requirements are approximately $17.0
      million (which includes approximately $2.5 million and 5.3 million relating
      to
      the interest for the revolving credit facility and terms loans, respectively.)
      Such debt is collateralized by all the existing and future assets of the Company
      and its subsidiaries. In the event we are unable to generate sufficient cash
      flow from our operations or use proceeds derived from our financing efforts
      including through issuance of debt or equity securities, we may face
      difficulties in servicing our substantial debt load.




While
      we
      believe that our current manufacturing contracts and production schedules may
      provide sufficient cash to meet our current debt service requirements, there
      can
      be no assurance that these contracts and planned production schedules will
      result in a profitable operation or generate enough cash to meet all of our
      cash
      requirements.




***We
      currently depend on certain customers for most of our revenues.***




Our
      largest customers account for a significant percentage of our total net revenue.
      For the year ended December 31, 2005, our top three customers accounted for
      approximately $29.2 million in net revenues or approximately 59% of total net
      revenues of approximately $49.6 million. During the year ended December 31,
      2005, our top three customers were Kos Pharmaceuticals, accounting for
      approximately $13.1 million in net revenues or approximately 26% of total
      net revenues for the period; UCB Pharma Ltd., accounting for approximately
      $11.9 million in net revenues or approximately 24% of total net revenues;
      and Sanofi-Aventis, accounting for approximately $4.1 million in net
      revenues or approximately 9% of total net revenues. In comparison, for the
      year
      ended December 31, 2004, our top three customers accounted for
      approximately $7.5 million or approximately 48% of our total net revenues
      of approximately $15.7 million. These customers were the Merck Generics
      group of companies, accounting for approximately $4.2 million in net
      revenues or approximately 27% of total net revenues for the reporting period;
      SSL International Plc, accounting for approximately $1.8 million in net
      revenues or approximately 11% of total net revenues; and Genpharm Inc.,
      accounting for approximately $1.5 in net revenues or approximately 10% of total
      net revenues.




Due
      to
      the nature of the drug development process, significant customers in any one
      period may not continue to be significant customers in subsequent periods.
      Some
      customers may not seek our services for periods of a year or more during which
      they concentrate on testing and clinical trials related to the products we
      manufacture for them. We continually seek to increase our customer base as
      well
      as obtain new business from existing customers, whether or not significant
      contracts have expired or are expected to expire in the near future. The loss
      of
      business from a significant customer or the failure on our part to replace
      customers whose projects have been completed, either with new projects for
      such
      customers or any new customers, would result in a loss of revenues and produce
      a
      material adverse affect on our business, financial condition, results of
      operations and cash flows.




***Because
      we currently operate some of our business under short-term agreements, we need
      to maintain or increase the number of longer-term agreements in order to grow
      our business on a sustained basis.***




Although
      we provide a number of our products to our customers under long-term, multi-year
      agreements, we also receive some of our business under significant individual
      purchase orders and short-term agreements with our customers. Our success will
      depend on our continued ability to develop and maintain our relationships with
      our significant customers. We need to continue to successfully negotiate an
      increased number of purchase orders to replace reduced orders with new business,
      and secure longer-term contracts with a larger number of clients in order to
      increase our revenues to grow our business base on a sustained basis. If we
      fail
      to maintain our current rate of incoming orders, our revenues would be adversely
      affected.




***If
      we are not able to develop, manufacture, market and sell our own proprietary
      pharmaceutical products, our business and competitive position in the
      pharmaceutical industry may suffer.***




Our
      business growth strategy includes the development and sales of our own
      proprietary pharmaceutical products for respiratory, dermatological, topical
      and
      cardiovascular drug delivery applications through our own customers’
distribution channels or with strategic marketing partners. Although we have
      started developing our own proprietary pharmaceutical products, we have not
      yet
      begun the process of obtaining regulatory approvals for our planned products
      and
      have derived no revenue from any such proprietary products. Proprietary products
      currently under development include generic versions of non-CFC or HFA single
      molecule and combination drug respiratory inhalants, non-CFC propelled oral
      sprays for cardiovascular ailments, wound irrigation and cleansing sprays that
      utilize novel barrier technologies, and anti-inflammatory nasal pumps. We expect
      to introduce our first proprietary product, a private-label wound care aerosol
      spray utilizing a barrier-pack system, by the second half of 2006. We will
      compete with other pharmaceutical companies, including large pharmaceutical
      companies with financial resources and capabilities substantially greater than
      ours in the development and marketing of new pharmaceutical products or generic
      ones. Although we are building the resources to implement such a business
      strategy and grow our business, we cannot provide assurance that we will be
      able
      to successfully develop or commercialize our own pharmaceutical products,
      whether new products or generic ones, on a timely or cost-effective basis.




30




***Our
      ability to market our own proprietary pharmaceutical products will face
      regulatory obstacles.***




We
      anticipate manufacturing and selling both pharmaceutical products and delivery
      devices for respiratory, dermatological, topical and cardiovascular
      applications. These types of products are subject to intense regulatory
      supervision and scrutiny, and will require significant outlays of resources
      and
      manpower to achieve regulatory approvals, depending on the geographic market.
      Approvals of new pharmaceutical products is a time-consuming and very expensive
      process involving testing, clinical trials and approvals at various stages
      of
      the process by the FDA, the Canadian TPD, the UK’s MHRA, the European Union’s
      EMEA, and other such regulatory agencies where we manufacture or distribute
      our
      products or services. Although we have commenced the development of our own
      proprietary pharmaceutical products, we do not now have the capital and
      resources that are necessary to commence the clinical trials that are required
      to obtain the regulatory approvals to commercialize our planned proprietary
      products and, therefore, have not begun such development efforts. Approval
      of
      medical devices we create will also require approvals from the FDA, MHRA, TPD,
      EMEA and other such regulatory agencies. Such medical devices may also be
      subjected to patent review and possible disallowance.




***Our
      ability to obtain regulatory approval for our products will require extensive
      testing, and we lack the resources to conduct such testing.***




Once
      products are developed, they cannot be marketed until the completion of
      extensive testing and field trials. While we have the ability to perform some
      of
      the testing, we will require the help of other companies and consultants. In
      addition, we do not presently have the capital resources to begin the process
      of
      conducting testing and trials necessary to obtain regulatory approval. At any
      stage of the testing process, there are the risks of injury to test subjects,
      and regulatory cessation of the process despite having invested significantly
      in
      the product, due to risk of harm, inefficacy of the products and many other
      reasons. There is no assurance we can obtain all required regulatory approvals
      necessary to develop and commercialize our own pharmaceutical products. Even
      if
      we successfully develop and commercialize a regulatory-approved pharmaceutical
      product, we may not be able to generate sales sufficient to create a profit
      or
      otherwise avoid a loss. As a result, there is a prolonged lead-time to begin
      the
      development and sale of such products, and therefore these products will not
      become available for sale in the foreseeable future. If we cannot successfully
      develop, commercialize and market our own pharmaceutical products, including
      the
      failure to obtain the necessary regulatory approvals to market such products,
      we
      would miss a strategic opportunity to grow our business.




***Our
      limited sales, marketing and distribution experience could affect our ability
      to
      market our potential products, which could adversely affect our potential
      revenues from future product sales.***




Currently,
      we have limited experience in developing, training or managing a sales force.
      We
      will incur substantial additional expenses if we have to increase these business
      activities, and the costs of expanding a sales force may exceed our product
      revenues. In addition, we compete with other pharmaceutical companies, including
      large pharmaceutical companies which have financial resources and sales,
      marketing and distribution capabilities and expertise substantially greater
      than
      ours. As a result, any marketing and sales efforts that we may undertake through
      our subsidiary Exaeris may be unsuccessful and may deplete our limited capital
      resources.




Exaeris
      commenced formal operations in January 2006 as Inyx’s marketing and commercial
      arm in North America. Although it operates independently of Inyx’s client
      manufacturing operations, we believe that Exaeris will create more possibilities
      for business collaborations and greater opportunities to commercialize both
      client’s products and our own planned proprietary products in the United States
      and Canada. Exaeris will also seek to capitalize on opportunities to acquire
      products of other pharmaceutical companies which are no longer core assets.
      Exaeris’ focus is on the sales and marketing of niche or enhanced pharmaceutical
      products in the respiratory, allergy, dermatological, topical and cardiovascular
      treatment market sectors. Exaeris is presently organizing its management team
      and sales force, which is being established initially through a commercial
      relationship with a pharmaceutical contract sales representative organization.
      The Exaeris sales force is initially focused on the marketing of King
      Pharmaceutical’s Intal® product,
      under the long-term, collaborative alliance that Inyx has with King. Currently,
      too, Exaeris is actively seeking other product-marketing opportunities. We
      believe that Exaeris provides the commercial and marketing resources to
      complement Inyx’s development and manufacturing operations, making our Company a
      vertically integrated, specialty pharmaceutical company.




31




***If
      we cannot implement our strategy to grow our business through product and
      company acquisitions, our business and competitive position in the
      pharmaceutical industry will be impeded.***




Our
      current business is limited to contract manufacturing of pharmaceutical delivery
      devices filled with pharmaceuticals we manufacture to our customers’
specifications, and the research and testing of pharmaceuticals under
      development by our customers. Our business strategy includes enhancing our
      competitive position in the pharmaceutical industry through acquisitions of
      regulatory approved pharmaceutical products and drug delivery devices for
      respiratory, dermatological, and topical and cardiovascular drug delivery
      applications or such products in development, including through the acquisition
      of other pharmaceutical companies. Other pharmaceutical companies, most of
      which
      have substantially greater financial, marketing and sales resources than we
      do,
      compete with us for the acquisition of such regulatory approved products,
      products in development or pharmaceutical companies.




In
      order
      to improve our competitive position and revenue and profitability opportunities,
      we are targeting pharmaceutical products or companies that are close to
      generating revenues or are already generating revenues. As we have limited
      resources, we need to acquire those pharmaceutical companies that have
      complementary manufacturing and quality operations, skilled management teams
      and
      employees, and supply chain and business and information technology systems.
      The
      inability to effect acquisitions of such regulatory approved products, products
      in development, or other pharmaceutical industry assets will limit the rate
      of
      growth of our business.




***We
      will face challenges in the integration of acquisitions and if we cannot
      integrate the business, products or companies we acquire, our business may
      suffer.***




The
      integration of acquired products or pharmaceutical companies into our business
      will require significant management attention and may require the further
      expansion of our management team or the implementation of our own sales force.
      In addition, in order to manage such acquisitions effectively, we will be
      required to maintain adequate operational, quality and regulatory, financial
      and
      management information systems and motivate and effectively manage an increasing
      number of employees and sales personnel. Furthermore, any such acquisition
      may
      initially have an adverse effect upon our results of operations while the
      acquired business is adapting to our management and operating practices. Our
      future success will also depend in part on our ability to retain or hire
      qualified employees to develop, sell and market our own products and to manage
      and operate newly acquired companies and products in accordance with applicable
      regulatory standards and on an efficient and cost-effective basis. There can
      be
      no assurance that we will be able to successfully integrate the operations
      of
      any company or products we may acquire. There also can be no assurance that
      our
      personnel, systems, procedures and controls will be adequate to support our
      continued growth. If we cannot integrate our acquisitions successfully, the
      associated costs and loss of opportunity could have a material adverse effect
      on
      our business and financial condition. Moreover, in the event we are unable
      to
      successfully integrate the operations of an acquisition, we may consider
      available strategic alternatives, including possible dispositions.




The
      Aventis PR business acquisition, closed on March 31, 2005, and the
      acquisition of Ashton, closed August 31, 2005, have substantially expanded
      our
      existing business, facilities and staff. We have faced challenges in managing
      the integration of the Puerto Rico facilities and employees into our Company.
      These include integrating those facilities, information systems, supply chain
      procurement and customer invoicing procedures into our overall operations.
      Our
      acquisition of Ashton involves similar issues. There will be continuing
      challenges to integrate the cultures of our United Kingdom and Puerto Rico
      business units, and to build operational and business synergies between our
      operations. To date, all of the integration activities are progressing
      satisfactorily. If we have any significant delays in integrating our recent
      acquisitions into our business, there is no assurance that we can operate these
      facilities profitably.




32




***We
      may be unable to obtain financing for the acquisitions that are available to
      us.***




We
      will
      attempt to obtain financing for acquisition opportunities through a combination
      of loans and equity investments from commercial sources, seller debt financing,
      issuance of our equity securities as part of the purchase price, and other
      sources. Commercial sources will tend to come from investment funds, private
      equity funds and other non-traditional sources, usually at a very high borrowing
      cost. Use of our equity securities could result in material dilution to our
      existing stockholders. There can be no assurance that we will be able to obtain
      adequate financing for further acquisitions or that, if available, such
      financing will be on favorable terms. We raised capital to fund the acquisition
      of Ashton and the business assets of Aventis PR through asset-based secured
      borrowings, which will significantly increase our debt-service obligations
      in
      advance of receiving steady revenues, which may place a temporary strain on
      our
      limited working capital.




***If
      we fail to meet governmental regulations, we may not be able to sell our
      pharmaceutical products or services.***




We
      must
      ensure that our products and services continuously comply with strict
      requirements designed to ensure the quality and integrity of pharmaceutical
      products. These requirements include the United States Federal Food, Drug and
      Cosmetic Act governed by the FDA and FDA-administered cGMP regulations for
      pharmaceutical manufacturers. Our products and services must also continuously
      comply with the requirements of the regulatory agencies where we distribute
      our
      products or services, including the UK’s MHRA, the European Union’s EMEA and the
      Canadian TPD. These regulations apply to all phases of our business, including
      drug testing and manufacturing; record keeping; personnel management; management
      and operations of facilities and equipment; control of materials, processes
      and
      laboratories; and packaging, labeling and distribution.




To
      date,
      we have been able to comply with these governmental regulations; however, the
      U.S. Congress, the FDA, the TPD, the MHRA, the EMEA or the pharmaceutical
      regulatory agency of any other country where we distribute our products or
      services could impose stricter regulations in the future. Because we have a
      small staff with regulatory expertise, we may have difficulty in quickly
      changing our methods to comply with stricter regulations. If we fail to comply
      with any of the regulations governed by a particular pharmaceutical regulatory
      agency, the regulators can disqualify any data we collect in our product
      development process for that country or bar us from manufacturing pharmaceutical
      products or terminate our ongoing pharmaceutical product research for that
      country. If we violate regulations, we could face other forms of regulatory
      sanctions including fines and civil penalties, the recall of affected products,
      or restrictions on our operations. In severe cases, the authorities could close
      our facilities. If the authorities were to disqualify our data, bar our products
      or close our facilities, even for a short period of time, our reputation could
      be severely damaged. This would make it difficult for us to obtain new purchase
      orders and contracts and could have a materially adverse effect on our business,
      financial condition, results of operations and cash flows.




***We
      face potential liability for injuries to persons who use our products.***




We
      develop, formulate, test and produce pharmaceutical products for others intended
      for use by the public. Such activities could expose us to risk of liability
      for
      personal injury or death to persons using such products, notwithstanding that
      we
      do not commercially market or sell products of our own directly to the public.
      In contracts for the production of FDA-approved products for commercial sale,
      we
      seek to reduce our potential liability through measures such as contractual
      indemnification provisions with customers (the scope of which may vary from
      customer to customer and the performance of which are not assured) and by the
      insurance maintained by us and our customers. Development services are typically
      undertaken pursuant to purchase orders that do not include specific
      indemnification or insurance provisions. Although we believe that this practice
      is typical in the industry, we could be materially adversely affected if we
      were
      required to pay damages or incur defense costs in connection with a claim for
      which no indemnity agreement is applicable; that is outside the scope of any
      applicable indemnity agreement; if the indemnity, although applicable, is not
      performed in accordance with its terms; or if our liability exceeds the amount
      of applicable insurance or indemnity. We currently maintain product liability
      insurance with coverage limits of $20 million per occurrence on claims made
      basis with a maximum $20 million aggregate per policy year. We believe such
      coverage is adequate for our present level of operations.




33




***We
      will be subject to the risks of doing business in developing countries.***




We
      are
      marketing and selling our consulting services to customers in developing
      countries including those in Latin America. Accordingly, we will be subject
      to
      all the risks of doing business with customers in such countries, including
      dealing with:




·
            trade
                protection measures and import or export licensing requirements




·
            difficulties
                in enforcing contracts




·
            difficulties
                in protecting intellectual property




·
            unexpected
                changes in regulatory requirements




·
            legal
                uncertainty regarding liability, tax, tariffs and other trade barriers




·
            foreign
                exchange controls and other currency risks




·
            inflation




·
            challenges
                to credit and collections




·
            expropriation




·
            government
                instability, war, riots, insurrections and other political events.




Although
      we may seek to obtain political risk insurance covering some of the events
      listed above, insurance proceeds under such policies would likely not cover
      all
      losses, and such insurance may not be available on commercially reasonable
      terms, or at all to us.




***Any
      delays or difficulties in the manufacture of our own products or our customers’
products may reduce our revenues, profit margins, limit the sales of our
      products, or harm our reputation.***




We
      manufacture all of our customers’ products, and intend to manufacture the
      significant majority of the pharmaceutical products we plan to develop or are
      presently developing proprietarily, at our Inyx Pharma Runcorn facility in
      the
      United Kingdom, our Ashton facility, also in the United Kingdom, and at our
      Inyx
      USA Puerto Rican facility. Many of our production processes are complex and
      require specialized and expensive equipment. Any unforeseen delays or
      interruptions in our manufacturing operations may reduce our revenues and profit
      margins. Additionally, our facilities utilize gases that are considered to
      be
      explosive; therefore, exposed flames and other sources of ignition represent
      a
      significant risk to manufacturing capability. We believe we have taken the
      necessary preventative measures to mitigate such risk. All electrical circuits
      are flame-proofed and all sources of ignition are strictly prohibited from
      the
      facility. However, there can be no assurance that such safety features will
      prevent significant damage to our facilities due to accidents. In addition,
      our
      manufacturing output may decline as a result of other accidents, power outages,
      supply shortages, natural disasters, or other disruptions of the manufacturing
      process.




Any
      inability to resume manufacturing after an interruption would have a significant
      material adverse effect on our business. A long delay in the resumption of
      the
      manufacturing operation may cause growing demand for our customers’ products or
      our planned products, which may exceed our ability to supply the demand if
      we
      are successful in resuming our manufacturing operations. If such a situation
      were to occur, it may be necessary for us to seek an alternative manufacturing
      source, which could materially adversely impact our ability to meet our
      customers’ demands or our own requirements, or meet our customers’ and our own
      pricing and distribution requirements. We cannot provide assurance that we
      may
      be able to find or utilize another facility in a timely or cost-effective manner
      to continue to manufacture products for us and our customers. Even though we
      carry business interruption insurance policies, we may suffer losses as a result
      of business interruptions that exceed the coverage available under our insurance
      policies.




34


***Any
      delays or difficulties in the supply of key materials or components for our
      own
      products or our customers’ products may reduce our revenues, profit margins,
      limit the sales of our products, or harm our reputation.***




We
      utilize a variety of suppliers as indicated by our customers’ requirements and
      our own product development and manufacturing needs. We depend on eight critical
      suppliers for certain products. These suppliers are: 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; Nussbaum & Guhl, which
      provides us with cans; Eurand SpA which provides tablets; and Innovata Biomed
      plc which provides machinery for use in the DPI facility. We also utilize three
      of these suppliers (Cebal, Perfect Valois and Bespak) at our Inyx USA Puerto
      Rican facility. As we are dependant on these suppliers in order to deliver
      goods
      and services to our customers, any interruptions, delays, or the loss of any
      of
      these suppliers could have a material adverse affect on our business and
      operations in which we may be forced to seek an alternative source, thereby
      delaying the delivery of our products and services to our customers. In such
      an
      event, our reputation with our customers could be severely damaged, which may
      make it difficult for us to maintain our current purchase orders and contracts
      with affected customers or obtain new purchase orders and contracts from that
      customer. We do not have long term supply contracts with our suppliers other
      than routine purchase orders. This generally serves to reduce our commitment
      risk but does expose us to supply risk and to price increases that we may not
      be
      able to pass on to our customers.




***As
      a public company, we may incur increased costs as a result of recently enacted
      and proposed changes in laws and regulations relating to corporate governance
      matters and public disclosure.***




Recently
      enacted and proposed changes in the laws and regulations affecting public
      companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules
      adopted or proposed by the SEC, and by our principal trading market, will result
      in increased costs to us as we evaluate the implications of these laws,
      regulations and standards and respond to their requirements. These laws and
      regulations could make it more difficult or more costly for us to obtain certain
      types of insurance, including director and officer liability insurance, and
      we
      may be forced to accept reduced policy limits and coverage or incur
      substantially higher costs to obtain the same or similar coverage. The impact
      of
      these events could also make it more difficult for us to attract and retain
      qualified persons to serve on our board of directors, our board committees
      or as
      executive officers. We cannot estimate the amount or timing of additional costs
      we may incur as a result of these laws and regulations.




***We
      must maintain and add key management and personnel.***




Our
      success is heavily dependent on the performance of our executive officers and
      managers. We have entered into employment agreements with these individuals,
      including Jack Kachkar, our Chairman and Chief Executive Officer, Steven
      Handley, our President and Chief Production Officer, and Colin Hunter, our
      Chief
      Scientific and Regulatory Officer. None of such persons has signified any
      intention to retire or leave the Company. Our growth and future success will
      depend, in large part, on the continued contributions of these key individuals
      as well as our ability to motivate and retain these personnel. In addition,
      our
      proposed plan of development will require an increase in management, scientific
      and sales and marketing personnel, and investment in the professional
      development of the expertise of our existing employees and management. We are
      currently seeking additional senior management executives and sales and
      marketing executives to join our Company. Although we have been able to hire
      and
      retain qualified personnel, due to our limited financial resources, there can
      be
      no assurance that we will be successful in recruiting and retaining all such
      key
      personnel to integrate our operations as required and to successfully implement
      our growth strategy.




***Foreign
      exchange risks may result in losses due to fluctuations in the rates of currency
      exchange.***




Currently,
      most of our sales occur outside the U.S. market and are denominated in foreign
      currencies, principally, the Great Britain Pound (“GBP”) (£) and the Euro dollar
      (“Euro”) (€). Additionally, we purchase our raw materials and components from a
      variety of foreign sources, also denominated in foreign currencies. We are
      particularly sensitive to movements in exchange rates between the GBP and the
      U.S. dollar (“USD”), and to a lesser extent, the Euro and the Canadian dollar.
      In 2005, more than 64% of our consolidated sales were realized in British
      pounds. While we incur expenses in those currencies, the impact of these
      expenses does not fully offset the impact of currency exchange rates on our
      revenues. As a result, currency exchange rate movements can have a considerable
      impact on our earnings. For example, at December 31, 2005, the exchange rate
      of
      the GBP to the USD was $1.72 compared with $1.93 at December 31,
      2004.  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 as we may require. Such fluctuations could adversely
      affect the value of our revenues and the results of our operations stated in
      U.S. dollars.




35




In
      many
      circumstances, revenues generated by foreign subsidiaries will generally be
      collected by our foreign subsidiaries in the local currency. By contrast, some
      significant liabilities of our foreign subsidiaries, such as liabilities for
      the
      financing of new plant and equipment, may be payable in U.S. dollars or in
      currencies other than the local currency. As a result, any devaluation in the
      local currency relative to the currencies in which such liabilities are payable
      could increase the U.S. dollar amounts payable and negatively impact liquidity
      and earnings. Moreover, revenues and expenses of our foreign subsidiaries are
      realized in their local currencies and then translated into U.S. dollars on
      a
      consolidated basis. As a result, fluctuations in foreign currency exchange
      rates
      in markets where we derive significant revenue have significant operations
      or
      purchase necessary materials, components and supplies could have a material
      effect upon the amount of our revenues, expenses and results of operations,
      as
      well as the value of our assets and liabilities.




**RISKS
      RELATED TO OUR INDUSTRY**




***We
      face significant competition from pharmaceutical companies and others, which
      may
      cause us to lower prices or lose business.***




We
      compete directly with several pharmaceutical product development organizations,
      contract manufacturers of pharmaceutical products and university research
      laboratories. Most companies who produce pharmaceutical products do not engage
      in product development. Historically, most companies who provide product
      development services do not also have the equipment or expertise to manufacture
      products. However, many of our competitors, particularly large established
      pharmaceutical and biotechnology companies, have significantly greater resources
      than we do. If any of these current competitors, or new competitors, decide
      to
      provide the same services that we provide at lower prices, we may be forced
      to
      lower our prices or lose business. In addition, in some situations our customers
      and potential customers may determine to retain the manufacture of devices
      to
      deliver their products, depriving us of the potential business from these
      services. Upon the happening of any of these events, our revenues and
      profitability will decrease. Because many of our competitors have substantially
      greater financial resources, they would be able to sustain these pricing
      pressures better than we could. We are a small company with limited financial
      resources, so such pricing pressure could have a greater adverse effect on
      our
      business than it could on a larger, better capitalized company.




***Our
      revenues may be adversely affected by generic competition to our customers’
branded products or branded products that we develop or acquire.***




As
      we
      receive revenues for the contract development and manufacturing of our
      customers’ branded pharmaceutical products, these revenues, and the potential
      revenues from the commercialization and marketing of our own proprietary branded
      products, may be adversely affected if such branded products begin to face
      generic competition. In addition to the generic competition that our own
      potential products may face, if the entry of a generic product negatively
      affects a particular branded product’s market share, our customers’ product
      requirements for these branded products may decline thereby adversely affecting
      our business with these customers. Additionally, our customers’ market share for
      their branded products may be reduced due to governmental and other pressures
      to
      reduce costs through the increased use of generic substitutes. Also, our
      potential branded products or our customers’ branded products for which there is
      no generic form available may face competition from different therapeutic agents
      used for the same indications for which such branded products are used.
      Increased competition from the sale of generic pharmaceutical products or from
      different therapeutic agents used for the same indications for which such
      branded products are used may cause a decrease in revenue from the development,
      manufacturing and sale of these branded products.




36


***We
      may face product development competition from pharmaceutical companies and
      others.***




Our
      business growth strategy includes the development and sales of our own
      pharmaceutical products for respiratory, dermatological and topical drug
      delivery applications. We will compete with other pharmaceutical companies,
      including large pharmaceutical companies with financial resources and
      capabilities substantially greater than ours, in the development and marketing
      of new pharmaceutical products or generic ones. We may therefore face
      competition from such companies that may develop products or acquire
      technologies for the development of products that are the same as or similar
      to
      the products we presently have in development or plan to develop. Because there
      is rapid technological change in the industry and because many other companies
      may have more financial resources than we do, such companies may develop or
      license their products more rapidly than we can, complete the applicable
      regulatory approval process sooner than we can, market their products before
      we
      can market our products or offer these new products at prices lower than our
      prices. Additionally, technological developments or the regulatory approval
      of
      new therapeutic indications for existing products may make the products we
      are
      developing or planning to develop difficult to market successfully or obsolete.
      Such events may have a negative impact on the sales of our newly developed
      products and result in a depletion of the capital we have available to pursue
      these products.




***Our
      business involves environmental risks and we may incur significant costs
      complying with environmental laws and regulations.***




We
      utilize a variety of chemicals in our business, many of which are dangerous
      if
      used or handled improperly. A substantial number of the chemicals we handle
      are
      classified as dangerous due to their toxicity, corrosiveness, ability to cause
      irritation or flammability. Wastes from our manufacturing and testing processes
      are either collected in drums and removed by a waste contractor or discharged
      into public sewers pursuant to a Trade Effluent Discharge Consent. The Company
      takes stringent precautions in the storage and use of these materials and
      constantly trains its personnel in their use. Because of this, we have not
      caused any release of hazardous materials into the environment or exposed any
      of
      our employees to health risks. We maintain liability and product liability
      insurance covering the risks of such exposure, in amounts we deem to be
      adequate.




Under
      government regulations governed by the Montreal Protocol on Substances That
      Deplete the Ozone Layer, chlorofluorocarbon (“CFC”) compounds are being phased
      out because of environmental concerns. We presently manufacture respiratory
      inhalers that utilize CFC gas as a propellant. Although we have expertise in
      converting such products to non-CFC based respiratory inhalers and manufacture
      non-CFC or hydrofluoroalkane (“HFA”) respiratory inhalers, a small number of our
      customers continue to require CFC respiratory inhalers. These customers sell
      these products in a number of countries that still allow the import and
      marketing of CFC-based respiratory inhalers. As the CFC gas is sold to us under
      strict European Union guidelines and quotas, if customer demand exceeds our
      present quota, our ability to manufacture CFC-based respiratory inhalers can
      be
      materially adversely affected, which could result in lost sales opportunities.
      Presently, our quota is sufficient to meet our customers’ demand.




**RISKS
      RELATED TO OUR STOCK**




***We
      do not expect to pay dividends.***




We
      do not
      intend to pay cash dividends on our Common Stock in the foreseeable future.
      Furthermore, for the foreseeable future, we intend to retain profits, if any,
      to
      fund our planned growth and expansion




***Shares
      that may be eligible for future sale may adversely affect the market price
      of
      our Common Stock.***




Sales
      of
      substantial amounts of Common Stock by shareholders in the public market, or
      even the potential for such sales, are likely to adversely affect the market
      price of the Common Stock and could impair our ability to raise capital by
      selling equity securities. As of December 31, 2005, we believe that
      approximately 30,899,922 of the 43,389,922 shares of Common Stock currently
      issued and outstanding are freely transferable without restriction or further
      registration under the securities laws, unless held by “affiliates” of the
      Company, as that term is defined under the securities laws.




37


***Our
      company is substantially controlled by our management team.***




As
      of
      December 31, 2005, the executive officers, key employees and directors of our
      Company and their family members, associates and their affiliates beneficially
      owned approximately 30.2% of the shares of outstanding common stock.
      Accordingly, and because there is no cumulative voting for directors, our
      executive officers and directors will be in a position to influence the election
      of all the directors of the Company and to control through their stock ownership
      the business of the Company. The management of the Company is controlled by
      our
      Board of Directors, comprised of two independent directors and three executive
      directors consisting of the Chairman and Chief Executive Officer of the Company,
      the President of the Company, and the Executive Vice President and Chief
      Scientific Officer of the Company.




***We
      have certain anti-takeover provisions that may entrench management and make
      their removal from office more difficult.***




Our
      Articles of Incorporation and Bylaws make it difficult to effect a change in
      control of the Company and replace incumbent management. Our Articles of
      Incorporation authorize the Board of Directors to issue preferred stock in
      classes or series, and to determine voting, redemption and conversion rights
      and
      other rights related to such class or series of preferred stock that, in some
      circumstances, could have the effect of preventing a merger, tender offer or
      other takeover attempt which the Board of Directors opposes. Such provisions
      could also exert a negative influence on the value of the common stock and
      of a
      shareholder’s ability to receive the highest value for the common stock in a
      transaction that may be hindered by the operation of these provisions. The
      Company’s directors may be elected for three-year terms, with approximately
      one-third of the Board of Directors standing for election each year, which
      may
      make it difficult to effect a change of incumbent management and control. In
      addition, directors may be removed only for “cause” as defined in our Articles
      of Incorporation and Bylaws, and our Bylaws require an action by more than
      two-thirds of shares outstanding to call a special meeting of shareholders.
      All
      of these features may also serve to entrench management and make their removal
      more difficult.




***There
      is potential volatility in the price of our stock.***




The
      market price of the shares of our common stock, like the securities of many
      other Over-The-Counter traded companies may be highly volatile. As of March
      28,
      2006, such price has ranged from $0.30 to $3.01 since late 2002. See “Price
      Range of Common Stock and Dividend Policy.” Factors such as developments in our
      relationships with our customers, material adverse events to our customers,
      changes in U.S. FDA and other governmental regulations, market changes in the
      pharmaceutical industry, loss of key company executives, sales of large numbers
      of shares of our common stock by existing stockholders and general market
      conditions may have a significant effect on the market price of our common
      stock. In addition, U.S. stock markets have experienced extreme price and volume
      fluctuations in the past. This volatility has significantly affected the market
      prices of securities of many pharmaceutical and biotechnology companies, and
      companies such as ours in related industries, for reasons frequently unrelated
      or disproportionate to the operating performance of the specific companies.
      These broad market fluctuations may adversely affect the market price of our
      common stock.




***If
      outstanding options and warrants are converted, the value of those shares of
      common stock outstanding just prior to the conversion will be diluted.***




As
      of
      December 31, 2005, there were outstanding options and warrants to purchase
      26,276,248  shares
      of
      common stock, with exercise prices ranging from $0.80 to $3.10 per share. If
      the
      holders exercise a significant number of these securities at any one time,
      the
      market price of the common stock could fall. The value of the common stock
      held
      by other shareholders will be diluted. The holders of the options and warrants
      have the opportunity to profit if the market price for the common stock exceeds
      the exercise price of their respective securities, without assuming the risk
      of
      ownership. If the market price of the common stock does not rise above the
      exercise price of these securities, then they will expire without exercise.
      The
      holders of these options and warrants may also exercise their securities if
      we
      are able to raise capital privately or from the public on terms more favorable
      than those provided in these securities. We cannot predict exactly if, or when,
      such a financing will be needed or obtained. Furthermore, we cannot predict
      whether any such financing will be available on acceptable terms, or at all.




38




**ITEM
      1B.** **UNRESOLVED
      STAFF COMMENTS**




Not
      applicable. ****




**ITEM
      2.** **PROPERTIES**




Our
      principal executive offices are located at 825 Third Avenue, 40 th Floor,
      New York, New York 10022, consisting of approximately 4,000 square feet of
      leased space at an annual rent of $121,500. The properties utilized by our
      Company are as follows:




·
            Our
                Inyx Pharma subsidiary operates manufacturing facilities situated
                over
                seven proximate locations in Runcorn, Cheshire, England. These sites
                are
                combined into the 60,000 square feet manufacturing facility in the
                Astmoor
                Industrial Estate. Five of these sites are owned by Inyx Pharma and
                the
                remaining two are leased from the Warrington and Runcorn Development
                Corp.
                for annual rents of $45,000 and
                $162,000.




·
            Our
                development facility in the United Kingdom occupies a 30,000 square
                foot
                facility nearby the manufacturing site, in the Seymour Court Manor
                Park
                area owned by the Borough council. Annual rent is
                $126,000.




·
            Ashton
                owns and operates a 152,000 square foot cGMP (current Good Manufacturing
                Practice) facility approved to manufacture pharmaceuticals products
                for
                the United Kingdom, Europe and Asia. This site is located in Ashton,
                England, which is approximately one hour away by car from the Inyx
                Pharma
                facility in Runcorn.




·
            Our
                Inyx Canada subsidiary leases approximately 2,800 square feet of
                office
                space for an annual cost of approximately $46,000 at 4141 Yonge Street,
                Suite 205, Toronto, Ontario M2P 2A8.




·
            Our
                Inyx USA subsidiary owns and operates a 140,000 square foot pharmaceutical
                manufacturing facility consisting of five buildings extending over
                9.5
                acres in Manatí, Puerto Rico. The site is located about 30 miles outside
                of San Juan, at 604 San Jose Road, Cotto Norte Industrial Park, Manatí,
                Puerto Rico 00674.




·
            Our
                Exaeris subsidiary leases approximately 1,500 square feet of office
                space
                for an annual cost of approximately $28,000 at 403 Gordon Drive,
                Exton,
                Pennsylvania 19341.




All
      such
      facilities are deemed to be adequate for the Company’s present
      needs.




**ITEM
      3.** **LEGAL
      PROCEEDINGS**




The
      Company is involved from time to time in legal proceedings and litigation
      incidental to the conduct of its business. No pending legal proceeding is deemed
      by the Company to pose the risk of any material adverse effect.




**ITEM
      4.** **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**




None.




39




**PART
      II**




**ITEM
      5.****MARKET
      FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
      MATTERS****AND ISSUER PURCHASES OF EQUITY SECURITIES**




**Market
      Information**




Our
      common stock is traded in the over-the-counter market on the NASDAQ OTC Bulletin
      Board under the symbol IYXI. The following table sets forth the high and low
      bid
      and ask prices of the Company’s common stock for each full quarterly period
      within the last two fiscal years. These market quotations reflect inter-dealer
      prices, without retail mark-up, mark-down or commission and may not necessarily
      represent actual transactions.


**BID**
              
              **ASK****For
                  the Quarter Ended:**
              
              **High**
              
              **Low**
              
              **High**
              
              **Low**March
                  31, 2004
              
              $
              1.36
              
              $
              1.01
              
              $
              1.38
              
              $
              1.04June
                  30, 2004
              
              $
              1.13
              
              $
              0.84
              
              $
              1.20
              
              $
              0.88September
                  30, 2004
              
              $
              1.27
              
              $
              0.87
              
              $
              1.30
              
              $
              0.97December
                  31, 2004
              
              $
              1.35
              
              $
              0.82
              
              $
              1.40
              
              $
              0.90March
                  31, 2005
              
              $
              1.40
              
              $
              0.75
              
              $
              1.45
              
              $
              0.82June
                  30, 2005
              
              $
              1.11
              
              $
              0.82
              
              $
              1.14
              
              $
              0.85September
                  30, 2005
              
              $
              1.55
              
              $
              0.80
              
              $
              1.59
              
              $
              0.84December
                  31, 2005
              
              $
              2.00
              
              $
              1.22
              
              $
              2.02
              
              $
              1.24




**Holders**




As
      of
      December 31, 2005, 43,389,922 common shares of the Company’s common stock are
      held of record by 235 holders of record, and an unknown number of beneficial
      stockholders.




**Dividends**




We
      have
      never paid any dividends, and we do not anticipate any stock or cash dividends
      on our common stock in the foreseeable future.




**Recent
      Sales of Unregistered Securities**




None.




**ITEM
      6.****SELECTED
      FINANCIAL DATA**




The
      following summary consolidated financial information should be read together
      with the Company’s historical consolidated financial statements and related
      notes. Prior to March 6, 2003, the Company, under the name Doblique, Inc.,
      was
      engaged in the business of breeding and racing thoroughbred horses at various
      major horse racing venues throughout the United States. On March 6, 2003,
      management discontinued the Company’s thoroughbred horse operation by selling
      the assets of that operation to a third party. Concurrent with the
      discontinuance of its horse racing operations, Doblique concluded a reverse
      acquisition of Inyx Pharma Limited (“Inyx Pharma”), and changed its name to
      Inyx, Inc. The acquisition of Inyx Pharma was consummated on April 28, 2003
      and
      was accounted for as a capital transaction under the reverse acquisition method
      of accounting for business combinations. Under this method, Inyx Pharma (the
      legal subsidiary) is considered to have acquired Inyx, Inc. (the legal parent)
      effective April 28, 2003, and continued as Inyx, Inc. thereafter.




40




Inyx
      Pharma’s business emerged from its acquisition of the assets of Miza
      Pharmaceuticals, Ltd. (“Miza UK”) on March 7, 2003. Miza UK had been an
      operating entity which filed for bankruptcy and reorganization in the United
      Kingdom on September 3, 2002. As a result of the reverse acquisition method
      of
      accounting, the consolidated financial statements (and the financial highlights
      below) for periods subsequent to March 7, 2003 are those of Inyx Inc., and
      the
      consolidated financial statements and highlights prior to March 7, 2003 are
      presented herein as the historical financial statements of Miza UK.








Successor
            
            PredecessorFor
                the year ended December 31, 2005
            
            For
                the year ended December 31, 2004
            
            For
                the period from March 7, 2003 through December 31, 2003
            
            For
                the period from January 1, 2003 through March 6, 2003
            
            For
                the year ended December 31, 2002
            
            For
                the year ended December 31, 2001
              (Unaudited)Net
                revenues
            
            **$**
            **49,565**
            
            $
            15,699
            
            $
            13,099
            
            $
            2,396
            
            $
            21,184
            
            $
            21,919Operating
                (loss) income
            
            
            **(20,950**
            **)**
            
            (12,239
            )
            
            (10,374
            )
            
            (174
            )
            
            (3,893
            )
            
            2,304Net
                (loss) income
            
            
            **(31,009**
            **)**
            
            (16,942
            )
            
            (13,392
            )
            
            (908
            )
            
            (30,988
            )
            
            524Net
                loss per common share
            
            
            **(0.78**
            **)**
            
            (0.52
            )
            
            (0.59
            )
            
            N/A
            
            
            N/A
            
            
            N/ATotal
                assets
            
            
            **92,153**
            
            
            14,755
            
            
            15,490
            
            
            N/A
            
            
            10,612
            
            
            N/ALong-term
                debt, net of current portion
            
            
            **46,236**
            
            
            113
            
            
            6,617
            
            
            N/A
            
            
            N/A
            
            
            N/AStockholders’
                (deficit) equity
            
            **$**
            **(30,400**
            **)**
            $
            (5,865
            )
            $
            1,841
            
            
            N/A
            
            
            N/A
            
            
            N/A








**ITEM
      7.**  **MANAGEMENT****’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION**




**Consolidated
      Results**




The
      accompanying consolidated financial information includes the accounts of Inyx
      and its wholly-owned subsidiaries: Inyx Pharma, Inyx Canada, Inyx USA, Inyx
      Europe (and its wholly-owned subsidiary, Ashton), and Exaeris. All inter-company
      accounts and transactions have been eliminated in consolidation.




**Pro
      Forma Results for Comparative Purposes**




As
      we
      acquired certain business assets of Aventis PR on March 31, 2005 and all the
      outstanding shares of Ashton (“CMSL”) on August 31, 2005, our Management’s
      Discussion and Analysis of Financial Condition and Results of Operations for
      the
      years ended December 31, 2005 and 2004, respectively, will therefore focus
      on
      both actual and  combined
      pro forma results.




Based
      on
      the timing of the noted business acquisitions, we believe that a year over
      year
      pro forma comparison provides the reader the best comparative analysis of our
      current business situation and results of operations, especially as these
      acquisitions have contributed materially to a growth in our revenues and
      business scope. Accordingly, the pro forma analysis discussed below for the
      year
      ended December 31, 2005 includes the actual results of our Company for the
      year
      ended December 31, 2005 combined with the results of the acquired business
      of
      Aventis PR for the three months ended March 31, 2005 and the results of Ashton
      for the eight months ended August 31, 2005, i.e. the period during 2005, prior
      to our acquisition of that business through Inyx Europe.




Furthermore,
      the pro forma analysis for the year ended December 31, 2004 includes the actual
      results of our Company for the  year
      ended December 31, 2004 combined with the results of operations of the acquired
      business of Aventis PR and the results of operations of Ashton as if we had
      owned and operated these operations for the entire year ended December 31,
      2004.
      The pro forma analysis is presented for informational purposes only and is
      not
      indicative of the results of operations that would have been achieved if the
      acquisitions had actually taken place at the beginning of each of the reporting
      periods presented.




41




**CRITICAL
      ACCOUNTING POLICIES**




Our
      accounting policies are disclosed in Note 2 to the Notes to the Consolidated
      Financial Statements found elsewhere herein. We consider the following policies
      to be important to our financial statements.




**Revenue
      Recognition**




Our
      Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
      No.
      104 (“SAB 104”), “Revenue Recognition in Financial Statements” which requires
      that four basic criteria must be met before revenue can be recognized: (1)
      persuasive evidence of an arrangement exists; (2) product delivery has occurred
      or services rendered; (3) the fee is fixed or determinable; and (4) collection
      is reasonably assured. Revenues are recognized FOB (Freight-on-Board) shipping
      point, when products are shipped, which is when legal title and risk of loss
      is
      transferred to our customers, and is recorded at the net invoiced value of
      goods
      supplied to customers after deduction of sales discounts and sales and value
      added tax, where applicable. In situations where our Company receives payment
      in
      advance of the performance of research and development services, such amounts
      are deferred and recognized as revenue as the related services are performed.




The
      Company obtains detailed credit evaluations of
      customers generally without requiring collateral, and establishes credit limits
      as required. Exposure to losses on receivables is principally dependent on
      each
      customer’s financial condition. The Company monitors its exposure for credit
      risk losses and maintains an allowance for anticipated losses.




Non-refundable
      fees are recognized as revenue over the term of the arrangement, based on the
      percentage of costs incurred to date, estimated costs to complete and total
      expected contract revenue. Product returns are not accepted.




Shipping
      costs are paid for by our customers. Any shipping and handling costs incurred
      by
      our Company are included in costs of goods sold in the accompanying consolidated
      statements of operations.




**Translation
      of Foreign Currency**




The
      functional currency of our Company’s United Kingdom subsidiaries, Inyx Pharma
      and Inyx Europe (including its wholly-owned subsidiary, Ashton) is the Great
      Britain Pound (GBP). Our Company’s financial statements are reported in United
      States Dollars (USD) and are translated in accordance with Statement of
      Financial Accounting Standards No. 52 (“SFAS No. 52”), which requires that
      foreign currency assets and liabilities be translated using the exchange rates
      in effect at the balance sheet date. Results of operations are translated using
      the weighted average exchange rates prevailing during the period. For purposes
      of SFAS No. 52, we consider the dollar to be the reporting currency. The effects
      of unrealized exchange fluctuations on translating foreign currency assets
      and
      liabilities into dollars are reported under accumulative other comprehensive
      loss in stockholders’ deficit. Realized gains and losses from foreign currency
      transactions are included in the results of operations for the period.
      Fluctuations arising from inter-company transactions are of long term in nature
      and are reported under accumulative other comprehensive loss in shareholders’
deficit.




As
      of
      December 31, 2005, we had not utilized any currency-hedging programs. However,
      as we intend to continue to utilize U.S.-based financing sources, and as the
      significant majority of our revenues are in GBP, with some revenues and
      associated transactions in Euros, we intend to begin hedging activities in
      2006.




42


**Valuation
      of Long-Lived Assets and Intangible Assets**




We
      review
      the carrying value of our long-lived assets, including purchased intangible
      assets, whenever events or changes in circumstances indicate that the historical
      cost-carrying value of an asset may no longer be appropriate. We assess
      recoverability of the carrying value of the assets by estimating the future
      net
      cash flows expected to result from the assets, including eventual disposition.




Factors
      considered important that could trigger an impairment review include among
      others significant changes relative to: (i) projected future operating results;
      (ii) significant changes in the manner of our use of the assets or the strategy
      for our overall business (iii) business collaborations; and (iv) significant
      negative industry, business, or economic trends. Each impairment test is based
      on a comparison of the undiscounted cash flow to the recorded value of the
      asset.





If
      it is
      determined that the carrying value of long-lived or intangible assets may not
      be
      recoverable based upon the existence of one or more of the above indicators
      of
      impairment, the asset is written down to its estimated fair value on a
      discounted cash flow basis.





Based
      on
      such tests conducted by the Company, we concluded that as of December 31, 2005,
      there was no impairment to the carrying value of our long-lived or intangible
      assets.







**RESULTS
      OF OPERATIONS**




Inyx
      currently manages and operates its business as one operating segment. Our
      results of operations are derived from pharmaceutical contract manufacturing
      services and associated 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
      dependent upon our clients maintaining or obtaining regulatory approval for
      the
      sale of their products in their designated markets.




We
      are
      incurring proprietary product research and development costs, including costs
      that may be associated with certain potential proprietary products and
      associated intellectual property acquisitions. At this time, we have not
      commercialized any of our own proprietary products or product acquisitions
      but
      we believe that in 2006 we will be in a position to commence the sale of our
      own
      proprietary products. In addition, we will be commencing the distribution of
      selected clients’ products through product collaboration and joint marketing and
      promotion agreements such as our marketing agreement with King Pharmaceuticals
      commencing in January 2006.




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.




43


The
      table
      below sets forth the consolidated statement of operations for Inyx, Inc. in
      the
      aforementioned periods:




Actual
              For
                the Year Ended
              December
                31,
            
            Pro
                Forma
              For
                the Year Ended
              December
                31,2005
            
            2004
            
            2005
            
            2004Net
                revenues
            
            **$**
            **49,565**
            
            $
            15,699
            
            **$**
            **81,277**
            
            $
            73,602Cost
                of sales
            
            
            **34,859**
            
            
            14,316
            
            
            **58,967**
            
            
            58,137Gross
                profit
            
            
            **14,706**
            
            
            1,383
            
            
            **22,310**
            
            
            15,465Operating
                expenses:Research
                and development
            
            
            **3,406**
            
            
            2,745
            
            
            **3,406**
            
            
            2,745General
                and administrative
            
            
            **24,575**
            
            
            9,725
            
            
            **27,856**
            
            
            15,962Selling
            
            
            **3,005**
            
            
            367
            
            
            **3,652**
            
            
            1,315Depreciation
                and amortization
            
            
            **3,283**
            
            
            619
            
            
            **6,512**
            
            
            5,884Amortization
                of intangible assets
            
            
            **1,387**
            
            
            166
            
            
            **2,747**
            
            
            2,469Total
                operating expenses
            
            
            **35,656**
            
            
            13,622
            
            
            **44,173**
            
            
            28,375Loss
                from operations before interest and financing costs and income tax
                expense  (benefit)
            
            
            **(20,950**
            **)**
            
            (12,239
            )
            
            **(21,863**
            **)**
            
            (12,910
            )Interest
                and financing costs
            
            
            **10,059**
            
            
            3,370
            
            
            **9,091**
            
            
            8,541Loss
                before income tax expense (benefit)
            
            
            **(31,009**
            **)**
            
            (15,609
            )
            
            **(30,954**
            **)**
            
            (21,451
            )Income
                tax expense (benefit)
            
            
            **-**
            
            
            1,333
            
            
            **(872**
            **)**
            
            1,034Net
                loss
            
            **$**
            **(31,009**
            **)**
            $
            (16,942
            )
            **$**
            **(30,082**
            **)**
            $
            (22,485
            )







**For
      the Year Ended December 31, 2005 Compared to the Year Ended December 31, 2004
      and the Pro Forma Year Ended December 31, 2005 Compared to the Pro Forma Year
      Ended December 31, 2004**




**Net
      Revenues**




Our
      revenues are derived from pharmaceutical manufacturing and related product
      formulation and development outsourcing services, including product stability,
      commercial scale-up, and validation and regulatory support for our clients’
products. Future contract revenues are dependant upon our clients maintaining
      or
      obtaining regulatory approval for the sale of their products in their designated
      markets.




Although
      we do not currently derive any of our revenues from the sale of our own
      products, we believe that we can increase our revenues and achieve greater
      margins through the addition of our own product lines in selected pharmaceutical
      market sectors, with marketing to be conducted through our new wholly-owned
      subsidiary, Exaeris, and/or certain strategic customers. We expect that these
      types of revenues would include direct sales, royalty payments and licensing
      fees of our planned or collaborative 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 year ended December 31, 2005 were approximately $49.6 million
      as compared to net revenues of approximately $15.7 million for the year ended
      December 31, 2004. Net revenues increased by approximately $33.9 million or
      approximately 216% for the year. Most of this increase is attributed to the
      two
      acquisitions we made in 2005; these are the acquisition of the business assets
      of Aventis PR on March 31, 2005 and the acquisition of all of the shares of
      Ashton (f/k/a CMSL) through our subsidiary, Inyx Europe, on August 31, 2005.




44




On
      a pro
      forma basis, net revenues for the year ended December 31, 2005 were
      approximately $81.3 million as compared to pro forma net revenues of
      approximately $73.6 million for the year ended December 31, 2004. Net revenues
      increased by approximately $7.7 million or approximately 10% on a pro forma
      basis.




For
      the
      year ended December 31, 2005, our three top customers accounted for
      approximately $29.2 million or approximately 59% of our total net revenues.
      During this period, these three customers were Kos Pharmaceuticals, accounting
      for approximately $13.1 million in net revenues or approximately 26% of total
      revenues; UCB Pharma Ltd., accounting for approximately $11.9 million in net
      revenues or approximately 24% of total revenues; and the Sanofi-Aventis Group,
      accounting for approximately $4.1 million in net revenue or approximately 9%
      of
      total revenues.




In
      comparison, for the year ended December 31, 2004, our three top customers
      accounted for approximately $7.5 million or approximately 48% of combined net
      revenues. Our three top customers in 2004 were the Merck Generics group of
      companies, accounting for approximately $4.2 million in net revenues or
      approximately 27% of total revenues; Genpharm, Inc., accounting for
      approximately $1.5 million in net revenues or approximately 10% of total
      revenues; and SSL International Plc, accounting for approximately $1.8 million
      in net revenues or approximately 11% of total revenues.




As
      part
      of our strategic growth objectives, we are increasing our new business
      cultivation efforts as well as expanding both our technical capabilities and
      business scope, including establishing our own marketing and distribution
      channels, in order to continue to broaden our customer base to mitigate the
      risk
      of our economic dependence on any one client or industry sector. We believe
      that
      our two strategic acquisitions in 2005 will allow us to accomplish these
      objectives.




**Cost
      of Goods Sold**




Cost
      of
      goods sold is associated with manufacturing and development revenues and
      includes materials, labor, factory overheads and technical affairs, which
      include quality control and quality assurance regulatory support.




For
      the
      year ended December 31, 2005, cost of goods sold amounted to approximately
      $34.9
      million, or approximately 70% of net revenues. In
      comparison, the cost
      of
      goods sold for the year ended December 31, 2004 amounted to approximately $14.3
      million or approximately 91% of net revenues. The improvement in cost of goods
      sold of 21 percentage points is primarily attributed to lower direct materials
      costs at Inyx Pharma in 2005 versus 2004 and the inclusion of Inyx USA and
      Ashton in 2005, where we experienced overall lower manufacturing costs as a
      percentage of revenues.




Pro
      forma
      cost of goods sold amounted to approximately $59.0 million or approximately
      73%
      of pro forma net revenues for 2005. By comparison, pro forma cost of goods
      sold
      amounted to approximately $58.1 million or approximately 79% of pro forma net
      revenues for 2004.




Even
      though the cost of goods sold as a percentage of revenues has improved in 2005
      versus 2004, it remained consistently high in the comparative periods due to
      the
      following factors:




(1)
      We
      continued to experience low manufacturing capacity utilization in 2005 as it
      has
      taken us time to start up a number of client projects due to the required
      regulatory approvals, production commissioning and validation processes involved
      in the pharmaceutical manufacturing industry. We expect our cost of goods sold
      to be reduced as more of these projects are ramped up to full production.
      Additionally, with more volume throughput at our manufacturing facilities,
      we
      can absorb more overhead costs and therefore reduce our manufacturing
      costs.




(2)
      We
      continued to incur high prices for raw materials and component supplies because
      of lack of purchasing-power leverage and limited vendor sources as a result
      of
      operating in a regulated industry. With increasing business from new and
      existing customers, we expect to gain better pricing and terms from vendors
      and
      further improve our profit margins.




45




**Gross
      Profit**




Gross
      profit for the year ended December 31, 2005 amounted to approximately $14.7
      million on net revenues of $49.6 million, or approximately 30% of net revenues. In
      comparison, gross profit for the year ended December 31, 2004 amounted to
      approximately $1.4 million on net revenues of approximately $15.7 million or
      approximately 9% of net revenues for the year. The improvement in gross profit
      is mostly due to lower direct materials costs at Inyx Pharma in 2005 versus
      2004, and the inclusion of Inyx USA and Ashton where we experienced overall
      lower manufacturing costs as a percentage of revenues.




Pro
      forma
      gross profit amounted to $22.3 million or approximately 27% of pro forma net
      revenues of $81.3 million for 2005. By comparison, pro forma gross profit
      amounted to approximately $15.5 million or approximately 21% of pro forma net
      revenues of approximately $73.6 million for 2004.




We
      believe that we can also improve our gross profit margins through the addition
      of our own pharmaceutical product lines, which 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
      initial two proprietary products should be ready for commercial marketing before
      the end of 2006.




**Operating
      Expenses**




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




Operating
      expenses for the year ended December 31, 2005 amounted to approximately $35.7
      million or approximately 72% of net revenues. In comparison, operating expenses
      for the year ended December 31, 2004 amounted to approximately $13.6 million
      or
      approximately 87% of net revenues. Operating expenses as a percentage of net
      revenues improved by 15 percentage points over the prior year primarily due
      to
      the allocation of corporate overhead over a larger revenue base that included
      the Inyx USA and Ashton operations in 2005.




Pro
      forma
      operating expenses amounted to approximately $44.2 million or approximately
      54%
      of pro forma net revenues for 2005. In comparison, pro forma operating expenses
      amounted to approximately $28.4 million or approximately 39% of pro forma net
      revenues for 2004.




The
      largest increases to our operating expenses for the year ended December 31,
      2005
      were the addition of approximately $14.9 million in general and administrative
      costs and the addition of approximately $2.7 million in depreciation and
      amortization expenses, both of which were consequences of our two acquisitions
      in 2005.




**General
      and Administrative Expenses**




Our
      general and administrative expenses include corporate overhead costs,
      administrative support, and business and corporate development and support
      costs
      incurred by our wholly owned subsidiaries.




For
      the
      year ended December 31, 2005, general and administrative expenses amounted
      to
      approximately $24.6 million or approximately 50% of net revenues. In comparison,
      for the year ended December 31, 2004, general and administrative expenses
      amounted to approximately $9.7 million or approximately 62% of net revenues.




Pro
      forma
      general and administrative expenses amounted to approximately $27.9 million
      or
      approximately 34% of pro forma net revenues for 2005. By comparison, pro forma
      general and administrative expenses amounted to approximately $16.0 million
      or
      approximately 22% of pro forma net revenues for 2004.




Of
      the
      total amount of $24.6 million charged to general and administrative expenses
      for
      the year ended December 31, 2005, salaries and benefits comprised approximately
      $7.6 million; legal, audit and outside consulting expenses were approximately
      $3.1 million; travel accounted for approximately $1.4 million; insurance cost
      was $1.8 million and building and rent expense was approximately $1.8 million. Of
      the
      balance, there were approximately $3.9 million in non-cash charges, $3.0 million
      in non-recurring expenses related to the two acquisitions made last year and
      $819,000 related to other new business development expenditures.




46




Of
      the
      total amount of $9.7 million we spent on actual general and administrative
      expenses for the year ended December 31, 2004, salaries and benefits accounted
      for approximately $4.7 million; legal, accounting and consulting fees were
      approximately $1.7 million; travel accounted for approximately $1.0 million;
      insurance costs amounted to approximately $768,000 and rent and building
      expenses were approximately $475,000.




As
      we
      continue to implement our corporate development and growth strategy, we expect
      to incur additional administrative costs due to the addition of senior business
      and financial executives to our management team. We believe that as we grow
      our
      business and begin to introduce our own proprietary products, which we believe
      will have better margins than the contract development and manufacturing fees
      that we presently receive from our customers, we can offset these administrative
      incremental costs on a long-term basis.




**Selling
      Expenses**




Selling
      expenses consists primarily of salaries, commissions and marketing costs
      associated with the commercial, and sales and marketing arm of our business.
      Although we perform some sales and marketing functions, such activities up
      through 2005 were primarily focused on expanding our pharmaceutical
      manufacturing business with existing or potential clients.




Selling
      expenses were approximately $3.0 million or approximately 6% of net revenues
      for
      the year ended December 31, 2005 compared with $367,000 or approximately 2%
      of
      net revenues for the year ended December 31, 2004.




Pro
      forma
      selling expenses were approximately $3.7 million or approximately 5% of pro
      forma net revenues for 2005 compared with $1.3 million or approximately 2%
      of
      pro forma net revenues for 2004.




For
        the
        year ended December 31, 2005 selling expenses include a payment to JK Services
        (a related party) amounting to approximately $642,000 relating to sales
        commissions for new commercial contracts initiated and completed by the
        Company’s CEO.  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 expenses have
        remained consistent over the comparative years. Our sales and marketing
        functions have been primarily focused on expanding our pharmaceutical
        manufacturing business with existing or potential clients. As we continue
        to
        ramp-up our business development and commercial activities, we expect our
        selling expenses to increase concomitantly with expected revenue expansion.




Our
      selling expenses as a percentage of our revenues will also increase as we are
      planning to add senior sales and marketing executives to assist in our business
      expansion, including intensifying our marketing activities to existing or
      potential customers.




In
      addition, with the commencement of formal operations of our wholly-owned
      subsidiary Exaeris in January 2006, we have started to build a sales force
      through a contract services organization. This will add to selling expenses
      in
      2006, which we believe will be offset by the new revenue stream this sales
      force
      is expected to generate.




**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 30 years for buildings and 3-15 years for equipment.




For
      the
      year ended December 31, 2005, depreciation and amortization expenses were
      approximately $3.3 million, or 7% of net revenues of $49.6 million compared
      with
      $619,000 or 4% of net revenues of approximately $15.7 million for the year
      ended
      December 31, 2004. The primary reason for the increase in depreciation and
      amortization expenses were the respective acquisitions of the business assets
      of
      Aventis PR on
      March
      31, 2005, and
      all
      the outstanding shares of Ashton on
      August
      31, 2005 .




47




Pro
      forma
      depreciation and amortization expenses were approximately $6.5 million, or
      8% of
      pro forma net revenues for 2005, compared with $5.9 million or 8% of pro forma
      net revenues for 2004.




The
      pro
      forma year ended December 31, 2005 also includes the depreciation of these
      assets as if we had owned them from the beginning of 2005. The pro forma
      analysis is therefore indicative of the type of depreciation and amortization
      expenses that we will have on a go-forward basis due to the assets we have
      acquired.




**Amortization
      of Intangible Assets**




The
      fair
      values assigned to the intangible assets acquired are based on estimates and
      assumptions provided and other information compiled by management, including
      independent valuations that utilize established valuation techniques appropriate
      for the industry in which our Company operates.




The
      amortization expenses for intangible assets in 2005 were approximately $1.4
      million compared to approximately $166,000 in 2004. On a pro forma basis, the
      amortization expenses for intangible assets were approximately $2.7 million
      for
      2005 as compared to approximately $2.5 million for 2004.




For
      the
      year ended December 31, 2005, the amortization expenses for intangible assets
      relates to acquired intangible assets which include trade marks, trade names,
      customer relationships, customer contracts, customer lists, product licenses,
      know-how, and a technology patent acquired by the Company.




The
      increase in the amortization expense related to intangible assets between the
      comparative years ended December 31, 2005 and 2004 is due to the acquisition
      of
      identifiable intangible assets associated with the acquisition of certain
      business assets of Aventis PR and the acquisition of all of the outstanding
      shares of Ashton (“CMSL”) in 2005.




**Operating
      Loss before Interest and Financing Costs and Income Tax Expense**




Loss
      from
      operations before interest and financing costs and income tax benefit amounted
      to approximately $21.0 million for the year ended December 31, 2005, compared
      to
      a loss of $12.2 million for the year ended December 31, 2004.




Pro
      forma
      loss from operations before interest and financing costs and income tax benefit
      amounted to approximately $21.9 million for 2005 as compared to a pro forma
      loss
      of approximately $12.9 million for 2004.




**Interest
      and Financing Costs**




Interest
      and financing costs consist of interest expense related to the long-term debt
      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
      year ended December 31, 2005, interest and financing costs totaled approximately
      $10.1 million or approximately 20% of net revenues compared to interest and
      financing costs of approximately $3.4 million or approximately 21% of net
      revenues for the year ended December 31, 2004.




Pro
      forma
      interest and financing costs totaled approximately $9.1 million or approximately
      11% of pro forma net revenues for 2005 compared to pro forma year interest
      and
      financing costs of approximately $8.5 million or approximately 12% of pro forma
      net revenues for 2004.




For
      the
      year ended December 31, 2005, our interest and financing charges consist of
      $1.4
      million in amortization of debt discount, approximately $1.7 million for the
      beneficial conversion feature related to the convertible debt to Laurus Funds,
      approximately $872,000 for the amortization of deferred charges, approximately
      $238,000 in interest expense for the notes paid off to Laurus Funds,
      approximately $318,000 in interest payable under a convertible promissory note
      paid off to Stiefel, and approximately $189,000 in interest payments and
      associated issued warrant costs as a result of short-term loans obtained by
      our
      Company during 2005.




48




In
      addition, approximately $4.2 million relates to the two non-dilutive asset
      based
      secured credit facilities obtained from Westernbank on March 31, 2005 and August
      31, 2005, and $1.2 million of other interest related charges.




In
      comparison, for the year ended December 31, 2004, interest and financing costs
      included approximately $670,000 in amortization of debt discount, approximately
      $773,000 for the charge to interest for the beneficial conversion feature
      related to the convertible debt to Laurus Funds, approximately $336,000 for
      the
      amortization of deferred charges, approximately $795,000 in interest expense
      for
      the notes payable to Laurus Funds, approximately $250,000 in interest payable
      under a convertible promissory note payable to Stiefel, and approximately
      $550,000 in interest payments and associated issued warrant costs as a result
      of
      short-term loans obtained by our Company during 2004.




**Income
      Tax Expense (Benefit)**




For
      the
      year ended December 31, 2005 we recorded no income tax expenses or benefits.
      In
      comparison, for the year ended December 31, 2004, our Company recorded a
      deferred tax expense relating to valuation allowance on deferred tax assets
      of
      approximately $1.3 million.




**Net
      Loss**




The
      net
      loss for the year ended December 31, 2005 was approximately $31.0 million
      compared to a net loss of $16.9 million for the year ended December 31,
      2004.




On
      a pro
      forma basis, the net loss was approximately $30.1 million for 2005 compared
      to a
      net loss of approximately $22.5 million for 2004.




The
      2005
      net loss included approximately $3.9 million in non-cash charges, $3.0 million
      in non-recurring expenses related to the two acquisitions made last year and
      approximately $819,000 related to other new business development
      expenditures.




Contributing
      to our net losses in both respective years were operating expenses, consisting
      of product research and development costs, and general and administrative,
      selling, depreciation and amortization and amortization of intangible assets
      expenses, and interest and financing costs. Although our operating expenses
      as a
      percentage of net revenues improved by 15 percentage points during 2005 as
      compared to 2004, due to the allocation of corporate overhead over a larger
      revenue base, our losses increased between the comparative years as a result
      of
      the operating expenses and transaction costs associated with our respective
      acquisitions of
      the
      business assets of Aventis PR on
      March
      31, 2005, and
      all
      of the outstanding shares of Ashton through our subsidiary Inyx Europe, on
      August
      31, 2005 . Further
      adding to the 2005 net loss was low manufacturing capacity utilization at our
      Inyx Pharma U.K. site. This was caused by delayed implementation of production
      contracts and projects due to delays in regulatory approvals received by
      customers and acceptable supplies from approved vendors which subsequently
      commenced late in the year. In addition, at our new Inyx USA site, there were
      delays due to the extended time required for new business development in the
      contract pharmaceutical sector.




We
      expect
      to begin benefiting from our noted acquisitions including offsetting a
      significant part of our operating expenses as a result of the diverse client
      base, commercial collaborations and business development opportunities that
      we
      believe these business assets will begin to provide to our overall operation
      in
      2006 and future years. Once we fully integrate these new business acquisitions
      and continue to ramp-up our business and marketing efforts, we believe that
      we
      can obtain new contracts and purchase orders from existing and new customers,
      thereby setting off our operating expense and improving our profitability
      opportunities. We also expect our profitability opportunities to improve once
      we
      have commercialized for sale our own proprietary products or those through
      collaborative agreements with other pharmaceutical companies.




49




Additionally,
      we believe that we can enhance our competitive position through the acquisition
      of regulatory-approved pharmaceutical products and drug delivery devices for
      respiratory, dermatological, and topical and cardiovascular drug delivery
      applications or such products in development, including those through the
      acquisition of other pharmaceutical companies.




We
      expect
      to benefit during 2006 and future years from newly intensified new business
      development and marketing efforts. As we continue to ramp-up our business and
      obtain new contracts and purchase orders from existing and new customers, we
      believe that we can achieve profitability and have positive cash flows from
      the
      operations we acquired once we fully integrate our operations. We expect
      profitability to grow further as we establish ourselves as a vertically
      integrated, specialty pharmaceutical company.




**For
      the Year Ended December 31, 2004 and for the Combined Year Ended December 31,
      2003**




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.




For
      comparative purposes and in order to present a full year of results for the
      year
      ended December 31, 2003, Managements’ Discussion and Analysis of Results of
      Operations will focus on “combined” results. Such combined results of operations
      include the results of the Company (the “Successor Company”) for the period from
      March 7, 2003 through to December 31, 2003 combined with the results of
      operations of Miza UK (the “Predecessor Company”) for the period from January 1,
      2003 through March 6, 2003.




Inyx
      Pharma had acquired the majority of the business assets of Miza UK on March
      7,
      2003. Prior
      to
      its acquisition of the majority of Miza UK’s business assets, Inyx Pharma was a
      non-operating private corporation with nominal net assets. As the historical
      financial statements of Inyx Pharma are presented herein as our own historical
      financial statements, and because as of March 7, 2003 Inyx Pharma’s sole
      operation was essentially the continuation of the Miza UK business, the
      Company’s historical financial statements for the period from January 1, 2003
      through March 6, 2003 and prior are those of Miza UK, and are therefore
      presented as “Predecessor” financial statements.




The
      Company’s financial statements for the periods commencing March 7, 2003 are
      referred to as “Successor” financial statements. The financial statements for
      all periods are collectively referred to as “Inyx” or the “Company”.




Additionally,
      as the Biopharma Division was historically part of the Miza UK business but
      was
      an operation not acquired by Inyx Pharma, its results of operations are
      presented as discontinued operations in the Company’s financial
      statements.




P rior
      to
      our reverse acquisition of Inyx Pharma, we had divested all prior operations
      of
      our thoroughbred horse business and
      since then all of our revenues
      have been generated by Inyx Pharma. As a result, the following discussion of
      our
      results of operations for the period from March 7, 2003 through December 31,
      2003 focuses on approximately ten months of operations of our wholly owned
      subsidiary, Inyx Pharma, a pharmaceutical manufacturing operation we acquired
      through a reverse acquisition on April 28, 2003.




50


The
      table
      below sets forth the consolidated statement of operations for our Company in
      the
      aforementioned periods:




For
                the Year Ended December 31, 2004
            
            For
                the Combined Period from January 1, 2003 through December 31,
                2003
            
            For
                the Period from March 7, 2003 through December 31, 2003
            
            For
                the Period from January 1, 2003 through March 6, 2003Net
                revenues
            
            $
            15,699
            
            $
            15,495
            
            $
            13,099
            
            $
            2,396Cost
                of sales
            
            
            14,316
            
            
            12,510
            
            
            10,634
            
            
            1,876Gross
                profit
            
            
            1,383
            
            
            2,985
            
            
            2,465
            
            
            520Operating
                expenses:Research
                and development
            
            
            2,745
            
            
            -
            
            
            -
            
            
            -General
                and administrative expenses
            
            
            9,725
            
            
            12,661
            
            
            12,093
            
            
            568Selling
            
            
            367
            
            
            311
            
            
            260
            
            
            51Depreciation
                and amortization
            
            
            619
            
            
            422
            
            
            347
            
            
            75Amortization
                of intangibles
            
            
            166
            
            
            139
            
            
            139
            
            
            -Total
                operating expenses
            
            
            13,622
            
            
            13,533
            
            
            12,839
            
            
            694Loss
                before interest and financing costs, income tax expense (benefit)
                and
                discontinued operations
            
            
            (12,239
            )
            
            (10,548
            )
            
            (10,374
            )
            
            (174
            )Interest
                and financing costs
            
            
            3,370
            
            
            4,488
            
            
            4,312
            
            
            176Loss
                before income tax expense (benefit) and discontinued
                operations
            
            
            (15,609
            )
            
            (15,036
            )
            
            (14,686
            )
            
            (350
            )Income
                tax expense (benefit)
            
            
            1,333
            
            
            (1,294
            )
            
            (1,294
            )
            
            -Loss
                before discontinued operations
            
            
            (16,942
            )
            
            (13,742
            )
            
            (13,392
            )
            
            (350
            )Loss
                from discontinued operations
            
            
            -
            
            
            558
            
            
            -
            
            
            558Net
                loss
            
            $
            (16,942
            )
            $
            (14,300
            )
            $
            (13,392
            )
            $
            (908
            )





**Net
      Revenues**




Net
      revenues for the year ended December 31, 2004 were approximately $15.7 million
      as compared to combined net revenues of approximately $15.5 million period
      from
      January 1, 2003 to December 31, 2003. Net revenues increased by $200,000 or
      approximately 1.3% for the year.




For
      the
      year ended December 31, 2004, our three top customers accounted for
      approximately $7.5 million or approximately 48% of our total net revenues.
      During this period, these three customers were the Merck Generics group of
      companies (“Merck Generics”), accounting for approximately $4.2 million in net
      revenues or approximately 27% of total revenues; Genpharm Inc. (“Genpharm”),
      accounting for approximately $1.5 million in net revenues or approximately
      10%
      of total revenues; and SSL International Plc (“SSL”), accounting for
      approximately $1.8 million in net revenue or approximately 11% of total
      revenues.




In
      comparison, for the combined two periods of 2003, our three top customers
      accounted for approximately $6.6 million or approximately 43% of combined net
      revenues. Our three top customers were Merck Generics, accounting for
      approximately $3.1 million in net revenues or approximately 20% of total
      combined revenues; Genpharm, accounting for approximately $2.2 million in net
      revenues or approximately 14% of total combined revenues; and SSL, accounting
      for approximately $1.3 million in net revenues or approximately 9% of total
      combined revenues.




51




Revenues
      in 2004 were approximately $10 million less than originally anticipated because
      of the delay in two contracts that were initially scheduled to start last year
      but didn’t because the required government and regulatory approvals were not
      secured and were not in Inyx’s control. One of these delayed contracts was
      valued at approximately $6.5 million annually for an initial four-year term.




**Cost
      of Goods Sold**




Cost
      of
      sales for the year ended December 31, 2004, cost of goods sold amounted to
      approximately $14.3 million or approximately 91% of net revenues. In
      comparison, the combined
      cost of goods sold for the year ended December 31, 2003 amounted to
      approximately $12.5 million, or approximately 81% of combined net revenues
      of
      $15.5 million.




The
      cost
      of goods sold as a percentage of revenues was consistently high in the
      comparative periods due to the following factors:




(1)
      This
      reduced manufacturing capacity utilization continued into 2004 as it took us
      time during 2004 to start-up a number of client projects due to the required
      regulatory approvals, and the production commissioning and validation processes
      involved in the pharmaceutical manufacturing industry.




(2)
      In
      addition, due to the previously noted Montreal Protocol Treaty, during 2002
      thru
      2004, we have been phasing out the CFC-based MDI respiratory product line,
      which
      has gradually reduced our total manufacturing capacity utilization, and
      therefore reduced overhead absorption rates and increased our cost of goods
      sold. As a result of the CFC phase-out, the MDI line, which accounted for
      approximately 20% of overall production in 2002, accounted for approximately
      only 2% of overall production in 2003 and 2004. Additionally, CFC respiratory
      inhaler products are approximately 20% lower in material costs than their
      non-CFC equivalents. As we are now focused on phasing in the non-CFC version
      of
      these products, primarily HFA-based respiratory MDIs, our cost of goods sold
      have marginally increased as a result of the increased production of such
      inhalers for our customers.




**Gross
      Profit**




Gross
      profit for the year ended December 31, 2004 amounted to $1.4 million on net
      revenues of $15.7 million or approximately 9% of net revenues. In
      comparison, combined gross profit for the two periods amounted to approximately
      $3.0 million on combined net revenues of approximately $15.5 million or
      approximately 19% of net revenues for the combined two periods.




**Operating
      Expenses**




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




Operating
      expenses for the year ended December 31, 2004 amounted to approximately $13.6
      or
      approximately 87% of net revenues of $15.7 million. In comparison, operating
      expenses for the combined two periods amounted to approximately $13.5 million
      or
      approximately 87% of combined net revenues of $15.5 million.




The
      largest increase to our operating expenses for the year ended December 31,
      2004
      was the addition of $2.7 million of Research and Development Expense offset
      by
      reductions to the General and Administrative expenses.




In
      comparison, the largest contributor to our operating expenses for the period
      ended December 31, 2003, was the general and administrative expenses.




52




**General
      and Administrative Expenses**




Our
      General and Administrative expenses include corporate overhead costs,
      administrative support, and business and corporate development and support
      costs
      incurred by our wholly owned subsidiaries.




General
      and administrative expenses amounted to approximately $9.7 million or 62% of
      net
      revenues of $15.7 million for the year ended December 31, 2004 compared to
      general and administrative expenses of approximately $12.7 million or
      approximately 82% of net revenues of $15.5 million for the combined period
      ended
      December 31, 2003.




The
      significant decrease in the general and administrative expenses between the
      respective comparative periods was largely attributable to a number of business
      ramp-up and corporate overhead costs that we had to incur as a result of our
      reverse acquisition of Inyx Pharma on April 28, 2003.




These
      included the costs associated with the hiring of a number of key personnel,
      consulting, legal and accounting fees, higher insurance costs, and increased
      business and corporate development activities, including travel and
      communication expenses.




Of
      the
      total amount of $9.7 million spent on general and administrative expense for
      total year ended December 31 2004, salaries and benefits accounted for nearly
      $4.7 million; legal, audit and outside consulting expense was approximately
      $1.7
      million; travel accounted for approximately $1.0 million; insurance costs were
      approximately $768,000 million; and building and rent expense amounted to
      approximately $475,000 million.




Of
      the
      total amount of $12.7 million spent on general and administrative expenses
      for
      the combined periods in 2003, approximately $1.3 million of such expenses was
      related to warrants issued in conjunction with services provided by consultants
      and investment bankers; approximately $2.0 million of expenses related to
      reorganization and acquisition costs; approximately $1.7 million of these
      expenditures were related to salaries and benefits; approximately $1.6 million
      in expenses for legal, accounting and consulting fees; approximately $0.9
      million in travel, communication and corporate development costs, including
      rent
      paid; approximately $1.1 million in expenses for investor relation activities;
      approximately $0.8 million relating to a consulting services provided by an
      affiliated Partnership controlled by the Chairman and his immediate family
      and
      approximately $600,000 in insurance costs, due to a general increase in
      insurance premiums within the insurance industry. Our Inyx Pharma subsidiary
      also had an allowance for bad debt totaling approximately $0.2 million. We
      also
      expensed approximately $1.5 million for employee vested options granted to
      employees, officers, directors, and other persons which made valuable
      contributions to our Company as per the Company’s 2003 Stock Option Plan.




**Selling
      Expenses**




Selling
      expenses were approximately $367,000 or approximately 2% of net revenues of
      $15.7 million for the year ended December 31, 2004 compared to $311,000 or
      approximately 2% of net revenues of approximately $15.5 million for the combined
      periods through December 31, 2003.




**Depreciation
      and Amortization**




Depreciation
      and amortization expenses were approximately $619,000 or 4% of net revenues
      of
      $15.7 million for the year ended December 31, 2004 compared $422,000 or 3%
      of
      net revenues of approximately $15.5 million for the combined periods through
      December 31, 2003.




There
      were no significant additions to fixed assets for the year ended December 31,
      2004 and for the combined period from January 1, 2003 through March 6, 2003
      and
      for the period from March 7, 2003 through December 31, 2003. Our depreciation
      and amortization costs for the year were $558,000 for the depreciation of
      property, plant and equipment, compared to $415,000 for the combined period
      and
      $61,000 compared to 7,000 for the amortization of equipment under capital
      leases.




53




**Amortization
      of Intangible Assets**




The
      amortization expenses for intangible assets for the year ended December 31,
      2004
      was approximately $166,000 compared to $139,000 for the combined periods through
      December 31, 2003.




Our
      amortization expenses for intangible assets stem from the Company’s purchased
      intangible assets related to the Inyx Pharma acquisition of Miza UK’s assets.
      The intangible assets include Miza UK’s customer list and know-how. The customer
      list is amortized over a period of 12 years and know-how is amortized over
      10
      years.




These
      intangible assets are amortized on a straight line method basis over their
      estimated remaining useful lives in proportion to the underlying cash flows
      that
      were used in determining the acquired value.




**Operating
      Loss before Interest and Financing Costs, Income Tax Expense (Benefit) and
      Discontinued Operations**




Loss
      from
      operations before interest and financing costs, income tax benefit and
      discontinued operations amounted to approximately $12.2 million for the year
      ended December 31, 2004 compared to a loss of $10.5 million for the combined
      periods through December 31, 2003.




**Interest
      and Financing Costs**




Interest
      and financing costs consisted of interest expense related to the long term
      debt
      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
      year ended December 31, 2004, interest and financing costs totaled approximately
      $3.4 million or 22% of net revenues of $15.7 million compared to interest and
      financing costs of approximately $4.5 million or 29% of net revenues of $15.5
      million for the combined periods of 2003.




For
      the
      year ended December 31, 2004, interest and financing costs amounted to
      approximately $3.4 million and included approximately $670,000 in amortization
      of debt discount, approximately $773,000 for the charge to interest for the
      beneficial conversion feature related to the convertible debt to Laurus Funds,
      approximately $336,000 for the amortization of deferred charges, approximately
      $795,000 in interest expense for the notes payable to Laurus Funds,
      approximately $250,000 in interest payable under a convertible promissory note
      payable to Stiefel, and approximately $550,000 in interest payments and
      associated issued warrant costs as a result of short term loans obtained by
      the
      Company during the year.




In
      comparison, for the combined period from January 1, 2003 through December 31,
      2003, interest and financing costs amounted to approximately $4.3 million and
      included approximately $48,000 in amortization of debt discount, approximately
      $3.7 million for the charge to interest for the beneficial conversion feature
      related to the convertible debt to Laurus Funds, approximately $40,000 for
      the
      amortization of deferred charges, approximately $52,000 in interest expense
      for
      the notes payable to Laurus Funds, approximately $180,000 in interest payable
      under a convertible promissory note payable to Stiefel, and approximately
      $468,000 in interest payments and associated issued warrant costs as a result
      of
      short term loans obtained by the Company during the combined period.




**Income
      Tax Expense (Benefit)**




During
      2003 the company recorded a tax benefit on the tax loss carry forward of $1.3
      million on the basis of projected earnings in subsequent years. Due to delayed
      regulatory approvals experienced by customers, there were significant shortfalls
      from projected revenues in 2004 resulting in continued operating losses;
      therefore, we elected to provide a valuation allowance relating to this tax
      benefit in the year ended December 31, 2004.




For
      the
      period from March 7, 2003 through December 31, 2003, the tax benefit net of
      valuation allowance was approximately $1.3 million.




54




**Net
      Loss**




The
      net
      loss for the year ended December 31, 2004 was approximately $16.9 million
      compared to a net loss of $14.3 million for the combined period.




The
      net
      loss in both 2003 and 2004 was the result of low manufacturing capacity
      utilization due to delayed project implementation. The $2.6 million increase
      in
      net loss is approximately equal to the change in tax benefit of $1.3 million
      in
      2003 versus the tax expense of $1.3 million in 2004.




**LIQUIDITY
      AND CAPITAL RESOURCES**




**General**




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




As
      of
      December 31, 2005, we had approximately $99.5 million in loan obligations that
      are due through 2008. These loan obligations include both short-term and
      long-term debt interest and principal repayments, and amounts owed for operating
      and capital leases.




As
      of
      December 31, 2005, our current assets, including cash and cash equivalents,
      accounts receivable, inventory and other current assets amounted to
      approximately $34.7 million. Current liabilities amounted to approximately
      $76.3
      million and include approximately $21.1 in accounts payable and other current
      liabilities, $30.0 million due under a revolving line of credit, and
      approximately $9.3 million for the current portion of our long-term debt
      obligations.




We
      continue to incur operating losses. For the year ended December 31, 2005, net
      loss amounted to approximately $31.0 million. In comparison, for the year ended
      December 31, 2004, we had net losses of approximately $16.9 million.




Our
      net
      losses for the year ended December 31, 2005 include non-cash losses of
      approximately $13.3 million, largely attributable to depreciation and
      amortization, accelerated amortization costs, interest and financing costs
      that
      we incurred as a result of the funding and repayment of the Laurus Funds
      convertible debt. We utilized the Westernbank credit facilities to repay all
      of
      the Laurus Funds convertible debt, as well as to finance acquisition of certain
      assets and business of Aventis PR plus our acquisition of all the issued share
      capital of Ashton (“CMSL”) on August 31, 2005.




We
      also
      incurred additional general and administrative expenses of approximately $2.6
      million during the year ended December 31, 2005 consisting of due
      diligence, travel and acquisition and business integration costs related to
      these acquisitions and other new business development projects. These operating
      expenses are one-time expenses, largely related to the successful completion
      of
      the two acquisitions in 2005.




During
      the second half of 2005, we repaid in full the promissory note owed to Stiefel
      Laboratories, Inc. (“Stiefel”), which amounted to total principal of
      approximately $4.6 million (including interest and foreign exchange translation
      loss of approximately $551,000.)  When the
      note
      was paid off, the cross default condition on the Manufacturing and Supply
      Agreement with Stiefel dated March 6, 2003, was removed.




Importantly,
      we had a significant increase in net revenues during the year ended December
      31,
      2005 as a result of the two respective acquisitions; i.e. the
      acquisition of the business assets of Aventis PR on March 31, 2005 and the
      acquisition of all of the shares of Ashton (f/k/a CMSL) through our subsidiary,
      Inyx Europe, on August 31, 2005. As a result of these acquisitions, our revenues
      in 2005 increased by approximately $33.9 million to approximately $49.6 million.
      We believe that as we continue to integrate these operations and continue to
      capitalize on our revenue growth opportunities, we expect to continue to improve
      our profitability and begin to offset all of our operating expenses.




55




We
      believe that we can also continue to adequately service our debt with
      Westernbank and fund our operations through the business generated from these
      two recent acquisitions. Both acquisitions have contributed significantly to
      our
      revenues and profitability opportunities as they have diversified and grown
      our
      client base, extended our manufacturing and business capabilities, and enlarged
      our overall scope of operations.




Ashton
      has historically been a highly profitable operation and is expected to continue
      to be so. Customer production demand at Ashton continues to be strong in both
      the sterile and dry powder inhaler areas, which traditionally provide higher
      margins. We expect that our Inyx USA facility will continue to be profitable
      due
      to the increasing demand for respiratory, allergy and cardiovascular products
      from that facility, as the Montreal Protocol is implemented in the United
      States, due to contracts existing at this facility. In addition two large
      multi-year contracts that have been delayed at our Inyx Pharma facility have
      now
      commenced and our HFA lines at that facility are now in full
      production.




We
      also
      expect to achieve profitability by continuing to intensify our sales and
      marketing efforts to increase the number of customer purchase orders and
      contracts for our development and manufacturing services, especially as our
      two
      recent acquisitions have significantly strengthened and enlarged our Company’s
      operating scope. Additionally, these acquisitions have led to new and profitable
      multi-year exclusive manufacturing contracts with large pharmaceutical clients
      that we did not have before.




We
      also
      believe that we can establish new sources of revenue by marketing our own
      proprietary pharmaceutical products or selected clients’ products through
      collaborative agreements, such as our recent agreement with King
      Pharmaceuticals. Based on pharmaceutical industry profit margins for these
      types
      of proprietary products, we expect that the King Pharmaceuticals collaboration
      and product development agreements, including the promotion and marketing of
      Intal® and
      Tilade® ,
      and the
      successful commercialization and marketing of our own proprietary products
      that
      should offer similar profit margins will provide us with greater operating
      cash
      flow and improve our performance and overall profitability.




Until
      that time, we will continue to depend on our Westernbank credit facilities,
      contract manufacturing and product support customer revenues, and any required
      placements of equity and debt securities to assist us with our working capital
      requirements and to continue implementing our business development strategies,
      capital expenditure plans, and proprietary product development and
      commercialization initiatives.




**Capital
      Resources**




As
      of
      December 31, 2005, our total indebtedness outstanding (including current
      portion and amounts due to Seller of Ashton) was approximately
      $99.5 million, consisting of approximately $85.4 million under two credit
      facilities with Westernbank Business Credit, a division of Westernbank Puerto
      Rico (“Westernbank”) related to the two acquisitions made in 2005, and $14.0
      million owed to UCB Pharma related to our acquisition of Celltech Manufacturing
      Services Limited. The sum owed to UCB Pharma is comprised of a non-interest
      bearing amount of $9.5 million relating to deferred purchase price, to be repaid
      in six monthly installments between April and August 2006; and the balance
      owing
      for additional net current assets acquired not considered when the purchase
      price was negotiated between the parties amounting to $4.5 million, payable
      on
      May 31, 2006, interest on which is accrued and payable at Barclay’s Bank base
      rate.




As
      of
      December 31, 2005, our annual long term debt service requirements are
      approximately $14.5 million (which includes approximately $5.3 million of
      interest.) Such debt is collateralized by all the existing and future assets
      of
      the Company and its subsidiaries. In the event we are unable to generate
      sufficient cash flow from our operations or use proceeds derived from our
      financing efforts including through issuance of debt or equity securities,
      we
      may face difficulties in servicing our substantial debt load.




On
      March
      31, 2005, we entered into a non-dilutive, asset based revolving credit, term
      loan and security agreement (the “First Westernbank Credit Facility") originally
      totaling $46 million, then increased to $51 million on September 1, 2005, with
      Westernbank Business Credit, a division of Westernbank Puerto Rico, Puerto
      Rico's second largest bank and a wholly owned subsidiary of W Holding Company,
      Inc. The First Westernbank Credit Facility provides up to $15.0 million under
      a
      revolving line of credit (the "Revolver") secured by accounts receivables and
      inventory and up to $36.0 million under a series of four term loans (the "Term
      Loans") secured by the assets of Inyx, Inc. and its subsidiary Inyx USA. The
      Term Loans consist of up to $5.0 million under a 5 year Term Loan for purchases
      of new Property, Plant and Equipment, a $14.2 million, 5 year Term Loan on
      existing equipment, an $11.8 million, 15 year Term Loan on Real Property and
      a
      $5.0 million mezzanine Term Loan which are secured by all other assets of the
      Company.




56




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
      eligible 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 payments having commenced on
      July
      1, 2005 through maturity. The mezzanine term loan bears interest at the rate
      of
      15.0% with monthly principal payments having commenced on July 1, 2005 through
      maturity.




The
      availability under the First Westernbank Credit Facility allowed the Company
      to
      complete the acquisition of certain assets and business of Aventis
      Pharmaceuticals Puerto Rico Inc. from Aventis Pharmaceuticals, Inc., a member
      of
      the sanofi-aventis Group, to restructure debt by repaying the $12.4 million
      Credit Facility with the Laurus Funds and to provide funding for working capital
      requirements.




Pursuant
      to our acquisition of Aventis PR, our Company received a $3.5 million advance
      from Aventis Pharmaceuticals Puerto Rico Inc., a member of Sanofi-Aventis Group,
      evidenced by a Promissory Note which was entered into on March 31, 2005 (the
      "Promissory Note"), for strategic and business development activities to be
      carried out by our Company subsequent to the acquisition of Aventis PR. As
      part
      of the purchase price relating to the acquisition of business assets of Aventis
      PR the Company paid approximately $7.1 million relating to commercial contracts
      transferred to the Company. In
      November 2005, it was determined that certain services related to the will
      not
      be delivered, furthermore it was determined that an adjustment was required
      to
      the value assigned to the commercial contracts transferred to the Company on
      acquisition. The Company and Aventis PR arrived at the final purchase price
      adjustment and entered into a settlement agreement such as the amount that
      should have been received from the seller amounting to $2.3 million was off-set
      against the amount remaining due under the original advance of $3.5 million.




On
      August
      31, 2005, our Company, through its wholly owned subsidiary Inyx Europe Ltd.,
      obtained an additional non-dilutive asset based secured credit facility from
      Westernbank totaling $36.5 million (“the Second Westernbank Credit Facility”) to
      help fund its acquisition of Ashton. The Second Westernbank Credit Facility
      is
      comprised of a revolving loan of up to $11.7 million including a reserve of
      $500,000 plus a series of four term loans (Term Loan “A”, “B”, “C” and “D”)
      amounting in aggregate up to $24.8 million. The revolving working capital line
      of credit associated with the Second Westernbank Credit Facility is secured
      by
      Ashton’s eligible receivables and inventory. The term loans associated with this
      credit facility are secured by all of the assets of the Company and its
      subsidiaries, Inyx Europe and Ashton, and a guaranteed by those parties pursuant
      to Guarantor General Security Agreement. In addition, the Company has pledged
      the stock of Inyx Europe, and Inyx Europe has pledged the stock of Ashton to
      Westernbank, as part of the collateral for the Credit Facility, in each case
      pursuant to a Pledge and Security Agreement. The loans “A”, “B” and “C” bear
      interest at Westernbank prime rate plus 2% with principal payments having
      commenced December 1, 2005. Loan “D” bears interest at the rate of 15% per annum
      with principal payments based on an agreed upon formula having commenced January
      1, 2006. All of the Term Notes mature on August 31, 2008, and are automatically
      renewed on a year-to-year basis unless terminated by the Company or Westernbank.
      Payment of the amounts due under the Term Notes accelerates upon the occurrence
      of an Event of Default. Subsequent to year end the limit available under this
      facility was increased by $5 million to $16.7 million.




On
      November 22, 2005, the Company obtained an additional amount of $5.0 million
      from Westernbank under the First Westernbank Credit Facility. This Secured
      over
      Formula Advance (“SOFA”) will be utilized to fund prepayment of inventory and is
      revolving in nature.




The
      Westernbank prime interest rate at December 31, 2005 was 7.0%.




During
      the year ended December 31, 2005, the Company received approximately $3.4
      million in cash proceeds from the exercise of 3,395,939 warrants at prices
      ranging from $1.00 to $1.35 per share. In addition, subsequent to year end
      approximately 4.6 million warrants were exercised and resulted in proceeds
      of
      approximately $4.5 million. All such proceeds were used in operating activities
      and working capital.




57




We
      believe that the funding provided by these asset-based facilities provide us
      with the necessary capital to fund our core operations, including raw material
      and component purchases, research and development and business development
      activities, and capital expenditures and debt servicing requirements. On a
      short-term basis, these financings have provided us with sufficient capital
      to
      fund all of our present operations, including our immediate capital expenditure
      plans and the commercialization of our first two proprietary products, which
      we
      plan to commence marketing by the end of 2006. On a longer term basis, over
      the
      next three years, we will require additional funding of approximately $30
      million to continue to implement our business development strategies, capital
      expenditure plans and the development and commercialization of our own
      proprietary pharmaceutical products. We intend to raise such funds through
      the
      issuance of debt or equity securities at the time we require such funding,
      although no such financing plans have been formalized at this time.




Additionally,
      we believe that we can enhance our competitive position through the acquisition
      of regulatory-approved pharmaceutical products and drug delivery devices for
      respiratory, dermatological, and topical and cardiovascular drug delivery
      applications or such products in development, including those through the
      acquisition of other pharmaceutical companies. We are actively pursuing or
      are
      involved in acquisitions that require substantial capital resources. In the
      event that we make such acquisitions or change our capital structure, we may
      be
      required to raise funds through additional borrowings or the issuance of
      additional debt or equity securities. Although we continue to take steps to
      grow
      our business, such as enhanced sales and marketing activities and expansion
      of
      our product development activities, there can be no assurance that we can
      establish such new sources of revenue and profitability.




Furthermore,
      as we need additional funds to expand our sales and marketing activities and
      fully develop, manufacture, market and sell our potential products, we may
      have
      to delay our product development, commercialization and marketing programs
      if we
      are unable to continue to obtain the necessary capital to fund these operations. We
      expect
      to meet our short term liquidity requirements through net cash provided by
      operations and borrowings under the Debt Agreements with Westernbank. We believe
      that these sources of cash will be sufficient to meet the Company’s operating
      needs and planned capital expenditures for at least the next twelve
      months.




We
      cannot
      predict exactly if, or when, additional funds will be needed. We may obtain
      funds through a public or private financing, including equity financing, debt
      financing, a combination of debt and equity financing, and/or through
      collaborative arrangements. Additionally, we cannot predict whether any such
      financing will be available on acceptable terms. If our funding requirements
      are
      not met, we may have to delay, reduce in scope or to raise additional funds
      through additional borrowings or the issuance of additional debt or equity
      securities.







**Contractual
      Obligations as of December 31, 200** **5**




**Contractual
                Obligations**
            
            **Payments
                due by period****(amounts
                in thousands of U.S. dollars)**
            
            Total
            
            2006
            
            2007-2009
            
            ThereafterLong-term
                debt obligations - principal(1)
            
            $
            55,422
            
            $
            9,187
            
            $
            46,235
            
            $
            -Long-term
                debt obligations - interest
            
            
            10,567
            
            
            5,338
            
            
            5,229
            
            
            -Loan
                payable to seller of Ashton(2)
            
            
            14,014
            
            
            14,014
            
            
            -
            
            
            -Operating
                Lease Obligations(3)
            
            
            3,471
            
            
            1,114
            
            
            2,106
            
            
            251Subtotal
            
            
            83,474
            
            
            29,653
            
            
            53,570
            
            
            251**Commercial
                commitments**(4)Capital
                expenditures
            
            
            1,046
            
            
            1,046
            
            
            -
            
            
            -Purchase
                obligations
            
            
            1,549
            
            
            1,369
            
            
            180
            
            
            -Subtotal
            
            
            2,595
            
            
            2,415
            
            
            180
            
            
            -Total
            
            $
            86,069
            
            $
            32,068
            
            $
            53,750
            
            $
            251





****(1)
            Long
                term debt as at December 31, 2005 was comprised of the First and
                Second
                Westernbank Credit Facilities. The First Westernbank Credit Facility
                includes debt under term loan A of approximately $2.2 million, debt
                under
                term loan B of approximately $12.8 million, debt under term loan
                C of
                approximately $11.4 million and debt under term loan D of approximately
                $4.5 million. The Second Westernbank Credit Facility includes debt
                under
                term loan A of approximately $3.0 million, debt under term loan B
                of
                approximately $9.6 million, debt under term loan C of approximately
                $3.0
                million and debt under term loan D of approximately $8.9 million.




58




(2)
            The
                amounts owed to the seller of Ashton, UCB Pharma, consist of $9.5
                million
                deferred purchase price and approximately $4.5 million relating to
                additional net current assets acquired but not considered when the
                purchase price was negotiated.




(3)
            We
                have commitments under various long-term operating lease agreements
                for
                our manufacturing, development and office facilities. In addition
                to the
                payment of rent, we are also responsible for operating costs, real
                estate
                taxes and insurance.




(4)
            Commercial
                commitments include all current purchase obligations for inventories
                and
                capital expenditures for plant and equipment. We purchase valves
                and other
                components from outside sources. Except for deposits required pursuant
                to
                supply agreements, these obligations are not recorded on our consolidated
                statement of income until contract payment terms take
                effect.




**Analysis
      of Cash Flows**




At
      December 31, 2005, we had cash of approximately
      $1.0 million as compared
      to cash of approximately $336,000 at December 31, 2004, and $796,000 at December
      31, 2003. The increase in our cash position was due mainly to renewed borrowings
      under our Westernbank facility which was partially offset by increased working
      capital requirements due mainly to losses incurred during 2005.




In
      addition, during the fourth quarter of 2005, our Company received cash proceeds
      of approximately $3.4 million from the exercise of stock purchase warrants
      by
      outside holders. Subsequent to year end, from January 1, 2006 through March
      24,
      2006, the Company received additional cash of approximately $4.5 million from
      the exercise of more stock purchase warrants by outside holders.




***Cash
      Flows from Operating Activities for the*** ***Year
      Ended December 31, 2005***




The
      net
      cash used in operating activities for the year ended December 31, 2005 was
      $17.9
      million compared to approximately $9.0 million for the year ended December
      31,
      2004 and approximately $6.6 million for the period ended December 31,
      2003.




For
      the
      year ended December 31, 2005, the net cash used in operating activities included
      a net loss of $31.0 million adjusted for non-cash charges totaling $13.2 million
      consisting primarily of $2.4 million of amortization of financing cost and
      debt
      discounts, $3.1 million due to the issuance of equity securities as compensation
      of services, $3.3 million of depreciation and amortization and an additional
      $552,000 provision for inventory obsolescence. Net cash used in changes in
      working capital of approximately $112,000 resulted primarily from an increase
      in
      accounts receivable of $12.3 million offset by an increase in accounts payable
      and accrued liabilities of $7.8 million and a decrease in inventory of $3.7
      million.




***Cash
      Flows from Investing Activities for the Year Ended December 31,
      2005***




The
      net
      cash used in investing activities for the year ended December 31, 2005 amounted
      to approximately $4.1 million compared to approximately $1.7 million for the
      year ended December 31, 2004, and approximately $400,000 for the period ended
      December 31, 2003.




For
      the
      year ended December 31, 2005, there were capital expenditures of approximately
      $2.2 million consisting of $2.1 million for construction in progress costs
      in
      preparation for a new customer to be serviced from our Manatí site and
      approximately $98,000 for office furniture and computer hardware.




***Cash
      Flows from Financing Activities for the Period Ended December 31,
      2005***




For
      the
      year ended December 31, 2005, the net cash provided by financing activities
      approximated $25.6 million compared to approximately $10.5 million for the
      year
      ended December 31, 2004 and $7.6 for the period ended December 31,
      2003.




59




The
      proceeds for the year ended December 31, 2005 included net proceeds from the
      issuance of debt of approximately $26.5 million, exercise of warrants amounting
      to approximately $3.4 million and the exercise of stock options approximating
      $11,000. The borrowings were offset by repayment of short-term and long-term
      debt repayments and financing fees totaling approximately
      $4.1 million for the
      year ended December 31, 2005




**External
      Sources of Liquidity**




***Financing
      Activities***




On
      March
      31, 2005, we entered into a non-dilutive, asset based revolving credit, term
      loan and security agreement (the “First Westernbank Credit Facility") originally
      totaling $46 million, then increased to $51 million on September 1, 2005, with
      Westernbank Business Credit Division of Westernbank Puerto Rico, Puerto Rico's
      second largest bank and a wholly owned subsidiary of W Holding Company, Inc.
      The
      First Westernbank Credit Facility provides up to $15.0 million under a revolving
      line of credit (the "Revolver") secured by accounts receivables and inventory
      and up to $36.0 million under a series of four term loans (the "Term Loans")
      secured by the assets of Inyx, Inc. and its subsidiary Inyx USA. The Term Loans
      consist of up to $5.0 million under a 5 year Term Loan for purchases of new
      Property, Plant and Equipment, a $14.2 million, 5 year Term Loan on existing
      equipment, an $11.8 million, 15 year Term Loan on Real Property and a $5.0
      million mezzanine Term Loan which are secured by all other assets of 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 payments having commenced on July 1, 2005 through
      maturity. The mezzanine term loan bears interest at the rate of 15.0% with
      monthly principal payments having commenced on July 1, 2005 through maturity.




The
      availability under the First Westernbank Credit Facility allowed the Company
      to
      complete the acquisition of certain assets and business of Aventis
      Pharmaceuticals Puerto Rico Inc. from Aventis Pharmaceuticals, Inc., a member
      of
      the Sanofi-Aventis Group, to restructure debt by repaying the $12.4 million
      Credit Facility with the Laurus Funds and to provide funding for working capital
      requirements. Pursuant to our acquisition of Aventis PR, our Company received
      a
      $3.5 million advance from Aventis Pharmaceuticals Puerto Rico Inc., a member
      of
      Sanofi-Aventis Group, evidenced by a Promissory Note which was entered into
      on
      March 31, 2005 (the "Promissory Note"), for strategic and business development
      activities to be carried out by our Company subsequent to the acquisition of
      Aventis PR.




As
      part
      of the purchase price relating to the acquisition of business assets of Aventis
      PR the Company paid approximately $7.1 million relating to commercial contracts
      transferred to the Company.




In
      November 2005, it was determined that certain services related to the will
      not
      be delivered, furthermore it was determined that an adjustment was required
      to
      the value assigned to the commercial contracts transferred to the Company on
      acquisition. The Company and Aventis PR arrived at the final purchase price
      adjustment and entered into a settlement agreement such as the amount that
      should have been received from the seller amounting to $2.3 million was off-set
      against the amount remaining due under the original advance of $3.5 million.




The
        availability under the First Westernbank Credit Facility allowed the Company
        to
        complete the acquisition of certain assets and business of Aventis
        Pharmaceuticals Puerto Rico Inc. from Aventis Pharmaceuticals, Inc., a member
        of
        the Sanofi-Aventis Group, to restructure debt by repaying the $12.4 million
        Credit Facility with the Laurus Funds and to provide funding for working
        capital
        requirements.
  Pursuant
        to our acquisition of Aventis PR, our Company received a $3.5 million advance
        from Aventis Pharmaceuticals Puerto Rico Inc., a member of Sanofi-Aventis
        Group,
        evidenced by a Promissory Note which was entered into on March 31, 2005 (the
        "Promissory Note"), for strategic and business development activities to
        be
        carried out by our Company subsequent to the acquisition of Aventis PR. As
        part
        of the purchase price relating to the acquisition of business assets of Aventis
        PR the Company paid approximately $7.1 million relating to commercial contracts
        transferred to the Company. In November 2005, it was determined that certain
        services related to the will not be delivered, furthermore it was determined
        that an adjustment was required to the value assigned to the commercial
        contracts transferred to the Company on acquisition. The Company and Aventis
        PR
        arrived at the final purchase price adjustment and entered into a settlement
        agreement such as the amount that should have been received from the seller
        amounting to $2.3 million was off-set against the amount remaining due under
        the
        original advance of $3.5 million. The balance amounting to approximately
        $1.0
        million plus interest charges was repaid to Aventis PR in cash.


On
      August
      31, 2005, our Company, through its wholly owned subsidiary Inyx Europe Ltd.,
      obtained an additional non-dilutive asset based secured credit facility from
      Westernbank totaling $36.5 million (“the Second Westernbank Credit Facility”) to
      help fund its acquisition of Ashton. The Second Westernbank Credit Facility
      is
      comprised of a revolving loan of up to $11.7 million including a reserve of
      $500,000 plus a series of four term loans (Term Loan “A”, “B”, “C” and “D”)
      amounting in aggregate up to $24.8 million. The revolving working capital line
      of credit associated with the Second Westernbank Credit Facility is secured
      by
      Ashton’s eligible receivables and inventory. The term loans associated with this
      credit facility are secured by all of the assets of the Company and its
      subsidiaries, Inyx Europe and Ashton, and a guaranteed by those parties pursuant
      to Guarantor General Security Agreement. In addition, the Company has pledged
      the stock of Inyx Europe, and Inyx Europe has pledged the stock of Ashton to
      Westernbank, as part of the collateral for the Credit Facility, in each case
      pursuant to a Pledge and Security Agreement. The loans “A”, “B” and “C” bear
      interest at Westernbank prime rate plus 2% with principal payments having
      commenced December 1, 2005. Loan “D” bears interest at the rate of 15% per annum
      with principal payments based on an agreed upon formula having commenced January
      1, 2006. All of the Term Notes mature on August 31, 2008 and are automatically
      renewed on a year-to-year basis unless terminated by the Company or Westernbank.
      Payment of the amounts due under the Term Notes accelerates upon the occurrence
      of an event of default. Subsequent to year end, the limit available under this
      facility was increased by Westernbank from $5 million to $16.7
      million.




60




On
      November 22, 2005, the Company also obtained an additional amount of $5.0
      million from Westernbank under the First Westernbank Credit Facility. This
      Secured over Formula Advance (“SOFA”) will be utilized to fund prepayment of
      inventory and is revolving in nature.




The
      Westernbank prime interest rate at December 31, 2005 was 7.0%.




***Certain
      Indebtedness and Other Matters***




During
      the first quarter of 2005 the Company repaid all amounts due to Laurus funds.
      In
      connection with our such repayment, 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.




As
      of
      December 31, 2005, we owed the previous owner of Ashton, UCB Pharma,
      approximately $9.5 million of the balance of the purchase price plus
      approximately $4.5 million as payment for additional net current assets acquired
      but not considered when the purchase price was negotiated.




The
      purchase price deferral is non-interest bearing and is payable by us to UCB
      Pharma in six equal monthly payments of approximately $1.6 million
      commencing April, 2006. We are also entitled, at any time prior to payment
      in full of the purchase price deferral amount, to set off against any of that
      deferral amount still due, any unpaid claim we may have against UCB Pharma
      under
      the share purchase agreement of Ashton. As security collateral for the purchase
      price deferral, and to be released upon full payment of that deferral, we
      granted UCB Pharma a secondary security position over our Company’s assets
      behind Westernbank’s current first security position. Westernbank and UCB Pharma
      have also agreed to an inter-creditor agreement to be terminated upon full
      payment of the purchase price deferral. The excess of the working capital amount
      due to UCB Pharma, amounting to approximately $4.5 million, will be payable
      to
      UCB Pharma commencing on May 31, 2006. Interest on this loan is accrued and
      payable at Barclay’s Bank base bank rate.




In
      addition to our credit facilities and UCB Pharma indebtedness 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.




For
      the
      year ended December 31, 2005, our interest and financing charges totaled
      approximately $10.1 million. This amount consisted of $1.4 million in
      amortization of debt discount, approximately $1.7 million for the beneficial
      conversion feature related to the convertible debt to Laurus Funds,
      approximately $872,000 for the amortization of deferred charges, approximately
      $238,000 in interest expense for the notes paid off to Laurus Funds,
      approximately $318,000 in interest payable under a convertible promissory note
      paid off to Stiefel, and approximately $189,000 in interest payments and
      associated issued warrant costs as a result of short-term loans obtained by
      our
      Company during 2005.




The
      balance of the interest and financing costs for the year ended December 31,
      2005
      relate to the non-dilutive asset based secured credit facilities obtained from
      Westernbank on March 31, 2005 and August 31, 2005 amounting in aggregate to
      approximately $4.2 million and $1.2 million of other interest related charges. For
      the
      year ended December 31, 2005, the weighted average interest rate on outstanding
      loans during the period amounted to approximately 9.8%.




In
      comparison, for the year ended December 31, 2004, the total amount of interest
      expensed on all of our Company’s borrowings amounted to approximately $1.5
      million. For the year ended December 31, 2004, the weighted average interest
      rate paid on outstanding loans during the year amounted to approximately
      7.2%.




61




***Capital
      Expenditures***




We
      continuously make capital improvements to our development and production
      facilities in order to improve operating efficiencies, increase automation,
      improve quality control and keep pace with regulatory requirements and market
      demand.




In
      2005,
      we committed to spend approximately $1.3 million in capital expenditures at
      our
      U.K. sites. This included a substantial upgrade to our dry powder inhaler (DPI)
      and solid dose processing areas to facilitate an increase in potential
      capacities. Furthermore, additional capital was awarded to ensure the
      capabilities of our equipment and facilities were maintained to acceptable
      health, safety and regulatory levels. At our Puerto Rico site, we committed
      to
      approximately $365,000 to purchase the necessary equipment to automate the
      manufacturing process related to a Manufacturing and Supply Agreement we were
      awarded by NovaDel Pharma Inc. to produce its NitroMist nitroglycerin spray
      in a
      CFC-free oral metered dose dispenser for NovaDel and its designated marketing
      partners under a ten-year contract. Approximately $1.8 million was committed
      in
      providing substantial upgrades to our facilities and equipment, including
      additional packaging capabilities, critical utilities such as purified water,
      electrical systems and business protection equipment.




In
      2006,
      moreover, we plan to spend a total of approximately $8.3 million in capital
      expenditures. Approximately $5.3 million will be spent in our two U.K.
      facilities, which will provide increased capabilities in our metered dose
      inhaler (MDI), dry powder inhaler, hydrocarbon topical aerosols, solid dose
      manufacturing and related packaging facilities, and expanding our sterile
      injectable capacity at Ashton. Approximately $2.2 million will be committed
      at
      our Puerto Rico plant, which includes upgrading of solid dose capabilities,
      the
      installation of new processing facilities for expanded MDI capabilities, and
      commencement of the installation of eye care manufacturing capabilities
      scheduled to be completed in 2007. The capital expenditure budgets at all three
      sites also include provisions to ensure that each site maintains acceptable
      health, safety and regulatory standards. Approximately $750,000 has also been
      budgeted corporate-wide, mostly related to the integration of all our operations
      and the expansion of our information technology systems.




In
      2007
      and 2008, we will require additional capital expenditures totaling approximately
      $12 million to further enhance our development, manufacturing and quality
      control systems not only related to contract business but also to increasing
      the
      commercialization of our company’s own proprietary products.




On
      a
      short-term basis, the capital expenditure and business acquisition and working
      capital credit facilities from Westernbank have provided us with sufficient
      capital to fund our immediate capital expenditure plans. Longer term, we expect
      that increasing cash flow will fund more of our capital expenditure
      requirements, although supplemental financing may also be needed. We cannot
      predict exactly if, or when, additional funds will be needed. We may obtain
      funds through a public or private financing, including equity financing, debt
      financing, a combination of debt and equity financing, and/or through
      collaborative arrangements. Additionally, we cannot predict whether any such
      financing will be available on acceptable terms. If our funding requirements
      are
      not met, we may have to delay, reduce in scope or to raise additional funds
      through additional borrowings or the issuance of additional debt or equity
      securities.




***Future
      Commitments***




As
      of
      December 31, 2005, we have commitments under various long-term lease agreements
      for premises including those for our office and development and production
      facilities. These property leases range from one to fifteen years depending
      on
      the specific property. We also have a number of operating and capital leases
      for
      office equipment, fork lifts and staff automobiles in North America and the
      United Kingdom.




As
      of
      December 31, 2005, we had operating lease contractual obligations totaling
      approximately **$** 3.5
      million due to various vendors over the next ten years.




As
      of
      December 31, 2005, our Company has billed approximately $7.2 million for
      services to be provided. The revenues are recognized into income as services
      are
      performed.




62




With
      regard to our vendor and suppliers, due to the purchase of Inyx Pharma’s assets
      out of a United Kingdom bankruptcy protection process, we continue to be on
      pre-payments and cash on delivery (COD) payment terms with a number of our
      suppliers in Europe. These include all of our key component suppliers, including
      Cebal, which provides us with cans; Perfect Valois, which provides valves for
      aerosol pharmaceutical products; Lablabo, which provides actuators for steroidal
      foam products; Bespak, which provides valves for pharmaceutical respiratory
      inhaler devices; Precision Valve, which provides aerosol valves; and Nussbaum
      & Guhl, which also provides cans. As a number of these vendors also supply
      Aventis PR, our Inyx USA subsidiary is also on such pre-payment or COD payment
      terms with Perfect Valois and Bespak.




As
      a
      specialty pharmaceutical company, we are also involved in a number of business
      development projects including research and development activities, intellectual
      property and business acquisitions and investments, and strategic product
      marketing collaborations, that may require the use of capital resources over
      extended periods of time. From time to time, these activities may also include
      the use of external resources that require prepayment or cash deposits for
      supplies, products or services that we require. As we continue to intensify
      such
      activities in order to grow our Company, our capital requirements and/or future
      commitments may increase accordingly.




**Subsequent
      Events**




Subsequent
      to year end, on January 4, 2006, our wholly owned subsidiary Exaeris Inc.
      commenced formal operations. Exaeris oversees sales and marketing activities
      independent of Inyx’s client manufacturing operations. Pursuant to the Company’s
      September 8, 2005 agreement with King Pharmaceuticals, Exaeris is directing
      the
      re-launch of King’s asthma medication Intal® (cromolyn
      sodium) in specialty markets, including allergists, pulmonologists, and
      pediatricians, and will co-market Tilade®(nedocromil
      sodium), another of King’s respiratory products.




Subsequent
      to year end, between January 1, 2006 and March 24, 2006, the Company issued
      4,574,517 shares of its restricted common stock upon the exercise of 4,574,517
      warrants at prices per share ranging from $0.81 to $2.10, for total cash
      proceeds of approximately $4.5 million. All such proceeds were used in operating
      activities and working capital. In addition, pursuant to certain cashless
      exercise of warrants approximately 587,957 shares of common stock were returned
      into treasury.




Subsequent
      to year end, the limit available under the revolving working capital line of
      the
      Second Westernbank Credit Facility was increased by $5 million to $16.7 million
      to accommodate the increased business activity.




Subsequent
      to year end the Company entered into an agreement with Laurus Funds to amend
      certain terms of payment of the exercise price and to change the exercise price
      on one of the existing warrant agreements.




Subsequent
      to year end the Company granted 170,000 options to purchase 170,000 shares
      of
      the Company’s common stock. The fair value of these options approximating
      $226,000 was calculated using the Black-Scholes option pricing model with the
      following assumptions: a risk free interest rate of 4.2%, an expected life
      of
      four years, a volatility factor of 56.8% and a dividend yield of
      0%.




**Expectations**




In
      2006,
      we will be focusing on the integration of our acquisitions of Aventis PR and
      Ashton. We will also continue to explore other pharmaceutical business
      acquisitions or the acquisition of pharmaceutical products, intellectual
      properties or drug delivery devices, although no such potential definitive
      agreements have been finalized to date. In the event that we make a significant
      future acquisition or change our capital structure, we may be required to raise
      funds through additional borrowings or the issuance of additional debt or equity
      securities.





During
      2006, we also expect that Exaeris will continue to seek to capitalize on
      opportunities to acquire products of other pharmaceutical companies which are
      no
      longer core assets. Exaeris’ focus is on the sales and marketing of niche or
      enhanced pharmaceutical products in the respiratory, allergy, dermatological,
      topical and cardiovascular treatment market sectors. We believe that Exaeris
      provides the commercial and marketing resources to complement Inyx’s development
      and manufacturing operations, making our Company a vertically integrated,
      specialty pharmaceutical company.





63





**ITEM
      7A** **.
      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




In
      the
      ordinary course of our business, we could be subjected to a variety of market
      risks, examples of which include, but are not limited to, interest rate
      movements as borrowings under our credit facilities bear interest based on
      prime
      rate and foreign currency fluctuations as we have operations in the United
      Kingdom and trade in the European community. We continuously assess these risks
      and have established policies and procedures to protect against the adverse
      effects of these and other potential exposures. Although we do not anticipate
      any material losses in these risk areas, no assurance can be made that material
      losses will not be incurred in these areas in the future.




**Foreign
      Exchange Rate Risk**




Our
      functional currency is the U.S. Dollar. The financial statements of our
      Company’s operating subsidiaries with a functional currency other than U.S.
      dollars are translated into U.S. dollars using the current rate method.
      Accordingly, assets and liabilities are translated at period-end exchange rates,
      while revenues and expenses are translated at the period’s average exchange
      rates. Adjustments resulting from these translations are accumulated and
      reported as a component of accumulated other comprehensive loss in stockholders’
equity.




We
      neither hold nor issue financial instruments for trading purposes and we do
      not
      currently engage in any hedging activities designed to stabilize the risks
      of
      foreign currency fluctuations. Such fluctuations could adversely affect the
      value of our revenues and the results of our operations stated in U.S. Dollars.
      We intend to implement hedging transactions with a major financial institution
      in 2006 in order to alleviate such risks.




**Interest
      Rate Risk**




The
      principal value of variable rate long-term debt as of December 31, 2005,
      including current maturities approximated $72.1 million. A hypothetical increase
      of one percentage point in the prime interest rate applicable to our long-term
      debt at December 31, 2005 would be approximately $720,000.




**ITEM
      8.****FINANCIAL
      STATEMENTS****AND SUPPLEMENTARY DATA**




The
      financial statements required by this Item are included as a separate section
      of
      this report commencing on page F-1.





**ITEM
      9.****CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**




None.




64


**ITEM
      9A.** **CONTROLS AND PROCEDURES**




**Introduction**




“Disclosure
      Controls and Procedures” are defined in Exchange Act Rules 13a-15(e) and
      15d-15(e) as the controls and procedures of an issuer that are designed to
      ensure that information required to be disclosed by the issuer in the reports
      that it files or submits under the Exchange Act is recorded, processed,
      summarized, and reported, within the time period specified by the SEC’s rules
      and forms. Disclosure Controls and Procedures include, without limitation,
      controls and procedures designed to ensure that information required to be
      disclosed by an issuer in the reports that it files or submits under the
      Exchange Act is accumulated and communicated to the issuer’s management,
      including its principle executive and principal financial officers to all timely
      decisions regarding disclosure.




“Internal
      Control over Financial Reporting” is defined in Exchange Act Rules 13a-15(f) and
      15d-15(f) as a process designed by, or under the supervision of, an issuer’s
      principal executive and principal financial officers, or persons performing
      similar functions, and effected by an issuer’s board of directors, management,
      and other personnel, to provide reasonable assurance regarding the reliability
      of financial reporting and the preparation of financial statements for external
      purposes in accordance with generally accepted accounting principles and
      includes those policies and procedures that (1) pertain to the maintenance
      of
      records that in reasonable detail accurately and fairly reflect the transactions
      and disposition of an issuer; (2) provide reasonable assurance that transactions
      are recorded as necessary to permit preparation of financial statements in
      accordance with generally accepted accounting principles, and that receipts
      and
      expenditures of the issuer are being made only in accordance with authorizations
      of management and directors of the issuer; and (3) provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use,
      or
      disposition of the issuer’s assets that could have a material adverse effect on
      the financial statements.




We
      have
      endeavored to design our Disclosure Controls and Procedures and Internal
      Controls over Financial Reporting to provide reasonable assurances that their
      objectives will be met. A control system, no matter how well designed and
      operated, can provide only reasonable, but not absolute, assurance that its
      objectives will be met. All control systems are subject to inherent limitations,
      such as resource constraints, the possibility of human error, lack of knowledge
      or awareness, and the possibility of intentional circumvention of these
      controls. Furthermore, the design of any control system is based, in part,
      upon
      assumptions about the likelihood of future events, which assumptions may
      ultimately prove to be incorrect. As a result, we cannot assure you our control
      system will detect every error or instance of fraudulent conduct, including
      an
      error or instance of fraudulent conduct which could have a material adverse
      impact on our operations or results.




**Changes
      in Internal Control over Financial Reporting**




The
      Company is in the process of establishing a proper accounting and reporting
      department to meet the needs of putting in place the required internal controls
      for the reporting and processing of financial information from its respective
      subsidiaries. During the fiscal quarter ended December 31, 2005, the Company’s
      Internal Controls over Financial Reporting were affected by the amount of
      management time devoted to the integration of the Company’s two material
      acquisitions concluded during 2005, the addition and integration of several
      new
      financial management personnel, and the resignation of its chief financial
      officer who took a position with another company.




We
      are
      continually striving to improve our management and operational efficiency,
      and
      we expect that our efforts in this regard will enhance and strengthen our
      Internal Control over Financial Reporting. For example, we have recently added
      to our accounting staff with the aim of upgrading and reinforcing the technical
      resources available to our staff. We are also continuing our efforts to upgrade
      our information technology capabilities and are implementing a uniform
      consolidated accounting system at all of our business units. We will also hire
      an outside firm, not affiliated with our independent auditors, to complete
      an
      objective review of our Internal Control over Financial Reporting and provide
      recommendations for continued improvement of financial processes and controls,
      in preparation for Sarbanes-Oxley compliance testing.




**Evaluation
      of Disclosure Controls and Procedures**




65




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 acting Chief Financial Officer, of
      the
      effectiveness of the design and operation of our disclosure controls and
      procedures pursuant to Rule 13a-14 of the Exchange Act. Based upon that
      evaluation, the Chief Executive Officer and acting Chief Financial Officer
      concluded that our disclosure controls and procedures were affected by the
      amount of management time devoted to the integration of the Company’s two
      material acquisitions concluded during 2005, the addition and integration of
      several new financial management personnel, and a change of financial personnel
      including the resignation of its chief financial officer who took a position
      with another company.




Based
      on
      the evaluation described above and the actions taken by management including
      the
      recruiting and hiring of additional qualified financial persona, including
      a
      qualified Chief Financial Officer; the expansion of our accounting and reporting
      departments, and implementation of additional financial reporting and accounting
      systems, our Chief Executive Officer and acting Chief Financial Officer have
      concluded, that as of March 28, 2005, that our disclosure controls and
      procedures are effective at reaching that level of reasonable
      assurance.





**ITEM
      9B.** **OTHER
      INFORMATION**




None.




**PART
      III**




**ITEM
      10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**




**Directors
      and Executive Officers**




**Name**
            
            **Age**
            
            **Position
                with Company**
            
            **Start
                Date with Company**Jack
                Kachkar
            
            43
            
            Chairman,
                Chief Executive Officer, and Director
            
            April
                1, 2003Steven
                Handley
            
            43
            
            President
                and Director
            
            May
                1, 2003Colin
                Hunter
            
            49
            
            Executive
                Vice President, Chief Scientific Officer and Director
            
            May
                1, 2003Douglas
                Brown
            
            53
            
            Director
                and Compensation Committee Chair
            
            July
                17, 2003Joseph
                Rotmil
            
            55
            
            Director
                and Audit Committee Chair
            
            May
                5, 2004Jay
                M. Green
            
            57
            
            Executive
                Vice President and Director of Corporate Development
            
            December 1,
                2003Rima
                Goldshmidt
            
            43
            
            Vice
                President-Finance and Treasurer,
              Corporate
                Secretary and Acting Chief Financial Officer (Chief Accounting
                Officer)
            
            April
                1, 2003Stephen
                Beckman
            
            39
            
            Vice
                President, Sales & Marketing and Commercial
                Development
            
            September
                1, 2005





***Jack
      Kachkar*** *—
      Chairman, Chief Executive Officer and Director.* Dr. Kachkar
      is a medical doctor with experience as an executive within the pharmaceutical
      industry. Dr. Kachkar has founded and assisted in the acquisition of a
      number of pharmaceutical companies focused on niche product development and
      manufacturing capabilities. He has also provided consulting and advisory
      services within the pharmaceutical industry and was a founder in 1995 of a
      medical publishing company. In addition to his role as Chairman of the Board
      and
      Chief Executive Officer of Inyx, Dr. Kachkar is also currently the Chairman
      and
      Chief Executive of Karver International, Inc., a publicly-held health care
      services company. From 1996 until December 2002, Dr. Kachkar was President
      and
      CEO of Miza Pharmaceuticals, Inc. (“Miza”), a Canadian corporation in Toronto,
      Ontario. Miza is now inactive. While in operation, Miza had three operating
      subsidiaries, Miza Pharmaceuticals (UK), Ltd. (“Miza UK”), Miza Ireland Limited
      (“Miza Ireland”) and Miza Pharmaceuticals USA, Inc. (“Miza USA”).
      Dr. Kachkar was involved in the management of all four companies, although
      he resigned as an officer of Miza in December 2002 and as a director in May
      2003, prior to that company becoming inactive; he resigned as a director of
      Miza
      UK in August 2002 and was never an officer; he resigned as a director of Miza
      Ireland in October 2002 and was never an officer; and he resigned as an officer
      of Miza USA in March 2003 and as a director in April 2003. Miza UK was placed
      in
      Administration in September, 2002 and sold its assets out of Administration
      in
      March 2003 to Inyx Pharma; Miza Ireland’s assets were sold by a court-appointed
      liquidator during 2003; Miza USA was placed into Chapter 11 bankruptcy
      proceedings by its new owners in May 2003 under the name Carr Pharmaceuticals,
      Inc., and was then subsequently liquidated by its secured lenders.
      Dr. Kachkar earned his medical degree *summa
      cum laude* in 1995
      from the English Language Medical Program at Semmelweis Medical University
      in
      Budapest, Hungary.




66




***Steven
      Handley*** *—
      President and Director.* Mr. Handley
      has over 20 years experience within the pharmaceutical industry. During this
      period, Mr. Handley has held several senior management positions in
      manufacturing and technical operations. He has extensive experience in the
      development and manufacture of sterile pharmaceuticals and aerosols technology.
      Mr. Handley has worked for Evans Medical, Medeva PLC, and, during the past
      five
      years for CCL Pharmaceuticals and its successor Miza UK, where he was
      responsible for all manufacturing and technical operations as Senior Vice
      President. Mr. Handley holds a qualified pharmaceutical technician degree
      and is a member of several professional bodies. He also holds a diploma in
      management and is experienced in vaccine manufacturing and lyophilization
      technology.




***Colin
      Hunter*** *—
      Executive Vice President, Chief Scientific Officer and Director.* Mr. Hunter
      has over 25 years experience within the pharmaceutical industry where he has
      held senior positions within quality and manufacturing operations, gaining
      extensive experience of regulatory authorities’ requirements for pharmaceutical
      products, including both FDA and EU regulatory agencies. During his career,
      he
      has worked for Glaxo Pharmaceuticals, Evans Medical Ltd. and Medeva PLC. From
      January 1990 until June 2000, he was European Quality Director for Medeva Pharma
      Ltd., a subsidiary of Medeva + Celltech PLC. From July 2000 until April 2001,
      he
      was Quality Director for CCL Industries, Inc. From May 2001 until February
      2003,
      he was Senior Vice President of Miza Pharmaceuticals UK, Ltd. From March 2003
      until April 2003, he was a director of Inyx Pharma Limited, and he became
      Executive Vice President of the Company in May 2003. Mr. Hunter holds a
      Bachelor of Science Degree with Honors in Bacteriology and Virology. He is
      a
      Chartered Biologist, Member of the Institute of Biology, a Fellow of The
      Institute of Quality Assurance and is a member of other professional
      societies.




***Douglas
      Brown*** *—
      Director and Compensation Committee Chair and Audit Committee Member.* Mr. Brown
      is an independent director of the Company. He has been active in a number of
      financial and investment companies. He has served as a director of the L/M
      Asia
      Arbitrage Fund since June 1988 and of the Eastern Capital Fund since June 1988.
      Previously, Mr. Brown was Vice-President of Citibank in London, United Kingdom,
      and Geneva, Switzerland where he managed over one billion dollars in assets.
      Mr. Brown graduated LLB from Edinburgh University, United
      Kingdom.




***Joseph
      Rotmil*** *—
      Director and Audit Committee Chair and Compensation Committee
      Member.* Currently, he is President and CEO of Weston Capital Quest Corporation, a
      private consulting firm, prior to that, since 1993, Mr. Rotmil had been
      President and CEO of Mixson Corporation, a manufacturer of public safety
      equipment.  Prior to 1993 his experience includes serving as President and
      CEO of Cobotyx Corporation, a privately owned telecommunications equipment
      manufacturer, and earlier as Vice President, Finance and Chief Financial Officer
      of that company.  Mr. Rotmil has also served as a Controller at
      Executone Information Systems, a telecommunications equipment manufacturer,
      and
      as a Director of Corporate Accounting for Tetley, Inc., a large consumer
      products company.  He also served as a Controller for the Accessories Group
      of General Mills, and as a Senior Financial Analyst at IBM. 
Mr. Rotmil began his career in 1972 as an auditor with Coopers &
Lybrand (now part of Price Waterhouse Coopers).




***Jay M.
      Green*** *—
      Executive Vice President and Director of Corporate Development.* Mr. Green
      joined Inyx in December 2003. From January until November 2003, Mr. Green
      was a managing director of Duncan Capital, LLC, a merchant banking/investment
      banking firm that served as our investment banking firm. From June 2001 until
      2002 year-end, Mr. Green was a Managing Director of BlueFire Partners, a
      Minneapolis-based capital markets advisory firm. From January 2001 until May
      2001, Mr. Green served as an independent financial consultant advising both
      private and public companies. From June 2000 until December 2000, he was a
      Vice
      President with Unapix Entertainment, Inc., which was a public company on the
      American Stock Exchange (ASE: UPX) that filed for bankruptcy and its assets
      were
      subsequently liquidated. From March 1999 to May 2000, Mr. Green was an
      independent consultant advising private and public companies. From September
      1998 until February 1999, he served as a Vice President with Paxar Corp. (NYSE:
      PXR). From January 1991 until May 1998, Mr. Green was a Vice President with
      Seitel, Inc. (which was on the ASE and then the NYSE during his
      tenure).




67




***Rima
      Goldshmidt*** *—
      Vice President-Finance, Treasurer and Corporate Secretary.* Ms. Goldshmidt
      has been employed with Inyx Canada Inc. and Inyx, Inc. since April 2003.
      Ms. Goldshmidt worked in the pharmaceutical industry for Miza
      Pharmaceuticals, Inc. between November 2001 and September 2002 as Director
      of
      Finance. From September 2002 to April 2003, she was a self-employed financial
      consultant to pharmaceutical companies. Prior to November 2001
      Ms. Goldshmidt served as an audit manager at KPMG where she focused on
      serving clients in the life sciences industry. Ms. Goldshmidt is a
      Chartered Accountant with a Bsc. degree in Microbiology and Biochemistry from
      the University of Toronto. Ms. Goldshmidt is a member of The Institute of
      Chartered Accountants of Ontario and the Canadian Institute of Chartered
      Accountants.




***Stephen
      Beckman*** *—
      Vice President, Sales & Marketing and Commercial
      Development.* Mr.
      Beckman joined Inyx in September 2005. Prior to joining Inyx, Mr. Beckman served
      as a consultant to the pharmaceutical industry. Earlier, he served as Corporate
      Vice President of Global Franchise Management and Vice President of Corporate
      Marketing, Respiratory for Altana Pharma AG. He was also Worldwide Director
      -
      Pulmonary Marketing for SmithKline Beecham Pharmaceuticals. Mr. Beckman has
      held
      executive marketing positions also with Astra Merck Corporation and Fisons
      Pharmaceutical Corporation, and he began his career with Marion Merrell Dow
      Pharmaceuticals. Mr. Beckman holds a B.S. in Marketing from Syracuse University
      and graduate studies in pharmaceutical marketing from UCLA and advanced studies
      at the Wharton School of Business.







**Other
      Key Employees**


**Name**
              
              **Position**
              
              **Company****Marc
                  Couturier**
              
              Senior
                  Vice President, Global Business Development
              
              Inyx,
                  Inc.**Ulrich
                  Bartke**
              
              Vice
                  President, Global Sales and Marketing
              
              Inyx,
                  Inc.**Dolores
                  Fernandez**
              
              Vice
                  President, Global Supply Chain
              
              Inyx,
                  Inc.**Nancy
                  Hernandez**
              
              Vice
                  President, Regulatory Compliance and Quality Operations
              
              Inyx,
                  Inc.**Jimmy
                  Meade**
              
              Vice
                  President, Group Engineering Projects
              
              Inyx,
                  Inc.**Jose
                  Betancourt**
              
              Vice
                  President, General Manager
              
              Inyx,
                  Inc.**Josette
                  Wys**
              
              Vice
                  President, Business Development
              
              Inyx,
                  Inc.**Serge
                  Agueev**
              
              Information
                  Systems Manager
              
              Inyx,
                  Inc.**Tony
                  Garcia**
              
              Vice
                  President, General Manager
              
              Inyx
                  USA, Inc.**Norma
                  Rosa**
              
              Head
                  of Finance
              
              Inyx
                  USA, Inc.**Joseph
                  Rose**
              
              Vice
                  President, Finance
              
              Inyx
                  Europe Ltd. & Inyx Pharma**Patricia
                  Gil****lmore**
              
              Head
                  of Human Resources
              
              Inyx
                  Europe Ltd. & Inyx Pharma**Ged
                  Dittman**
              
              Vice
                  President, Operations
              
              Inyx
                  Pharma Ltd.**Phil
                  Jenkinson**
              
              Vice
                  President, Quality
              
              Inyx
                  Pharma Ltd.**Anastasia
                  Loftus**
              
              Regulatory
                  Affairs Manager
              
              Inyx
                  Pharma Ltd.**Malcolm
                  Fox**
              
              Engineering
                  Manager
              
              Inyx
                  Pharma Ltd.**Carole
                  Richardson**
              
              Corporate
                  Administration Manager
              
              Inyx
                  Pharma Ltd.**Tony
                  Weeks**
              
              Head
                  of Operations
              
              Ashton
                  Pharmaceuticals, Ltd.**Eddie
                  Prady**
              
              Head
                  of Quality
              
              Ashton
                  Pharmaceuticals, Ltd.







Officers
      are appointed by and serve at the will of the Board of Directors. There are
      no
      family relationships between or among any of the directors or executive officers
      of the Company.




68




**Director
      Compensation**




Directors
      received annual compensation of $30,000 for serving on the Board and all
      committees. Effective January 1, 2006, such annual compensation was increased
      to
      $40,000. The chair of the Compensation Committee receives an additional $10,000
      per year, and the chair of the Audit Committee receives an additional $10,000
      per year. Existing non-management directors have also received certain stock
      options. See “Principal Stockholders and Security Ownership of
      Management.”




**Governance**




The
      Board
      of Directors has adopted the following committees to assist in the Company’s
      governance:




***Audit
      Committee*** -
      Joseph A. Rotmil and Douglas Brown comprise the Audit Committee, and
      Mr. Rotmil is the Chairman and Audit Committee Financial Expert. The Audit
      Committee functions under a Charter empowering it to, among other things,
      appoint the independent auditors, approve the auditor’s fees, evaluate
      performance of the auditor, review financial statements and management’s
      discussion and analysis thereof, review all SEC reports and press releases
      of a
      financial nature, oversee internal audit processes, oversee new audit reviews
      performed by the auditors, and receive management and other reports from the
      auditor.




***Compensation
      Committee*** -
      Douglas Brown and Joseph A. Rotmil comprise the Compensation Committee, and
      Mr. Brown serves as the Chairman. The Compensation Committee determines the
      compensation of the Chief Executive Officer and other executive officers,
      determines Board of Director compensation, awards options and other stock
      grants, and issues the report regarding these matters for inclusion in annual
      reports to stockholders.




As
      we are
      not listed on a national stock exchange we are not subject to many of the
      corporate governance requirements mandated by The Sarbanes-Oxley Act of 2002
      (“SOX”). However, we have structured our governance to comply substantially with
      all requirements of the major stock exchanges as required by SOX. We intend
      to
      pursue a listing of our common stock on a major stock exchange and will comply
      with the rules of any exchange on which a listing is sought.




Beginning
      with 2005, we are no longer a Small Business Issuer as defined by the rules
      of
      the SEC, and we will review our corporate governance for compliance with the
      heightened governance rules applicable to us.




**Code
      of Ethics**




Pursuant
      to Section 406 of the Sarbanes-Oxley Act, the Company has adopted a Code of
      Ethics for Senior Financial Officers. This code is filed as an exhibit to this
      Annual Report on Form 10-K and is also available free of charge at our website
      at www.inyxgroup.com.




**Compliance
      with Section 16(a)**




The
      Company does not file reports pursuant to Section 12 of the Securities
      Exchange Act of 1934, and its officers, directors, and 10% shareholders are
      not
      required to file reports under Section 16(a) of the Securities
      Act.




**ITEM
      11. EXECUTIVE COMPENSATION**




**Executive
      Compensation**




For
      the
      fiscal years ended December 31, 2005, 2004 and 2003, the following officers
      of the Company received the following cash compensation for services rendered
      to
      the Company. See “Management - Employment Agreements” for a description of
      compensation arrangements entered into by the Company with certain of its
      executive officers.




69




**Summary
      Compensation Table**






Annual
              Compensation
            
            Long-term
              CompensationAwards
            
            PayoutsName/
                PrincipalPosition
            
            Year
            
            Salary
            
            Bonus
            
            Other
                AnnualCompensation
            
            Restricted
                StockAwards
            
            Securities
                Underlying Options/SAR
            
            LTIPPayouts
            
            All
                OtherCompensation**Jack
                Kachkar**(1)
              Chief
                Executive
              Officer
            
            2005
              2004
              2003
            
            $345,000
              $345,000
              $245,000
            
            --
              --
              --
            
            --
              -
              $100,000(2)
            
            
            
            
            
            
            
            $100,000
              $75,000
              $65,000**Steven
                Handley**
              President
            
            2005
              2004
              2003
            
            $183,000
              $183,000
              $163,300
            
            --
              $12,250
            
            $17,568(3)
              $27,885(3)
              --
            
            
            
            
            
            
            
            --
              $57,329
              $16,120**Colin
                Hunter**
              Executive
                Vice-
              President,
                CSO
            
            2005
              2004
              2003
            
            $173,850
              $172,300
              $155,135
            
            --
              --
              $11,635
            
            $17,568(3)
              $29,501(3)
              --
            
            
            
            
            
            
            
            --
              $61,568
              $16,120**Jay
                Green**
              Executive
                Vice-President, Corp. Dev.
            
            2005
              2004
              2003
            
            $200,000
              $150,000
              --
            
            $55,000
              --
            
            --
              $5,000(4)
              --
            
            
            
            
            
            
            
            $20,000
              $10,000
              --**Rima
                Goldshmidt**
              Vice
                President, Finance & Acting Chief Financial Officer
            
            2005
              2004
              2003
            
            $125,000
              $100,000
              $92,000
            
            $45,000
              --
              $5,000
            
            --
              --
              --
            
            
            
            
            
            
            
            $10,000(3)
              $15,000
              --**John
                Hamerski**
              Former
                Vice President & Chief Financial Officer
            
            2005
              2004
              2003
            
            $200,000
              --
              --
            
            --
              --
              --
            
            $66,000(6)
              --
              --
            
            
            
            
            
            
            
            --
              --
              --




(1)
            During
                2003, 2004 and 2005, Dr. Kachkar also provided his services to Inyx
                and its subsidiaries through “JK Services”, a partnership of corporations
                owned by him and members of his immediate family. Compensation for
                such
                services is not included in the table above. See “Related Party
                Transactions.”




(2)
            Represents
                a discretionary expense allowance. Effective January 1, 2004, such
                amount was combined with the salary amount.




(3)
            Represents
                vehicle, travel and professional fee allowances.




(4)
            Represents
                a one-time discretionary expense allowance.




(5)
            Includes
                consulting fees and reimbursement of expenses.




(6)
            Includes
                vehicle and apartment costs.




70




**Option/SAR
      Grants in Last Fiscal Year**




Individual
                  GrantsName
              
              Number
                  of Securities Underlying Options/ SARs Granted
              
              Percentage
                  of Total Options/ SARs Granted to Employees in 2005
              
              Exercise
                  of Base Price
              
              Expiration
                  Date
              
              Grant
                  Date Present ValueJack
                  Kachkar
              
              
              2,000,000
              
              
              36.7
              
              $
              1.37
              
              
              9/14/2015
              
              $
              1,540,000Jack
                  Kachkar
              
              
              250,000
              
              
              4.6
              
              
              1.75
              
              
              11/28/2015
              
              
              260,000Jay
                  Green
              
              
              1,000,000
              
              
              18.3
              
              
              1.37
              
              
              9/14/2015
              
              
              770,000John
                  Hamerski(1)
              
              
              300,000
              
              
              5.5
              
              
              1.01
              
              
              3/31/2015
              
              
              177,000Rima
                  Goldshmidt
              
              
              285,000
              
              
              4.7
              
              
              1.37
              
              
              9,14,2015
              
              
              219,450


(1)
            Such
                options expired March 30, 2006.




**Aggregated
      Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR
      Values**


Name
              
              Shares
                  Acquired on Exercise
              
              Value
                  Realized
              
              Number
                  of Securities Underlying Unexercised Options/ SARs at December
                  31, 2005
                  Exercisable/ Unexercisable
              
              Value
                  of Unexercised
                In-the-Money
                  Options/ SARs at December 31, 2005 Exercisable/
                  UnexercisableJack
                  Kachkar
              
              -
              
              -
              
              3,000,000
              
              3,000,000Steven
                  Handley
              
              -
              
              -
              
              -
              
              -Colin
                  Hunter
              
              -
              
              -
              
              400,000
              
              400,000Jay
                  Green
              
              -
              
              -
              
              1,500,000
              
              1,500,000John
                  Hamerski(1)
              
              -
              
              -
              
              300,000
              
              300,000Rima
                  Goldshmidt
              
              -
              
              -
              
              285,000
              
              285,000




(1)
            Such
                options expired March 30, 2006.




71





**Long-Term
      Incentive Plans - Awards in 2005**




Estimated
                Future Payments under
              Non-Stock
                Price-Based PlansName
            
            Number
                of Shares, Under or Other Rights
            
            Performance
                or Other period Until Maturation or Payout
            
            Threshold
              ($
                or #)
            
            Target
              ($
                or #)
            
            Maximum
              ($
                or #)Jack
                Kachkar
            
            None
            
            --
            
            --
            
            --
            
            --Steven
                Handley
            
            None
            
            --
            
            --
            
            --
            
            --Colin
                Hunter
            
            None
            
            --
            
            --
            
            --
            
            --Jay
                Green
            
            None
            
            --
            
            --
            
            --
            
            --Rima
                Goldshmidt
            
            None
            
            --
            
            --
            
            --
            
            --John
                Hamerski
            
            None
            
            --
            
            --
            
            --
            
            --




**Employment
      Agreements**


The
      Company has signed Employment Agreements with its top five paid incumbent
      executive officers. Such agreements have the following principal terms:







Start
                Date
            
            Term(Years)
            
            Base
                Salary
            
            Stock
                Options(2)
            
            Vacation(weeks)
            
            SeveranceamountJack
                Kachkar(1)
            January
                1, 2004
            
            5
            
            $
                345,000
            
            750,000
            
            4
            
            24
                month baseSteven
                Handley
            May
                1, 2003
            
            5
            
            £
                100,000
            
            750,000
            
            5
            
            12
                months baseColin
                Hunter
            May
                1, 2003
            
            5
            
            £
                95,000
            
            100,000
            
            5
            
            12
                months baseRima
                Goldshmidt
            April
                1, 2003
            
            4
            
            $
                145,000(4)
            
            100,000
            
            4
            
            6
                months baseJay
                Green(3)
            December
                1, 2003
            
            5
            
            $
                200,000
            
            500,000
            
            4
            
            24
                month baseStephen
                Beckman
            September
                1, 2005
            
            3
            
            $
                175,000
            
            300,000
            
            4
            
            12
                month base




(1)
            Dr.
                Kachkar’s contract was with Inyx through May 15, 2003, when it was
                amended to direct all payments to JK Services, a personally owed
                investment company, for purposes of Canadian tax planning. Beginning
                January 1, 2004, the employment agreement was resumed with Dr.
                Kachkar and the terms amended to provide for a $345,000 salary without
                any
                discretionary expense allowance.




(2)
            Actual
                grants during 2003, 2004 and 2005 were: Kachkar - 3,000,000; Handley
                -
                nil; Hunter - 400,000; Green - 1,500,000; Goldshmidt -
                500,000.




(3)
            Mr.
                Green’s contract was amended on January 1, 2005 to increase his annual
                salary to $200,000 from $150,000.




(4)
            Ms.
                Goldshmidt’s contract was amended on September 1, 2005 to increase annual
                salary to $145,000.




All
      agreements contain the following provisions: Bonus payments will be made as
      a
      percentage of base salary increasing with performance measured by EBITDA, with
      a
      guaranteed bonus of ten percent of annual base salary. Each executive may
      receive additional option grants upon award of the Compensation Committee.
      Base
      salary will increase by 5% during each year of the term. The term automatically
      renews for successive one-year periods after expiration of the primary
      employment term. Each agreement may be terminated early for good cause or by
      the
      executive’s resignation. Termination for other reason triggers payment of the
      severance amount, offset by any termination event that is insured. Severance
      amounts for key senior executives increase from one-year base salary to two
      times salary in case of termination due to a change of control of the Company.
      Each executive is subject to customary confidentiality obligations and an
      agreement not to compete with the Company for three years following termination.
      Key executives are covered by a life insurance policy through the Company
      benefit plan. The policy coverage starts at two times base salary.




72


**Equity
      Incentive Plans**




The
      Company has two equity incentive plans: the Stock Option Plan adopted in 2003
      (the “2003 Option Plan”) and the Equity Incentive Plan adopted in 2005 (the
“2005 Equity Plan”). The 2003 Option Plan provides for the grant to eligible
      employees and directors of options for the purchase of common stock. The 2003
      Option Plan covers, in the aggregate, a maximum of 5,000,000 shares of common
      stock and provides for the granting of both incentive stock options (as defined
      in Section 422 of the Internal Revenue Code of 1986) and nonqualified stock
      options (options which do not meet the requirements of Section 422). Under
      the
      2003 Option Plan, the exercise price may not be less than the fair market value
      of the common stock on the date of the grant of the option.




The
      2005
      Equity Plan provides for the grant to eligible employees and directors of
      stock-based awards including options, restricted stock, unrestricted stock
      and
      other stock-based awards. The 2005 Equity Plan covers, in the aggregate, a
      maximum of 6,000,000 shares of common stock and provides for the granting of
      both incentive stock options (as defined in Section 422 of the Internal Revenue
      Code of 1986) and nonqualified stock options (options which do not meet the
      requirements of Section 422).




The
      Board
      of Directors administers and interprets the equity incentive plans and is
      authorized to grant awards thereunder to all eligible employees of the Company,
      including officers. The Board of Directors designates the participants, the
      number of shares subject to the awards and the terms and conditions of each
      award. Each option granted under the 2005 Equity Plan must be exercised, if
      at
      all, during a period established in the grant which may not exceed 10 years
      from
      the later of the date of grant or the date first exercisable. A participant
      may
      not transfer or assign any option granted, and may not exercise any options
      after a specified period subsequent to the termination of the participant’s
      employment with the Company.




**ITEM
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT** **AND RELATED STOCKHOLDER MATTERS**




The
      table
      below sets forth the beneficial ownership of our voting securities by the named
      executive officers, our directors and owners of more than 5.0% of our common
      stock, and all of our executive officers and directors as a group:





Common
                StockName
                and Address of Beneficial Owner
            
            Number
                of Shares
            
            PercentageViktoria
                Benkovitch, Chairman’s spouse
              Unit
                #1210, 445 Grand Bay Drive
              Key
                Biscayne, Florida 33149
            
            3,000,000
            (1)
            6.8%Jack
                Kachkar, Chairman & CEO
              Unit
                #1210, 445 Grand Bay Drive
              Key
                Biscayne, Florida 33149
            
            3,140,000
            (2)
            6.8%Steven
                Handley, President
              37
                Parkland Drive
              Elton,
                Chester
              Cheshire,
                England CH2 4PG
            
            2,000,000
            (3)
            4.6%Rima
                Goldshmidt, Vice President, Finance
              &
                Acting Chief Financial Officer
              103
                Overbrook Place
              Toronto,
                Ontario M3H 4P5
            
            500,000
            (4)
            1.1%


73
  Common
                  StockName
                  and Address of Beneficial Owner
              
              Number
                  of Shares
              
              PercentageColin
                  Hunter, Executive Vice President
                &
                  Chief Scientific Officer
                11
                  Humberclose
                Widnes,
                  Cheshire, England WA8 3YY
              
              1,000,000
              (5)
              2.3%Larry
                  Stockhamer
                76
                  Sanibel Crescent
                Thornhill,
                  Ontario L4J 8K7
              
              9,100,000
              (6)
              20.3%Seward
                  Trading
                voting
                  and dispositive power is held by Alex Benkovitch
                Des
                  Bergues 11, CP, Geneva 11
                Switzerland,
                  CH-1211
              
              2,300,000
              (7)
              5.3%Douglas
                  Brown
                Sturdy’s
                  Cottage
                Taston,
                  Oxon, United Kingdom OX7 3JL
              
              1,200,000
              (8)
              2.7%Joseph
                  A. Rotmil
                2453
                  Provence Circle
                Weston,
                  FL 33327
              
              400,000
              (9)
              0.9%Jay
                  M. Green
                104
                  West Shore Drive
                Putnam
                  Valley, New York 10579
              
              1,850,000
              (10)
              4.1%Stephen
                  Beckman
                662
                  Collingwood Terrace
                Glenmore,
                  PA 19343
              
              300,000
              (11)
              0.7%All
                  officers and directors (8 persons)
              
              10,390,000
              (12)
              20.4%




(1)
            Consists
                of 2,250,000 shares owned of record and beneficially and warrants
                to
                purchase 750,000 shares. Ms. Benkovitch is the spouse of Dr. Jack
                Kachkar.
                Dr. Kachkar disclaims any beneficial ownership of her
                shares.




(2)
            Consists
                of 40,000 shares owned of record and beneficially, options to purchase
                3,000,000 shares, and warrants to purchase 100,000 shares. Dr. Kachkar
                previously held 100,000 shares but in January 2004 transferred 60,000
                shares to Bennett Jones, a Canadian law firm, which provides his
                family
                with legal advice and services. Although Dr. Kachkar is presently
                one of
                the beneficiaries of the JEM Family Trust and First Jemini Trust,
                such
                trusts are discretionary family trusts for the benefit of Kachkar
                family
                members in which the Trustee has absolute discretion to determine
                to pay
                any or part of the income or capital of the Trusts to the beneficiaries,
                and to exclude any beneficiary from any distribution - also see notes
                (8
                and 9) below. Dr. Kachkar possesses no right to vote or dispose of
                or
                otherwise control any shares held by the trusts, and therefore has
                no
                direct beneficial ownership of shares owned by Larry Stockhamer as
                sole
                Trustee of both the JEM Family Trust and First Jemini Trust.




(3)
            Shares
                owned of record and beneficially.




(4)
            Options
                to purchase 500,000 shares.




(5)
            Consists
                of 600,000 shares owned of record and beneficially and options to
                purchase
                400,000 shares. Of these options, options to purchase 150,000 shares
                have
                vested. Options to purchase the remaining 250,000 shares are vesting
                over
                three years commencing June 2003.




(6)
            Mr.
                Stockhamer is the Trustee of both the JEM Family Trust and First
                Jemini
                Trust. As Trustee of the JEM Family Trust, Mr. Stockhamer owns of
                record
                and beneficially 7,600,000 shares. As Trustee of First Jemini Trust,
                Mr.
                Stockhamer owns of record and beneficially warrants to purchase 1,500,000
                shares. The JEM Family Trust and First Jemini Trust are discretionary
                family trusts for the benefit of Kachkar family members, including
                Dr.
                Kachkar, his spouse and two children. Dr. Kachkar and his family
                members
                possess no right to vote or dispose of or otherwise control any shares
                and
                warrants held by these family trusts, and therefore have no direct
                beneficial ownership of shares and warrants held by the Trustee,
                Mr. Larry
                Stockhamer.




74




(7)
            Shares
                owned of record and beneficially.




(8)
            Consists
                of 100,000 shares owned of record and beneficially, warrants to purchase
                250,000 shares, and options to purchase 850,000 shares.




(9)
            Options
                to purchase 400,000 shares.




(10)
            Options
                to purchase 1,500,000 shares and warrants to purchase 350,000
                shares.




(11)
            Options
                to purchase 300,000, vesting over two
                years.




(12)
            Includes
                2,740,000 shares, options to purchase 6,950,000 shares, and warrants
                to
                purchase 700,000 shares.




The
      Company is not aware of any arrangement which might result in a change in
      control in the future.




**Equity
      Compensation Plan Information**




Certain
      information regarding the Company’s equity compensation plans at December 31,
      2005 are set forth in the table below:




Plan
                Category
            
            Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
            
            Weighted
                average exercise price of outstanding options, warrants and
                rights
            
            Number
                of securities remaining available for future issuanceEquity
                compensation plans approved by security holders
            
            
            5,000,000
            
            $
            1.10
            
            
            84,500Equity
                compensation plans not approved by security holders
            
            
            6,000,000
            
            $
            1.37
            
            
            1,400,000Total
                at December 31, 2005
            
            
            11,000,000
            
            $
            1.25
            
            
            1,484,500







**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS******




**Related
      Party Transactions**




Mr. Jay
      M. Green and Dr. Kachkar’s spouse, Viktoria Benkovitch, are co-owners of
      Karver Capital Holding, Ltd., (“Karver Capital”), a private investment holding
      company incorporated in the British Virgin Islands. Karver Capital is not a
      stockholder of Inyx but is a stockholder of Karver International, Inc. (f/k/a
      Medeorex, Inc.) (“Karver International”), a New York corporation and a
      publicly-held health services holding company. Dr. Jack Kachkar, the Company’s
      Chairman and CEO, and Mr. Jay M. Green, the Company’s Executive Vice President,
      Corporate Development, are also stockholders, officers and directors of Karver
      International.




Karver
      International subleases office space from the Company at its headquarters in
      New
      York City. This consists of approximately 25% of the Company’s total office
      space on the 40 th Floor,
      825 Third Avenue, New York, 10022. For
      the
      year ending December 31, 2005, the Company charged Karver International
      approximately $36,000 for the sublease of furnished office space and
      approximately $15,000 for management services in accordance with a management
      services agreement. Under that management services agreement, certain Inyx
      employees located at the Company’s office in Toronto, Canada provide information
      technology and book-keeping services to Karver International. Under that
      management services agreement, certain Inyx employees located at the Company’s
      office in Toronto, Canada provide information technology and book-keeping
      services to Karver International; such services consist of approximately ten
      hours of allocated work-time per week.




75




As
      of
      December 31, 2005, the Company prepaid approximately $1.1 million in fees and
      costs to acquire all of the intellectual property of Carr Pharmaceuticals,
      Inc.
      (f/k/a Miza Pharmaceuticals USA, Inc.), an eye care product manufacturing and
      marketing company that was originally placed into Chapter 11 bankruptcy
      protection by its owners in May 2003, and was then subsequently liquidated
      by
      its secured lenders under a bankruptcy plan during 2005. The intellectual
      property consists of all of the manufacturing protocols, standard operating
      procedures, know-how, testing, stability and technical data, and FDA product
      registrations for seven prescription eye care formulations and five
      over-the-counter eye care and contact lens solutions which accounted for
      approximately $6.0 million in annual revenues during Carr’s last fiscal year of
      operations. Carr Pharmaceuticals and all of its related intellectual property
      were previously majority-owned by Medira Investments LLC (“Medira”), a
      privately-held investment company wholly-owned by Dr. Kachkar’s spouse, Viktoria
      Benkovitch. Under the bankruptcy plan agreed to with its secured lenders, Carr
      Pharmaceuticals allowed its secured lenders to sell its intellectual property
      to
      Medira. Inyx provided Medira the funding required to acquire Carr’s intellectual
      property from its secured lenders in exchange for the intellectual property
      that
      Medira was eligible to acquire. Medira and its ownership did not directly or
      indirectly receive any fees or compensation for such exchange. The Company
      has
      subsequently transferred all of the acquired eye care intellectual property
      to
      its manufacturing facility in Puerto Rico in February 2006, and intends to
      commence manufacturing and marketing the acquired eye care products in
      2007.




Inyx
      Canada, a Company subsidiary provides management and business development
      services to Inyx and its other subsidiaries. From time to time, under sales
      commission and management services agreements with Inyx Canada, JK Services,
      a
      partnership of companies owned by Dr. Kachkar and his immediate family members,
      provides Dr. Kachkar’s services to the Company under such agreements. For
      the year ended December 31, 2005, total payments to JK Services amounted to
      $642,724 and consisted of sales commissions for new commercial contracts
      initiated and completed by Dr. Kachkar and that were successfully signed by
      the
      Company in 2005. For the year ended December 31, 2005, such amounts are included
      in the Company’s selling expenses in the




From
      time
      to time, Dr. Kachkar and his family make stockholder loans to the Company.
      The
      Company utilizes the net proceeds from such loans for working capital purposes
      and such loans are included in the Company’s liabilities as they are made. As of
      December 31, 2005, the Company had repaid all such stockholder
      loans.




In
      July
      2004, Dr. Jack Kachkar and his spouse, and Mr. Douglas Brown, an
      outside Director, each provided the Company with stockholder loans amounting
      to
      $300,000. Mr. Jay Green, the Company’s Executive Vice President of
      Corporate Development, also provided the Company a stockholder loan in the
      amount of $100,000. The net proceeds from these loans were utilized for working
      capital purposes. All of these stockholder loans were originally due by
      December 31, 2004 and bear interest at seven percent annually. As
      additional consideration for these loans, the Company granted these individuals
      five-year warrants, to purchase an aggregate of 700,000 shares of its common
      stock at an exercise price of $0.80 per share. Such
      warrants were issued with a fair value of $178,000 related to the issuance
      of a
      promissory note to each respective lender. This amount was charged to interest
      and financing costs in the consolidated statement of operations. Then
      in
      November 2004, Dr. Kachkar and his spouse, Mr. Brown and
      Mr. Green each agreed to renew their loans to the Company. As additional
      consideration for such loans and other services provided to the Company in
      connection with the Company’s corporate development, the Company granted these
      individuals five-year warrants, to purchase an aggregate of 1,150,000 shares
      of
      its common stock at an exercise price of $0.95 per share. The
      fair
      values of these warrants amounted to $246,000 and such amount was charged to
      interest and financing costs in the consolidated statement of operations. During
      2005, such loans including accrued interest were repaid.




Through
      a
      holding company, Kachkar Air LLC (“Kachkar Air”), the Company’s Chairman, Dr.
      Kachkar, leased a private aircraft from an unrelated aircraft management
      company, Priester Aviation, during 2005. From time to time, Kachkar Air allowed
      Inyx to utilize such leased aircraft for the Company’s corporate travel
      requirements. In such instances, the Company paid Priester Aviation directly
      for
      the use of the aircraft and such fees amounted to the direct costs of the usage
      of the aircraft. For the year ended December 31, 2005, the Company paid
      approximately $680,000 to Priester Aviation for the use, service and maintenance
      of the Kachkar Air private aircraft. Kachkar Air and Dr. Kachkar did not
      directly or indirectly receive any fees or compensation for allowing the Company
      to utilize its leased aircraft, and the Priester Aviation charges were included
      in the Company’s general and administrative expenses in the consolidated
      statement of operations.




During
      the year the Company paid $1.47 million to Aldo Union for pharmaceutical product
      dossiers. The Aldo Union dossiers are for products to be manufactured in Spain
      only - in this instance, we are extracting from those dossiers, relevant
      information/technical data/historical validation and stability information
      in
      order for us to copy generic versions of those products for other markets (i.e.
      outside of Spain) and to create new drug delivery formats for the active
      ingredients of these products. We have more work to do before these products
      will be ready for commercial production.  Therefore, these are only
      technical data dossiers that we are expending money on to create new products.
      We have expensed these payments for we are not absolutely certain whether these
      dossiers will have a definitive benefit to future periods. Dr. Santiago Calzada,
      who owns 100,000 shares in the Company as of December 31, 2005 is a principal
      of
      Aldo-Union. None of the Company’s management or its affiliates have or have had
      any interest or equity associations, or directorships in Aldo
      Union.




The
      Company believes that all of the foregoing transactions were made on terms
      as
      favorable as could have been obtained from unrelated third parties.




76




**ITEM
      14.****PRINCIPAL
      ACCOUNTING FEES AND SERVICES**




The
      Audit
      Committee has appointed Berkovits, Lago & Company, LLP as the Company’s
      independent auditors for 2004 and 2005.




The
      following table lists the fees for services rendered by the independent
      registered public accounting firms for 2005 and 2004:





Audit
                Fees
            
            Audit
                Related Fees
            
            Tax
                Fees
            
            All
                Other Fees2005
            
            $
            408,000(1
            )
            $
            -
            
            $
            4,500(2
            )
            $
            -2004
            
            
            160,500(1
            )
            
            -
            
            
            8,000(2
            )
            
            -





(1)
            Audit
                fees billed in 2005 and 2004 consisted of the audit of our annual
                financial statements, reviews of our quarterly financial statements,
                and
                statutory and regulatory audits, consents and other services related
                to
                filings with the SEC. These amounts include costs in connections
                with our
                Registration Statement of Form
                SB-2.




(2)
            Tax
                services billed in 2005 and 2004 consisted of tax
                compliance.




The
      Audit
      Committee pre-approved all the above services (including the fees and terms
      thereof) which were performed for us by our independent auditor.




Due
      to
      the acquisitions that occurred in 2005 the Principle Accountants utilized the
      services of affiliated offices. During 2005 approximately 65% of the total
      hours
      rendered were attributed to work performed by persons other than the principal
      accountant’s full-time, permanent employees.





**PART
      IV**







**ITEM
      15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES**




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




1.
            Financial
                Statements: The financial statements filed as part of this Form 10-K
                are
                set forth in the “Index to Financial Statements” commencing on Page F-1
                hereof.




2.
            Supplemental
                Financial Schedules




3.
            Exhibits
                required to be filed by Item 601 of Regulation
                S-K:




**Exhibit
                  Number**
              
              **Description
                  of Exhibit**
              
              **Incorporated
                  by Reference**2.2.1
              
              Asset
                  Purchase Agreement dated as of December 15, 2004, by and between
                  Inyx USA,
                  Ltd. and Aventis Pharmaceuticals Puerto Rico, Inc.
              
              Filed
                  as Exhibit 10.34.1 to the Form 8-K/A filed on February 15, 20052.2.2
              
              General
                  Assignment dated as of April 1, 2005, by and between Aventis
                  Pharmaceuticals Puerto Rico Inc. and Inyx USA, Ltd.
              
              Filed
                  as Exhibit 2.2 to the Form 8-K filed on April 6, 20052.3
              
              Agreement
                  for the Sale and Purchase of the entire Issued Share Capital of
                  Celltech
                  Manufacturing Services Limited, dated August 25, 2005, by and among
                  UCB
                  Pharma Limited, Inyx Europe Limited, and Inyx, Inc.
              
              Filed
                  as Exhibit 2.1 to the Form 8-K filed on September 7,
                  20053.1
              
              Restated
                  Articles of Incorporation of Inyx, Inc.
              
              Filed
                  as Exhibit 3.1 to the Form 8K filed on May 13,
                  2003
 
 77
 
 **Exhibit
                  Number**
              
              **Description
                  of Exhibit**
              
              **Incorporated
                  by Reference**3.2
              
              Bylaws
                  of Inyx, Inc.
              
              Filed
                  as Exhibit 3.2 to the Form 8K filed on May 13, 200310.1.1
              
              2003
                  Stock Option Plan dated May 1, 2003.
              
              Filed
                  as Exhibit 10.1 to the Form 8K filed on May 13, 200310.1.2
              
              Equity
                  Incentive Plan dated September 15, 2005
              
              Filed
                  as Exhibit 10.1 to the Form 8-K filed on September 21,
                  200510.1.3
              
              Non-Qualified
                  Stock Option Agreement
              
              Filed
                  as Exhibit 10.2 to the Form 8-K filed on September 21,
                  200510.1.4
              
              Incentive
                  Stock Option Agreement
              
              Filed
                  as Exhibit 10.3 to the Form 8-K filed on September 21,
                  200510.2
              
              Indemnity
                  Agreement dated April 25, 2003, among the Company, Steve Handley,
                  Colin Hunter and Jack Kachkar.
              
              Filed
                  as Exhibit 10.2 to the Form 8K filed on May 13, 200310.4.1
              
              Employment
                  Agreement dated April 1, 2003, with Jack Kachkar.
              
              Filed
                  as Exhibit 10.4.1 to the Form 8K filed on May 13, 200310.4.2
              
              Employment
                  Agreement dated May 1, 2003, with Steven Handley.
              
              Filed
                  as Exhibit 10.4.2 to the Form 8K filed on May 13, 200310.4.3
              
              Employment
                  Agreement dated May 1, 2003, with Colin Hunter.
              
              Filed
                  as Exhibit 10.4.3 to the Form 8K filed on May 13, 200310.4.4
              
              Employment
                  Agreement dated April 1, 2003, with Rima Goldshmidt.
              
              Filed
                  as Exhibit 10.4.4 to the Form 8K filed on May 13, 200310.4.6
              
              Employment
                  Agreement dated December 1, 2004, with Jay Green.
              
              Filed
                  as Exhibit 10.4.5 to the Form 10-QSB filed on May 20,
                  200410.4.7
              
              Amendment
                  dated May 15, 2003, to Employment Agreement of Rima
                  Goldshmidt.
              
              Filed
                  as Exhibit 10.4.4.1 to the Form SB-2 filed on February 17,
                  200410.4.8
              
              Management
                  Services Agreement dated May 15, 2003, with JK
                  Services.
              
              Filed
                  as Exhibit 10.4.1.2 to the Form 10-KSB filed on April 14,
                  200410.4.9
              
              Employment
                  Agreement dated January 1, 2004, with Jack Kachkar.
              
              Filed
                  as Exhibit 10.4.1.3 to the Form 10-KSB filed on April 14,
                  200410.4.11
              
              Employment
                  Agreement dated September 1, 2005, with Stephen Beckman.
              
              Filed
                  as Exhibit 10.4.11 to the Form 10-Q filed on November 23,
                  200510.6.1
              
              Lease
                  dated July 22, 1994, with the Council of the Borough of Halton for
                  facilities at 6 Seymour Court, Manor Park, Runcorn, Cheshire,
                  England.
              
              Filed
                  as Exhibit 10.6.1 to the Form 8K filed on May 13, 200310.6.2
              
              Lease
                  dated June 23, 1988, between Warrington and Runcorn Development Corp
                  and MiniPak Aerosols, Ltd. for lease of facilities at 10-11 Arkwright
                  Road, Astmoor Industrial Estate, Runcorn, Cheshire,
                  England.
              
              Filed
                  as Exhibit 10.6.2 to the Form 8K filed on May 13, 200310.6.3
              
              Lease
                  dated June 23, 1988, between Warrington and Runcorn Development Corp
                  and MiniPak Aerosols, Ltd. for lease of facilities at 1-2 Arkwright
                  Road,
                  Astmoor Industrial Estate, Runcorn, Cheshire, England.
              
              Filed
                  as Exhibit 10.6.3 to the Form 8K filed on May 13, 200310.23.14
              
              Stock
                  Purchase Warrant Agreements for an aggregate of 1,500,000 shares
                  of the
                  Company’s common stock with Larry Stockhamer as Trustee for First Jemini
                  Trust dated July 2, 2004.
              
              Filed
                  as Exhibit 10.30 to the Form SB-2/A filed on October 1,
                  2004
  78
  **Exhibit
                  Number**
              
              **Description
                  of Exhibit**
              
              **Incorporated
                  by Reference**10.23.15
              
              Stock
                  Purchase Warrant Agreement for 300,000 shares of the Company’s common
                  stock with Douglas Brown dated July 19, 2004.
              
              Filed
                  as Exhibit 10.23.12 to the Form SB-2/A filed on October 1,
                  200410.23.16
              
              Stock
                  Purchase Warrant Agreement for 300,000 shares of the Company’s common
                  stock with Viktoria Benkovitch dated July 19, 2004.
              
              Filed
                  as Exhibit 10.23.13 to the Form SB-2/A filed on October 1,
                  200410.23.17
              
              Stock
                  Purchase Warrant Agreement for 100,000 shares of the Company’s common
                  stock with Jay Green., dated July 1, 2004.
              
              Filed
                  as Exhibit 10.23.14 to the Form SB-2/A filed on October 1,
                  200410.23.18
              
              Stock
                  Purchase Warrant Agreement for 694,000 shares of the Company’s common
                  stock with Laurus Master Fund, Ltd. dated August 31,
                  2004.
              
              Filed
                  as Exhibit 10.29.2 to the Form SB-2/A filed on October 1,
                  200410.23.19
              
              Stock
                  Purchase Warrant for 75,000 shares of the Company issued to Gusrae,
                  Kaplan
                  & Bruno PLLC. dated October 4, 2004.
              
              Filed
                  as Exhibit 10.23.10 to the Form 10Q-SB filed on November 22,
                  200410.23.20
              
              Stock
                  Purchase Warrant Agreement for 300,000 shares of the Company’s common
                  stock with Douglas Brown dated November 19, 2004.
              
              Filed
                  as Exhibit 10.23.20 to the Form 10-KSB filed on April 14,
                  200510.23.21
              
              Stock
                  Purchase Warrant Agreement for 150,000 shares of the Company’s common
                  stock with Douglas Brown dated November 19, 2004.
              
              Filed
                  as Exhibit 10.23.21 to the Form 10-KSB filed on April 14,
                  200510.23.22
              
              Stock
                  Purchase Warrant Agreement for 300,000 shares of the Company’s common
                  stock with Viktoria Benkovitch dated November 19, 2004.
              
              Filed
                  as Exhibit 10.23.22 to the Form 10-KSB filed on April 14,
                  200510.23.23
              
              Stock
                  Purchase Warrant Agreement for 150,000 shares of the Company’s common
                  stock with Viktoria Benkovitch dated November 19, 2004.
              
              Filed
                  as Exhibit 10.23.23 to the Form 10-KSB filed on April 14,
                  200510.23.24
              
              Stock
                  Purchase Warrant Agreement for 100,000 shares of the Company’s common
                  stock with Jay Green., dated November 19, 2004.
              
              Filed
                  as Exhibit 10.23.24 to the Form 10-KSB filed on April 14,
                  200510.23.25
              
              Stock
                  Purchase Warrant Agreement for 150,000 shares of the Company’s common
                  stock with Jay Green., dated November 19, 2004.
              
              Filed
                  as Exhibit 10.23.25 to the Form 10-KSB filed on April 14,
                  200510.23.26
              
              Stock
                  Purchase Warrant Agreement for 150,000 shares of the Company’s common
                  stock with Stephan Spitz., dated November 26, 2004.
              
              Filed
                  as Exhibit 10.23.26 to the Form 10-KSB filed on April 14,
                  200510.23.27
              
              Stock
                  Purchase Warrant Agreement for 150,000 shares of the Company’s common
                  stock with Spitz Business Solutions., dated November 26,
                  2004.
              
              Filed
                  as Exhibit 10.23.27 to the Form 10-KSB filed on April 14,
                  200510.23.28
              
              Stock
                  Purchase Warrant Agreement for 25,000 shares of the Company’s common stock
                  with Sharon Brown dated December 22, 2004.
              
              Filed
                  as Exhibit 10.23.28 to the Form 10-KSB filed on April 14,
                  200510.23.29
              
              Stock
                  Purchase Warrant Agreement for 100,000 shares of the Company’s common
                  stock with Enzo Barichello, dated December 16, 2004.
              
              Filed
                  as Exhibit 10.23.29 to the Form 10-KSB filed on April 14,
                  2005
 
 79
 
 **Exhibit
                  Number**
              
              **Description
                  of Exhibit**
              
              **Incorporated
                  by Reference**10.23.30
              
              Stock
                  Purchase Warrant Agreement for 25,000 shares of the Company’s common stock
                  with Robert Carrigan Jr. dated December 22, 2004.
              
              Filed
                  as Exhibit 10.23.30 to the Form 10-KSB filed on April 14,
                  200510.23.31
              
              Stock
                  Purchase Warrant Agreement for 300,000 shares of the Company’s common
                  stock with Laurus Master Fund, Ltd. dated February 28,
                  2005.
              
              Filed
                  as Exhibit 10.2339 to the Form 8-K filed on March 9,
                  200510.24
              
              Supply
                  Agreement dated June 11, 2004, with AstraZeneca.
              
              Filed
                  as Exhibit 10.24 to Form 8-K filed on June 29,
                  200410.25.1
              
              Form
                  to stock purchase warrant issued to purchasers of the Company's
                  securities
                  in a bridge financing offering on or about August 3, 2004 (the
                  "Bridge").
              
              Filed
                  as Exhibit 3.6 to the Form 8-K filed on August 6, 200410.25.2
              
              Securities
                  Purchase Agreement, dated as of August 2, 2004, among the Company
                  and the
                  purchasers of the Company's securities in the Bridge.
              
              Filed
                  as Exhibit 10.21 to the Form 8-K filed on August 6,
                  200410.25.3
              
              Registration
                  Rights Agreement dated as of August 2, 2004, among the Company
                  and the
                  purchasers of the Company's securities in the Bridge.
              
              Filed
                  as Exhibit 10.22 to the Form 8-K filed on August 6,
                  200410.25.4
              
              Form
                  of Stock Purchase warrant issued to Purchasers of the Company's
                  securities
                  in a private placement during the period of time from August 27th
                  through
                  September 3rd, 2004 (the "August/September 2004 Private
                  Placement").
              
              Filed
                  as Exhibit 3.6 to the Form 8-K filed on August 30, 200410.25.5
              
              Form
                  of Subscription Agreement for the August/September 2004 private
                  placement.
              
              Filed
                  as Exhibit 10.21 to the Form 8-K filed on August 30,
                  200410.25.6
              
              Form
                  of Registration Rights Agreement for the August/September 2004
                  private
                  placement.
              
              Filed
                  as Exhibit 10.22 to the Form 8-K filed on August 30,
                  200410.32
              
              Patent
                  Purchase Agreement with Phares Technology BV dated September 21,
                  2004.
              
              Filed
                  as Exhibit 10.32 to the Form SB-2/A filed on October 1,
                  200410.33
              
              Manufacturing
                  Supply Agreement with NovaDel dated November 18, 2004.
              
              Filed
                  as Exhibit 10.33 to the Form 8-K filed on December 2,
                  200410.34
              
              Manufacturing
                  and Supply Agreement with Aventis Pharmaceuticals Puerto Rico,
                  Inc. dated
                  March 31, 2004
              
              Filed
                  as Exhibit 10.34.3 to the Form 10-KSB filed on April 14,
                  200510.35.1
              
              Loan
                  and Security Agreement dated as of March 31, 2005, by and between
                  Westernbank Puerto Rico, the Registrant and Inyx USA, Ltd.
              
              Filed
                  as Exhibit 10.35.1 to the Form 8-K filed on April 6,
                  200510.35.2
              
              First
                  Amendment to Loan and Security Agreement dated as of March 31,
                  2005, by
                  and between Westernbank Puerto Rico, the Registrant and Inyx USA,
                  Ltd.
              
              Filed
                  as Exhibit 10.35.2 to the Form 8-K filed on April 6,
                  200510.35.3
              
              $3.5
                  million Promissory Note with Aventis Pharmaceuticals Puerto Rico,
                  Inc.
                  dated March 31, 2005
              
              Filed
                  as Exhibit 10.35.3 to the Form 10-KSB filed on April 14,
                  200510.36.1
              
              Amendment
                  No. 1 to Finished Product Supply Agreement
              
              Filed
                  as Exhibit 10.36.1 to the Form 8-K filed on April 19,
                  200510.36.2
              
              Finished
                  Product Supply Agreement dated March 5, 2004.
              
              Set
                  forth as Exhibit 2.2 to the Form 8-K of Kos Pharmaceuticals, Inc.
                  filed on
                  March 5, 2004
  80
  **Exhibit
                  Number**
              
              **Description
                  of Exhibit**
              
              **Incorporated
                  by Reference**10.37
              
              Manufacturing
                  and Supply Agreement with Generics (UK) Ltd. dated March 18,
                  2005
              
              Filed
                  as Exhibit 10.37.1 to the Form 8-K filed on April 25,
                  200510.38.1
              
              Collaboration
                  Agreement dated September 8, 2005 between Registrant and King
                  Pharmaceuticals, Inc.
              
              Filed
                  as Exhibit 10.38.1 to the Form 10-Q filed on November 23,
                  200510.38.2
              
              Manufacturing
                  and Supply Agreement dated September 8, 2005 between Registrant and
                  King Pharmaceuticals, Inc.
              
              Filed
                  as Exhibit 10.38.2 to the Form 10-Q filed on November 23,
                  200510.38.3
              
              Technical
                  Transfer Agreement dated September 8, 2005 between Registrant and
                  King Pharmaceuticals, Inc.
              
              Filed
                  as Exhibit 10.38.3 to the Form 10-Q filed on November 23,
                  200510.38.4
              
              Marketing
                  and Promotion Agreement dated September 8, 2005 between Registrant
                  and King Pharmaceuticals, Inc.
              
              Filed
                  as Exhibit 10.38.4 to the Form 10-Q filed on November 23,
                  200510.38.5
              
              Development
                  Agreement dated September 8, 2005 between Registrant and King
                  Pharmaceuticals, Inc.
              
              Filed
                  as Exhibit 10.38.5 to the Form 10-Q filed on November 23,
                  200510.38.6
              
              Pharmaceutical
                  Quality Agreement dated September 8, 2005 between Registrant and King
                  Pharmaceuticals, Inc.
              
              Filed
                  as Exhibit 10.38.6 to the Form 10-Q filed on November 23,
                  200510.39.1
              
              Loan
                  and Security Agreement dated as of August 30, 2005, by and between
                  Westernbank Puerto Rico, Inyx Europe Ltd. and Celltech Manufacturing
                  Services Ltd.
              
              Filed
                  as Exhibit 10.1 to the Form 8-K filed on September 7,
                  200510.39.2
              
              Term
                  Promissory Note dated August 30, 2005, in the principal amount
                  of
                  $3,000,000 to Westernbank Puerto Rico (Term Loan A).
              
              Filed
                  as Exhibit 10.2 to the Form 8-K filed on September 7,
                  200510.39.3
              
              Term
                  Promissory Note dated August 30, 2005, in the principal amount
                  of
                  $9,800,000 to Westernbank Puerto Rico (Term Loan B).
              
              Filed
                  as Exhibit 10.3 to the Form 8-K filed on September 7,
                  200510.39.4
              
              Term
                  Promissory Note dated August 30, 2005, in the principal amount
                  of
                  $3,000,000 to Westernbank Puerto Rico (Term Loan C).
              
              Filed
                  as Exhibit 10.4 to the Form 8-K filed on September 7,
                  200510.39.5
              
              Term
                  Promissory Note dated August 30, 2005, in the principal amount
                  of
                  $9,000,000 to Westernbank Puerto Rico (Term Loan D).
              
              Filed
                  as Exhibit 10.5 to the Form 8-K filed on September 7,
                  200510.39.6
              
              Guarantor
                  General Security Agreement dated August 30, 2005, with Westernbank
                  Puerto
                  Rico.
              
              Filed
                  as Exhibit 10.6 to the Form 8-K filed on September 7,
                  200510.39.7
              
              Mortgage
                  of Shares dated August, 2005, between Registrant and Westernbank
                  Puerto
                  Rico.
              
              Filed
                  as Exhibit 10.7 to the Form 8-K filed on September 7,
                  200510.39.8
              
              Long
                  Term Services Agreement dated August 25, 2005, between Registrant,
                  Celltech Manufacturing Services Ltd. and UCB Pharma Ltd.
              
              Filed
                  as Exhibit 10.8 to the Form 8-K filed on September 7,
                  200510.39.9
              
              Contract
                  Manufacture Agreement dated August 25, 2005, between Registrant,
                  Celltech
                  Manufacturing Services Ltd. and UCB Pharma Ltd.
              
              Filed
                  as Exhibit 10.9 to the Form 8-K filed on September 7,
                  200514
              
              Code
                  of Ethics for Senior Financial Officers
              
              Filed
                  herewith21.1
              
              Subsidiaries
                  of Registrant
              
              Filed
                  herewith31.1
              
              Certification
                  of Chief Executive Officer under Section 302 of the Sarbanes-Oxley
                  Act of
                  2002
              
              Filed
                  herewith31.2
              
              Certification
                  of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley
                  Act
                  of 2002
              
              Filed
                  herewith
  81
  **Exhibit
                  Number**
              
              **Description
                  of Exhibit**
              
              **Incorporated
                  by Reference**32.1
              
              Certification
                  of Chief Executive Officer under 18 U.S.C. Sec. 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002
              
              Filed
                  herewith32.2
              
              Certification
                  of Chief Financial Officer under 18 U.S.C. Sec. 1350, as adopted
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002
              
              Filed
                  herewith
 
  82


**INYX,
        INC**
 Condensed
        Balance Sheet
        (Unaudited) (Expressed
          in thousands of U.S. dollars,
          except per share amounts)   **DECEMBER
                      31,****2005**
                  
                  **2004****ASSETS**Current
                      assets:Cash
                      and cash equivalents
                  
                  
                  648
                  
                  
                  17Accounts
                      receivable and other current assets
                  
                  
                  817
                  
                  
                  2,023Receivable
                      from affiliates
                  
                  
                  44,688
                  
                  
                  11,116Total
                      current assets
                  
                  
                  46,153
                  
                  
                  13,156Investment
                      in Subsidiary
                  
                  
                  -
                  
                  
                  18Property,
                      plant and equipment, net
                  
                  
                  1,685
                  
                  
                  1,554Deferred
                      costs and deposits
                  
                  
                  1,121
                  
                  
                  651Purchased
                      intangible assets, net
                  
                  
                  1,113
                  
                  
                  -3,919
                  
                  
                  2,223Total
                      assets
                  
                  
                  50,072
                  
                  
                  15,379**LIABILITIES
                      AND STOCKHOLDERS' EQUITY / (DEFICIT)**Current
                      liabilities:Borrowings
                      under working capital lines of credit
                  
                  
                  18,811
                  
                  
                  6,368Accounts
                      payable and other current liabilities
                  
                  
                  2,894
                  
                  
                  1,476Current
                      portion of long-term debt
                  
                  
                  4,627
                  
                  
                  --Total
                      current liabilities
                  
                  
                  26,332
                  
                  
                  7,844Long
                      term debt, net of current portion
                  
                  
                  26,376
                  
                  
                  4,027Total
                      liabilities
                  
                  
                  52,708
                  
                  
                  11,871Commitments
                      and contingenciesStockholders'
                      equity/(deficit):Common
                      stock
                  
                  
                  42
                  
                  
                  38Additional
                      paid-in capital
                  
                  
                  30,895
                  
                  
                  23,193Accumulated
                      earnings/ (deficit)
                  
                  
                  (33,280
                  )
                  
                  (19,380
                  )Undistributed
                      subsidiaries' earningsSubscriptions
                      receivable
                  
                  
                  (293
                  )
                  
                  (343
                  )Total
                      stockholders' equity/ (deficit)
                  
                  
                  (2,636
                  )
                  
                  3,508Total
                      liabilities and stockholders' deficit
                  
                  
                  50,072
                  
                  
                  15,379
  The
        accompanying notes are an integral part of these
        consolidated financial statements.
 
 **INYX,
          INC.**
 **Condensed
          Statements of Operations (Unaudited)**
 **(Expressed
          in thousands of U.S. dollars, except per share
          amounts)**
  **For
                    the Year Ended December 31, 2005**
                
                
                **For
                    the Year Ended December 31, 2004**
                
                
                **For
                    the Period From March 7, 2003 through December 31,
                    2003**Net
                    revenues
                
                $
                478
                
                
                -
                
                
                -Research
                    and development expenses
                
                
                2,226
                
                
                2,745
                
                
                -General
                    and administrative expenses
                
                
                6,757
                
                
                2,910
                
                
                6,848Interest
                    and financing costs
                
                
                5,396
                
                
                3,034
                
                
                3,842Total
                    operating expenses
                
                
                14,379
                
                
                8,689
                
                
                10,690Income
                    tax expense (benefit)
                
                
                -
                
                
                -
                
                
                -Loss
                    before equity in subsidiaries' earnings
                
                
                (13,901
                )
                
                (8,689
                )
                
                (10,690
                )Extraordinary
                    item, net of taxes
                
                
                
                
                
                -
                
                
                -(13,901
                )
                
                (8,689
                )
                
                (10,690
                )Equity
                    in subsidiaries' earnings
                
                
                (14,059
                )
                
                (8,253
                )
                
                (2,702
                )Net
                    loss
                
                
                (27,960
                )
                
                (16,942
                )
                
                (13,392
                )
  The
        accompanying notes are an integral part of these
        consolidated financial statements.
 
 INYX
          Inc.
 Statement
          of Cash Flows (Unaudited)
 **(Expressed
          in thousands of U.S. dollars, except per share
          amounts)**
  December
                    31,
                
                December
                    31,
                
                December
                    31,2005
                
                2004
                
                2003Cash
                    flows from operation activities:Net
                    income (loss)
                
                
                (13,901
                )
                
                (8,689
                )
                
                (10,690
                )Adjustments
                      to reconcile net income (loss) tonet cash provided by (used in)
                      operating activities:Depreciation
                    and amortization
                
                
                22
                
                
                4
                
                
                40Interest
                    and amortization of financing costs and debt discount
                
                
                
                
                
                -
                
                
                3,733Change
                    in assets and liabilities:
                
                
                
                
                
                -
                
                
                -(Increase)
                    decrease in receivables, and other current assets
                
                
                1,182
                
                
                (1,940
                )
                
                (59
                )Increase
                    (decrease) in accounts payable & accrued expenses
                
                
                1,570
                
                
                943
                
                
                382(Increase)
                    decrease in other, net
                
                
                (1,712
                )
                
                209
                
                
                (65
                )(Increase)
                    decrease in intercompany receivable
                
                
                (33,573
                )
                
                (2,796
                )
                
                (1,156
                )Total
                    adjustments
                
                
                (32,511
                )
                
                (3,580
                )
                
                2,875Net
                    cash provided by (used in) operating activities
                
                
                (46,412
                )
                
                (12,269
                )
                
                (7,815
                )Cash
                    flows from investing activities:Capital
                    expenditures
                
                
                -
                
                
                (1,558
                )
                
                (859
                )(Increase)
                    decrease in investments in subsidiaries
                
                
                18
                
                
                -
                
                
                (19
                )Net
                    cash provided by (used in) investing activities
                
                
                18
                
                
                (1,558
                )
                
                (878
                )Cash
                    flows from financing activities:Increase
                      (decrease) in short term debt andcurrent portion of long term
                      debt
                
                
                12,986
                
                
                6,810
                
                
                619Increase
                    (decrease) in long term debt
                
                
                26,282
                
                
                (2,418
                )
                
                -Increase
                    (decrease) in preferred shares
                
                
                50
                
                
                (243
                )
                
                -Increase
                    (decrease) in common equity capital
                
                
                7,706
                
                
                9,686
                
                
                8,083Net
                    cash provided by (used in) financing activities
                
                
                47,024
                
                
                13,835
                
                
                8,702Net
                    increase (decrease) in cash and cash equivalents
                
                
                630
                
                
                8
                
                
                9Cash
                    and cash equivalents at beginning of period
                
                
                17
                
                
                9
                
                
                -Cash
                    and cash equivalents at end of period
                
                
                647
                
                
                17
                
                
                9
  The
        accompanying notes are an integral part of these
        consolidated financial statements.





**INDEX
      T** **O
      CONSOLIDATED FINANCIAL STATEMENTS**


Reports
                  of Independent Registered Public Accounting Firm
              F-2Consolidated
                  Balance Sheets
              F-3Consolidated
                  Statements of Operations
              F-4Consolidated
                  Statements of Stockholders’ Equity (Deficit)
              F-5Consolidated
                  Statements of Cash Flows
              F-6Notes
                  to Consolidated Financial StatementsNote
                  1: Business Description and Presentation
              F-7Note
                  2: Summary of Significant Accounting Policies
              F-8Note
                  3: Acquisition of the Business Assets of Aventis PR
              F-13Note
                  4: Acquisition of CMSL
              F-14Note
                  5: Accounts Receivable, Net
              F-14Note
                  6: Inventory, Net
              F-15Note
                  7: Prepaid Expenses and Other Current Assets
              F-15Note
                  8: Property, Plant and Equipment, Net
              F-15Note
                  9: Deferred Financing Costs, Net
              F-16Note
                  10:Deferred Costs and Deposits
              F-16Note
                  11: Purchased Intangible Assets, Net
              F-17Note
                  12: Borrowings under Working Capital Lines of Credit
              F-17Note
                  13: Deferred Revenues
              F-18Note
                  14: Loan Payable to Seller of Ashton
              F-18Note
                  15: Debt, Net of Current Portion and Debt Discount
              F-19Note
                  16: Net Loss per Share
              F-20Note
                  17: Commitments and Contingencies
              F-21Note
                  18: Subsequent Events
              F-21Note
                  19: Stockholders’ Deficit
              F-22Note
                  20: Accumulated Comprehensive Loss
              F-22Note
                  21: Equity Incentive Plans
              F-22Note
                  22: Warrants
              F-24Note
                  23: Supplemental Cash Flow Information
              F-25Note
                  24: Income Taxes
              F-25Note
                  25: Related Party Transactions
              F-26Note
                  26: Liquidity and Capital Resources
              F-28Note
                  27: Financial Information about Geographic Areas
              F-29Note
                  28: Quarterly Financial Information (Unaudited)
              F-29Unaudited
                  Pro Forma Consolidated Statements of Operations
              F-31











REPORT
      OF INDEPENDENT REGISTERED PUBLIC
      ACCOUNTING FIRM





To
      the
      Board of Directors


Inyx,
      Inc.





We
      have
      audited the consolidated balance sheets of Inyx, Inc. (the “Company”) as of
      December 31, 2005 and 2004, and the related consolidated statements of
      operations, changes in stockholders’ equity (deficit) and cash flows for the
      years ended December 31, 2005 and 2004 and for the period from March 7, 2003
      through December 31, 2003. We have also audited the statements of operations,
      changes in stockholders’ equity (deficit) and cash flows of Miza Pharmaceuticals
      (UK) Ltd. (the predecessor to Inyx, Inc.) (the “Company”) for the period from
      January 1, 2003 through March 6, 2003. These consolidated financial statements
      are the responsibility of the Company’s management. Our responsibility is to
      express an opinion on these consolidated financial statements based on our
      audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. The Company has
      determined that it is not required to have, nor were we engaged to perform,
      an
      audit of its internal control over financial reporting. Our audit included
      consideration of internal control over financial reporting as a basis for
      designing audit procedures that are appropriate in the circumstances, but not
      for the purpose of expressing an opinion on the effectiveness of the Company’s
      internal control over financial reporting. Accordingly, we do not express such
      an opinion. An audit includes examining, on a test basis, evidence supporting
      the amounts and disclosures in the financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall financial statement presentation.
      We believe that our audits provide a reasonable basis for our
      opinion.


In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of Inyx, Inc.
        as
        of December 31, 2005 and 2004, and the results of operations and cash flows
        for
        the years ended December 31, 2005 and 2004 and for the period from March
        7, 2003
        through December 31, 2003 and the results of operations and cash flows of
        Miza
        Pharmaceuticals (UK) Ltd. (the predecessor to Inyx, Inc.) for the period
        from
        January 1, 2003 through March 6, 2003, in conformity with accounting principles
        generally accepted in the United States.
 
  /s/Berkovits,
        Lago & Company, LLP
 Fort
        Lauderdale, Florida
 March
        29,
        2006
 
 F-2


**** **INYX,
      INC.**


**Consolidated
      Balance Sheets**


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




December
                31, 2005
            
            December
                31, 2004AssetsCurrent
                assets:Cash
                and cash equivalents
            
            **$**
            **1,023**
            
            $
            336Accounts
                receivable, net
            
            
            **19,782**
            
            
            1,697Inventory,
                net
            
            
            **11,331**
            
            
            1,520Prepaid
                expenses and other current assets
            
            
            **2,589**
            
            
            596Total
                current assets
            
            
            **34,725**
            
            
            4,149Property,
                plant and equipment, net
            
            
            **40,781**
            
            
            6,230Deferred
                financing costs, net
            
            
            **1,434**
            
            
            651Deferred
                costs and deposits
            
            
            **431**
            
            
            2,020Purchased
                intangible assets, net
            
            
            **14,782**
            
            
            1,705**57,428**
            
            
            10,606Total
                assets
            
            **$**
            **92,153**
            
            $
            14,755Liabilities
                and Stockholders’ DeficitCurrent
                liabilitiesBorrowings
                under working capital lines of credit
            
            **$**
            **30,011**
            
            $
            -Accounts
                payable
            
            
            **11,589**
            
            
            4,091Accrued
                expenses and other current liabilities
            
            
            **9,557**
            
            
            1,636Deferred
                tax liability
            
            
            **1,858**
            
            
            -Deferred
                revenues
            
            
            **-**
            
            
            108Loan
                payable to Seller of Ashton
            
            
            **14,014**
            
            
            -Current
                portion of long-term debt
            
            
            **9,288**
            
            
            14,672Total
                current liabilities
            
            
            **76,317**
            
            
            20,507Long-term
                debt, net of current portion
            
            
            **46,236**
            
            
            113Total
                liabilities
            
            
            **122,553**
            
            
            20,620Commitments
                and contingenciesStockholders’
                deficit:Preferred
                stock - $0.001 par value, 10,000,000 sharesauthorized
                - 0 shares issued and outstandingCommon
                stock - $0.001 par value, 150,000,000 sharesauthorized
                - 43,389,922 shares issued andoutstanding
                at December 31, 2005; 38,012,479 sharesissued
                and outstanding at December 31, 2004
            
            
            **43**
            
            
            38Additional
                paid-in capital
            
            
            **33,315**
            
            
            25,275Accumulated
                deficit
            
            
            **(61,343**
            **)**
            
            (30,334
            )Subscriptions
                receivable
            
            
            **(293**
            **)**
            
            (343
            )Accumulated
                other comprehensive loss-foreign currency translation
                adjustment
            
            
            **(2,122**
            **)**
            
            (501
            )Total
                stockholder’s deficit
            
            
            **(30,400**
            **)**
            
            (5,865
            )Total
                liabilities and stockholders’ deficit
            
            **$**
            **92,153**
            
            $
            14,755




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




F-3




**INYX,
      INC.**


**Consolidated
      Statements of Operations**


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





Successor
            
            PredecessorFor
                the year ended December 31, 2005
            
            For
                the year ended December 31, 2004
            
            For
                the period from March 7, 2003 through December 31, 2003
            
            For
                the period from January 1, 2003 through March 6, 2003Net
                revenues
            
            **$**
            **49,565**
            
            $
            15,699
            
            $
            13,099
            
            $
            2,396Cost
                of sales
            
            
            **34,859**
            
            
            14,316
            
            
            10,634
            
            
            1,876Gross
                profit
            
            
            **14,706**
            
            
            1,383
            
            
            2,465
            
            
            520Operating
                expenses:Research
                and development
            
            
            **3,406**
            
            
            2,745
            
            
            -
            
            
            -General
                and administrative
            
            
            **24,575**
            
            
            9,725
            
            
            12,093
            
            
            568Selling
            
            
            **3,005**
            
            
            367
            
            
            260
            
            
            51Depreciation
                and amortization
            
            
            **3,283**
            
            
            619
            
            
            347
            
            
            75Amortization
                of intangible assets
            
            
            **1,387**
            
            
            166
            
            
            139
            
            
            -Total
                operating expenses
            
            
            **35,656**
            
            
            13,622
            
            
            12,839
            
            
            694Loss
                from operations before interest and financing costs and income tax
                expense
                (benefit) and discontinued operations
            
            
            **(20,950**
            **)**
            
            (12,239
            )
            
            (10,374
            )
            
            (174
            )Interest
                and financing costs
            
            
            **10,059**
            
            
            3,370
            
            
            4,312
            
            
            176Loss
                before income tax expense (benefit) and discontinued
                operations
            
            
            **(31,009**
            **)**
            
            (15,609
            )
            
            (14,686
            )
            
            (350
            )Income
                tax expense (benefit)
            
            
            **-**
            
            
            1,333
            
            
            (1,294
            )
            
            -Loss
                before discontinued operations, net of taxes
            
            
            **(31,009**
            **)**
            
            (16,942
            )
            
            (13,392
            )
            
            (350
            )Loss
                from discontinued operations
            
            
            **-**
            
            
            -
            
            
            -
            
            
            558Net
                loss
            
            **$**
            **(31,009**
            **)**
            $
            (16,942
            )
            $
            (13,392
            )
            $
            (908
            )Basic
                and fully diluted (loss) income per share
            
            **$**
            **(0.78**
            **)**
            $
            (0.52
            )
            $
            (0.59
            )
            
            N/AWeighted
                average number of common shares outstanding
            
            
            **39,774,450**
            
            
            32,598,358
            
            
            22,857,260




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







F-4




**INYX,
                INC.**
              **Consolidated
                Statement of Changes in Shareholders’ Equity (Deficit) and Other
                Comprehensive Loss**
              **(Expressed
                in thousands of U.S. dollars except share
                amounts)**




**Common
                Stock****Number
                of Shares (000’s)**
            
            **Par
                Value**
            
            **Additional
                Paid-in Capital**
            
            **Stock
                Subscription Service**
            
            **Accumulated
                Other Compre-hensive loss**
            
            **Accumulated
                Deficit**
            
            **Total**Balance
                at December 31, 2002
            
            
            5,000
            
            $
            8,022
            
            $
            -
            
            $
            -
            
            $
            (1,503
            )
            $
            (30,464
            )
            $
            (23,945
            )Net
                loss for the period
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (908
            )
            
            (908
            )Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (102
            )
            
            -
            
            
            (102
            )Balances
                at March 6, 2003
            
            
            5,000
            
            $
            8,022
            
            $
            -
            
            $
            -
            
            $
            (1,605
            )
            $
            (31,372
            )
            $
            (24,955
            )Balance
                at March 7, 2003
            
            
            16,000
            
            $
            16
            
            $
            2,081
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            2,097Issuance
                of stock for reverse acquisition
            
            
            5,000
            
            
            5
            
            
            18
            
            
            -
            
            
            -
            
            
            -
            
            
            23Issuance
                of stock for finders fee (April 17)
            
            
            2,450
            
            
            2
            
            
            1,302
            
            
            -
            
            
            -
            
            
            -
            
            
            1,304Issuance
                of stock for services (April 21)
            
            
            1,500
            
            
            2
            
            
            799
            
            
            -
            
            
            -
            
            
            -
            
            
            801Issuance
                of stock (August 22)
            
            
            500
            
            
            -
            
            
            500
            
            
            -
            
            
            -
            
            
            -
            
            
            500Offering
                costs on issuance of stock (August 22)
            
            
            -
            
            
            -
            
            
            (12
            )
            
            -
            
            
            -
            
            
            -
            
            
            (12
            )Issuance
                of stock (November 4)
            
            
            3,000
            
            
            3
            
            
            2,997
            
            
            -
            
            
            -
            
            
            -
            
            
            3,000Offering
                costs on issuance of stock (November 4)
            
            
            -
            
            
            -
            
            
            (311
            )
            
            -
            
            
            -
            
            
            -
            
            
            (311
            )Issuance
                of stock for options exercised (November 17)
            
            
            75
            
            
            1
            
            
            90
            
            
            -
            
            
            -
            
            
            -
            
            
            91Issuance
                of stock options
            
            
            -
            
            
            -
            
            
            1,513
            
            
            -
            
            
            -
            
            
            -
            
            
            1,513Issuance
                of warrants for services
            
            
            -
            
            
            -
            
            
            1,261
            
            
            -
            
            
            -
            
            
            -
            
            
            1,261Issuance
                of warrants with convertible debt and related beneficial conversion
                feature
            
            
            -
            
            
            -
            
            
            5,361
            
            
            -
            
            
            -
            
            
            -
            
            
            5,361Subscription
                receivable
            
            
            -
            
            
            -
            
            
            -
            
            
            (100
            )
            
            -
            
            
            -
            
            
            (100
            )Foreign
                currency translation adjustments
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (295
            )
            
            -
            
            
            (295
            )Net
                loss for the period
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (13,392
            )
            
            (13,392
            )Balances
                at December 31, 2003
            
            
            28,525
            
            
            29
            
            
            15,599
            
            
            (100
            )
            
            (295
            )
            
            (13,392
            )
            
            1,841Issuance
                of stock for options exercised in January 2004 (net of shares returned
                to
                treasury)
            
            
            265
            
            
            -
            
            
            293
            
            
            -
            
            
            -
            
            
            -
            
            
            293Issuance
                of stock for services (July 1)
            
            
            32
            
            
            -
            
            
            30
            
            
            -
            
            
            -
            
            
            -
            
            
            30Issuance
                of stock (August 3 - September 3)
            
            
            9,191
            
            
            9
            
            
            7,441
            
            
            -
            
            
            -
            
            
            -
            
            
            7,450Offering
                costs (August 3 - September 3)
            
            
            -
            
            
            -
            
            
            (819
            )
            
            -
            
            
            -
            
            
            -
            
            
            (819
            )Issuance
                of stock options
            
            
            -
            
            
            -
            
            
            291
            
            
            -
            
            
            -
            
            
            -
            
            
            291Issuance
                of warrants with convertible debt and related beneficial conversion
                feature
            
            
            -
            
            
            -
            
            
            1,295
            
            
            -
            
            
            -
            
            
            -
            
            
            1,295Issuance
                of warrants for financing and consulting fees
            
            
            -
            
            
            -
            
            
            1,337
            
            
            -
            
            
            -
            
            
            -
            
            
            1,337Share
                registration fees for SB2
            
            
            -
            
            
            -
            
            
            (192
            )
            
            -
            
            
            -
            
            
            -
            
            
            (192
            )Subscription
                receivable
            
            
            -
            
            
            -
            
            
            
            
            
            (243
            )
            
            -
            
            
            -
            
            
            (243
            )Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            
            
            
            -
            
            
            (206
            )
            
            -
            
            
            (206
            )Net
                loss for the period
            
            
            -
            
            
            -
            
            
            
            
            
            -
            
            
            -
            
            
            (16,942
            )
            
            (16,942
            )Balances
                at December 31, 2004
            
            
            38,013
            
            
            38
            
            
            25,275
            
            
            (343
            )
            
            (501
            )
            
            (30,334
            )
            
            (5,865
            )Issuance
                of stock options
            
            
            -
            
            
            -
            
            
            3,084
            
            
            -
            
            
            -
            
            
            -
            
            
            3,084Exercise
                of stock options
            
            
            10
            
            
            -
            
            
            11
            
            
            -
            
            
            -
            
            
            -
            
            
            11Issuance
                of stock on conversion of Laurus Notes
            
            
            380
            
            
            -
            
            
            304
            
            
            -
            
            
            -
            
            
            -
            
            
            304Issuance
                of stock for termination fees to Laurus Funds
            
            
            1,591
            
            
            2
            
            
            1,271
            
            
            -
            
            
            -
            
            
            -
            
            
            1,273Issuance
                of warrants to Laurus Funds
            
            
            -
            
            
            -
            
            
            162
            
            
            -
            
            
            -
            
            
            -
            
            
            162Exercise
                of warrants
            
            
            3,396
            
            
            3
            
            
            3,378
            
            
            -
            
            
            -
            
            
            -
            
            
            3,381Offering
                costs on issuance of stock
            
            
            -
            
            
            -
            
            
            (7
            )
            
            -
            
            
            -
            
            
            -
            
            
            (7
            )Share
                registration fees for SB2
            
            
            -
            
            
            -
            
            
            (163
            )
            
            -
            
            
            -
            
            
            -
            
            
            (163
            )Subscription
                receivable
            
            
            -
            
            
            -
            
            
            -
            
            
            50
            
            
            -
            
            
            -
            
            
            50Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,621
            )
            
            -
            
            
            (1,621
            )Net
                Loss for the period
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (31,009
            )
            
            (31,009
            )Balances
                at December 31, 2005
            
            
            43,390
            
            $
            43
            
            $
            33,315
            
            $
            (293
            )
            $
            (2,122
            )
            $
            (61,343
            )
            $
            (30,400
            )





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





F-5


**INYX,
      INC.**


**Consolidated
      Statements of Cash Flows**


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




**Successor**
            
            **Predecessor****For
                the year ended December 31, 2005**
            
            **For
                the year ended December 31, 2004**
            
            **For
                the period from March 7, 2003 through December 31,
                2003**
            
            **For
                the period from January 1, 2003 through March 6,
                2003**CASH
                FLOWS FROM OPERATING ACTIVITIES:Loss
                from continuing operations
            
            **$**
            **(31,009**
            **)**
            **$**
            (16,942
            )
            **$**
            (13,392
            )
            **$**
            (350
            )Adjustments
                to reconcile net loss to net cash (used in) operating
                activities:Depreciation
                and amortization
            
            
            **3,283**
            
            
            619
            
            
            347
            
            
            75Amortization
                of financing costs and debt discount
            
            
            **2,406**
            
            
            1,778
            
            
            3,821
            
            
            -Amortization
                of intangible assets
            
            
            **1,387**
            
            
            166
            
            
            139
            
            
            -Early
                termination fees paid with common stock and warrants
            
            
            **1,739**
            
            
            30
            
            
            2,105
            
            
            -Deferred
                income tax expense (benefit)
            
            
            **-**
            
            
            1,333
            
            
            (1,294
            )
            
            -Provision
                for bad debts
            
            
            **804**
            
            
            (39
            )
            
            191
            
            
            -Reserve
                for inventory obsolescence
            
            
            **552**
            
            
            269
            
            
            207
            
            
            -Compensation
                expense on stock options issued to employees
            
            
            **3,084**
            
            
            291
            
            
            1,513
            
            
            -Finance
                and consulting fees on warrants issued
            
            
            **-**
            
            
            1,337
            
            
            1,261
            
            
            -Issuance
                of shares in recapitalization
            
            
            **-**
            
            
            -
            
            
            23
            
            
            -Issuance
                of shares for exercise of stock options
            
            
            **-**
            
            
            293
            
            
            -
            
            
            -Subscription
                receivable
            
            
            **-**
            
            
            (243
            )
            
            -
            
            
            -Changes
                in assets and liabilities:(Increase)
                decrease in accounts receivable
            
            
            **(12,258**
            **)**
            
            1,737
            
            
            (3,586
            )
            
            (215
            )Decrease
                (increase) in inventory
            
            
            **3,684**
            
            
            (700
            )
            
            23
            
            
            385Decrease
                (increase) in prepaid and other current assets
            
            
            **402**
            
            
            (1,482
            )
            
            230
            
            
            267Increase
                in deferred financing costs
            
            
            **-**
            
            
            (127
            )
            
            (900
            )
            
            -(Decrease)
                increase in deferred revenue
            
            
            **(108**
            **)**
            
            (243
            )
            
            351
            
            
            -Increase
                in accounts payable and accrued expenses
            
            
            **7,808**
            
            
            2,904
            
            
            2,380
            
            
            640Other,
                net
            
            
            **359**
            
            
            -
            
            
            (45
            )
            
            353Total
                adjustments
            
            
            **13,142**
            
            
            7,923
            
            
            6,766
            
            
            1,505Net
                cash (used in) provided by operating activities
            
            
            **(17,867**
            **)**
            
            (9,019
            )
            
            (6,626
            )
            
            1,155Net
                cash provided by (used in) discontinued operations
            
            
            **-**
            
            
            -
            
            
            50
            
            
            (617
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchase
                of property, plant and equipment
            
            
            **(2,193**
            **)**
            
            (1,641
            )
            
            (394
            )
            
            (18
            )Acquisition
                of Aventis Pharmaceuticals, Puerto Rico
            
            
            **(597**
            **)**
            
            -
            
            
            -
            
            
            -Acquisition
                of Celltech Manufacturing Services Limited
            
            
            **(1,312**
            **)**
            
            -
            
            
            -
            
            
            -Purchase
                of intangible assets
            
            
            **-**
            
            
            (95
            )
            
            -
            
            
            -Net
                cash used in investing activities
            
            
            **(4,102**
            **)**
            
            (1,736
            )
            
            (394
            )
            
            (18
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Borrowings
                under revolving line of credit, net of fees
            
            
            **20,382**
            
            
            3,869
            
            
            3,080
            
            
            (522
            )Advances
                by shareholder
            
            
            **-**
            
            
            -
            
            
            450
            
            
            -Repayment
                to shareholder
            
            
            **-**
            
            
            -
            
            
            (450
            )
            
            -Proceeds
                from issuance of long term debt
            
            
            **6,148**
            
            
            500
            
            
            4,500
            
            
            -Repayment
                of long term debt to Stiefel
            
            
            **(4,013**
            **)**
            
            
            
            
            
            
            
            -Repayment
                of other long term debt
            
            
            **-**
            
            
            (281
            )
            
            (2,771
            )
            
            104Payment
                of fees on long term debt and revolving line of credit to Laurus
                Funds
            
            
            **-**
            
            
            (19
            )
            
            (573
            )
            
            -Proceeds
                from issuance of demand notes to shareholders
            
            
            **-**
            
            
            700
            
            
            100
            
            
            -Repayment
                of demand note to shareholders
            
            
            **-**
            
            
            (600
            )
            
            -
            
            
            -Proceeds
                from issuance of common stock and warrants
            
            
            **3,381**
            
            
            7,450
            
            
            3,500
            
            
            -Costs
                related to issuance of stock
            
            
            **(7**
            **)**
            
            (819
            )
            
            (323
            )
            
            -Cost
                of registering stock (SB2 registration)
            
            
            **(163**
            **)**
            
            (192
            )
            
            -
            
            
            -Proceeds
                from exercise of stock options
            
            
            **11**
            
            
            -
            
            
            90
            
            
            -Repayment
                of capital lease obligation
            
            
            **(125**
            **)**
            
            (107
            )
            
            -
            
            
            -Net
                cash provided by (used in) financing activities
            
            
            **25,614**
            
            
            10,501
            
            
            7,603
            
            
            (418
            )Effect
                of exchange rate changes on case
            
            
            **(2,958**
            **)**
            
            (206
            )
            
            (295
            )
            
            (102
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            **687**
            
            
            (460
            )
            
            338
            
            
            -CASH
                AND CASH EQUIVALENTS, at beginning of the period
            
            
            **336**
            
            
            796
            
            
            458
            
            
            -CASH
                AND CASH EQUIVALENTS, at end of the period
            
            **$**
            **1,023**
            
            $
            336
            
            $
            796
            
            $
            -


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




F-6


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


**Note
      1** **.**   **Business
      Description and Presentation**




Inyx,
      Inc. (“Inyx” or the “Company”) through its wholly-owned subsidiaries, Ashton
      Pharmaceuticals Limited (“Ashton”), Inyx Pharma Limited (“Inyx Pharma”), Inyx
      Canada Inc. (“Inyx Canada”), Inyx USA, Ltd. (“Inyx USA”), Inyx Europe Limited
      (“Inyx Europe”), including Inyx Europe’s wholly-owned subsidiary, Ashton
      Pharmaceuticals Limited (“Ashton Pharmaceuticals” or “Ashton”),  and
      Exaeris Inc. (“Exaeris”), is a specialty pharmaceutical company which focuses on
      the development and manufacturing of prescription and over-the-counter aerosol
      pharmaceutical products and drug delivery technologies for the treatment of
      respiratory, allergy, cardiovascular and dermatological and topical conditions.
      In addition, the Company performs certain sales and marketing functions to
      market and promote its manufacturing, technical and product development
      capabilities to its client base.




Inyx’s
      client base primarily consists of ethical pharmaceutical corporations, branded
      generic pharmaceutical distributors and biotechnology companies. Until it has
      completed developing its own products as well as its own distribution and
      marketing capabilities, the Company expects to continue to depend on its
      customers’ distribution channels or strategic partners to market and sell the
      products it manufactures. On
      March
      29, 2005, the Company incorporated Exaeris, a wholly-owned Delaware company
      to
      manage and operate its product promotion and marketing activities, including
      those that it may potentially have through collaborative agreements with other
      companies.


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 approximately $20.7 million
        as a
        total purchase price comprising of a cash payment of approximately $19.7
        million
        paid upon closing, approximately $2.7 million in direct transaction costs
        (including approximately $90,000 of additional transaction costs incurred
        subsequent to closing), a subsequent purchase price adjustment of approximately
        $570,000 paid to Aventis PR in August 2005, and received a purchase price
        reduction amounting to approximately $2.3 million relating
        to the final value assigned to the commercial contracts transferred to the
        Company on acquisition as agreed by the Company and Aventis PR, pursuant
        to a
        purchase price settlement adjustment in November 2005. Aventis PR is a
        pharmaceutical manufacturing operation producing dermatological, respiratory
        and
        allergy products under contract manufacturing agreements with third party
        customers. The results of operations of the acquired Aventis PR business
        assets
        are included in the Company’s consolidated results of operations effective April
        1, 2005 (the day after completion of the acquisition of such business
        assets).


On
      August
      31, 2005, the Company through its wholly-owned United Kingdom subsidiary, Inyx
      Europe, completed the purchase of all of the outstanding shares of Celltech
      Manufacturing Services Limited (“CMSL”), a United Kingdom pharmaceutical
      manufacturing company, from UCB Pharma Limited (“UCB Pharma”), for approximately
      $40.7 million including acquisition costs of approximately $2.4 million, and
      thereby assumed possession and control of the operations of CMSL effective
      September 1, 2005. On September 9, 2005, the Company changed the “CMSL” name to
      Ashton Pharmaceuticals Limited. Ashton currently operates as a wholly-owned
      subsidiary of Inyx Europe, and its operating results are included in the
      Company’s consolidated results of operations effective September 1, 2005 (the
      day after completion of the acquisition of all of the outstanding stock of
      Ashton).




Prior
      to
      its acquisition of the majority of Miza UK’s business assets on March 7, 2003,
      Inyx Pharma was a non-operating private corporation with nominal business
      assets. Prior to its completion of the reverse acquisition of Inyx Pharma on
      April 28, 2003, the Company’s business concerns were unrelated to our current
      pharmaceutical industry operations. As a result of the Company’s acquisition of
      the majority of Miza UK’s business assets on March 7, 2003,, financial reporting
      for the 2003 fiscal year is limited to the period from March 7, 2003 to December
      31, 2003.




Inyx
      currently manages and operates its business as one operating segment.




F-7


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


**Note
      2** .   **Summary
      of Significant Accounting Policies**




***Consolidated
      Financial Statements*** ******




The
      accompanying consolidated financial statements include the accounts of Inyx
      and
      its wholly owned subsidiaries: Inyx Pharma, an operating company formed under
      the laws of England and Wales; Inyx Europe, an operating company formed under
      the laws of England and Wales and Inyx
      Europe’s wholly-owned subsidiary, Ashton Pharmaceuticals, also an operating
      company formed under the laws of England and Wales ;
      Inyx
      Canada, a federally incorporated Canadian corporation; Inyx USA, a corporation
      incorporated in the Isle of Man and operating in Manatí, Puerto Rico; Exaeris, a
      Delaware corporation headquartered in Exton, Pennsylvania; and Inyx Realty,
      Inc., a Florida corporation through the date of its disposition of April 14,
      2004. On April 14, 2004, Inyx Realty, Inc. was transferred to a related party.
      As consideration, the related entity assumed all of the liabilities of Inyx
      Realty, Inc. including a commitment of a ten year office space lease of
      approximately $1.5 million. (See Note 25, Related Party
      Transactions.)




All
      inter-company accounts and transactions have been eliminated in
      consolidation.




***Use
      of Estimates***




The
      consolidated financial statements are prepared in conformity with accounting
      principles generally accepted in the United States of America. The preparation
      of consolidated financial statements, in conformity with generally accepted
      accounting principles, requires management to make estimates and assumptions.
      Those estimates and assumptions affect the reported amounts of assets and
      liabilities, the disclosure of contingent assets and liabilities at the date
      of
      the financial statements, and the reported amounts of revenues and expenses
      during the reporting period. The
      more
      significant estimates are those used by management to measure the recoverability
      of intangible assets, the allowances for doubtful accounts and inventory
      reserves. Actual
      results could differ from those estimates.




***Cash
      and Cash Equivalents***




Cash
      and
      cash equivalents consist of highly liquid investments with maturities of three
      months or less when purchased and are stated at cost, which approximates market
      value.




***Accounts
      Receivable***




Accounts
      receivable are stated at realizable value, net of an allowance for doubtful
      accounts. Periodically, management reviews all accounts receivable and, based
      on
      an assessment of whether they are collectible, estimates the portion, if any,
      of
      the balance that will not be collected in order to establish an allowance for
      doubtful accounts. Such allowance was based on the specific identification
      of
      accounts deemed uncollectible as of each period end. The provision for the
      allowance for doubtful accounts is included in general and administrative
      expenses in the accompanying consolidated statements of operations.




***Inventory***




Inventory
      is valued using the first-in, first-out method of accounting and is stated
      at
      the lower of cost or net realizable value.




***Property,
      Plant and Equipment***




Property,
      plant and equipment is stated at cost, net of accumulated depreciation and
      amortization, which is provided for by charges to operations over the estimated
      useful life of the assets using the straight line method. The useful life of
      assets ranges from 3-15 years for equipment, and up to 30 years for buildings.
      Leasehold improvements and equipment capital leases are amortized over the
      life
      of the related lease.




F-8


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


Expenditures
      that extend the useful life of the respective assets are capitalized and
      depreciated over the remaining lives of the respective assets. Maintenance,
      repairs and other expenses that do not extend their useful life are expensed
      as
      incurred.




***Purchased
      Intangible Assets***




The
      Company’s purchased intangible assets consist of customer relationships,
      customer contracts, a customer list, product licenses, know-how, a technology
      patent, and trademarks and trade names. These intangible assets are accounted
      for in accordance with Statement of Financial Accounting Standards No. 142,
      “ *Goodwill
      and Other Intangible Assets”* (“SFAS
      No. 142”) and 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. Customer relationships are amortized over
      periods ranging from 10 to 15 years, customer contracts are amortized over
      3
      years, the customer list is amortized over 12 years, product licenses are
      amortized over 10 years, know-how is amortized over 10 years, the patent is
      amortized over 7 years, and the trademarks and trade names are amortized over
      a
      3 month period. The Company does not have any indefinite life intangible assets.




***Deferred
      Financing Costs***




Costs
      directly associated with obtaining financing are capitalized and amortized
      on a
      straight-line basis over the term of the financing arrangement. The amortization
      of these costs are included as part of interest and financing costs.




***Business
      Combinations***




The
      Company accounts for business combinations in accordance with Statement of
      Financial Accounting Standard No. 141, “ *Business
      Combinations”* (“SFAS
      No.141”). SFAS No.141 requires that the purchase method of accounting be used
      for all business combinations. SFAS No.141 requires that goodwill and intangible
      assets with indefinite useful lives no longer be amortized, but instead be
      tested for impairment at least annually by comparing carrying value to the
      respective fair value in accordance with the provisions of Statement of
      Financial Accounting Standards No. 142, “ *Goodwill
      and Other Intangible Assets”* (“SFAS
      No. 142”). This pronouncement also requires that intangible assets with
      estimable useful lives be amortized over their respective estimated useful
      lives
      to their estimated residual values, and reviewed for impairment by assessing
      the
      recoverability of the carrying value, The Company has adopted the provisions
      of
      SFAS No. 141 and SFAS No. 142 as of January 1, 2003.




***Impairment
      of Long Lived Assets and Intangible Assets***




The
      Company reviews the carrying value of its long lived assets including purchased
      intangible assets whenever events or changes in circumstances indicate that
      the
      historical cost-carrying value of an asset may no longer be appropriate. The
      Company assesses recoverability of the carrying value of the assets by
      estimating the future net cash flows expected to result from the assets,
      including eventual disposition. If the future net cash flows are less than
      the
      carrying value of the assets, an impairment loss is recorded, equal to the
      difference between the asset’s carrying value and its fair value. In performing
      such reviews, management takes into consideration the current operating levels
      including any idle capacity, alternative uses for production utilizing current
      equipment, and growth trends and industry projections.




***Financial
      Instruments***




Financial
      instruments consist of cash and cash equivalents, accounts receivable, accounts
      payable, accrued liabilities, borrowings under the working capital line of
      credit, loans payable and long-term debt. The carrying values of cash and cash
      equivalents, accounts receivable, accounts payable and accrued liabilities
      approximate their fair values due to their relatively short lives to maturity.
      Non-derivative financial instruments include letters of credit, commitments
      to
      extend credit and guarantees of debt. The
      fair
      value of debt also approximates fair market value, as these amounts are due
      at
      rates which are compatible to market interest rates. There
      were no derivative financial instruments for any of the periods presented.
      The
      carrying values of these financial instruments approximated their fair market
      value as of December 31, 2005 and 2004.




F-9


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


***Revenue
      Recognition***




The
      Company recognizes revenue when (1) persuasive evidence of an arrangement
      exists; (2) product delivery has occurred or services have been rendered; (3)
      the fee is fixed or determinable; and (4) collectability is reasonably assured.
      Revenues are recognized FOB shipping point, when products are shipped, which
      is
      when legal title and risk of loss is transferred to the Company’s customers, and
      is recorded at the net invoiced value of goods supplied to customers after
      deduction of sales discounts and sales and value added tax, where applicable.
      In
      situations where the Company receives payment in advance of the performance
      of
      research and development services, such amounts are deferred and recognized
      as
      revenue as the related services are performed.




As
      of
      December 31, 2004, deferred revenues amounted to $108,000.




Non-refundable
      fees are recognized as revenue over the term of the arrangement, based on the
      percentage of costs incurred to date, estimated costs to complete and total
      expected contract revenue. Product returns are not accepted.




Shipping
      costs are paid by the Company’s customers. Any shipping and handling costs
      incurred by the Company are included in costs of sales in the accompanying
      consolidated statements of operations.




***Convertible
      Debt***




Convertible
      debt with beneficial conversion features, whereby the conversion feature is
“in
      the money” are accounted for in accordance with guidance supplied by Emerging
      Issues Task Force (“EITF”) No. 98-5 "Accounting for Convertible Securities with
      Beneficial Conversion Features or Contingently Adjustable Conversion Ratios"
      and
      EITF No. 00-27 "Application of Issue 98-5 to Certain Convertible Instruments."
      The relative fair value of the warrants has been recorded as a discount against
      the debt and is amortized over the term of the debt.




In
      addition since the debt is convertible into equity at the option of the note
      holder at the date of issuance at beneficial conversion rates, an embedded
      Beneficial Conversion Feature has been charged to interest and financing costs
      in the accompanying consolidated statements of operations and as an increase
      to
      additional paid-in capital at the time of issuance.




For
      convertible debt and related warrants, the recorded discount is calculated
      at
      the issuance date as the difference between the conversion price and the
      relative fair value of the common stock and warrants into which the security
      is
      convertible or exercisable.




Note
      15,”Debt, Net of Current Portion and Debt Discount,” and Note 22, “Warrants,”
provide additional information on the valuation of the warrants and the
      beneficial conversion feature.




***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 equivalent common stock outstanding during the period. 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 stock 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.




As
      of
      December 31, 2005 and 2004, the Company had common stock equivalents of
      approximately 3,043,172 and 1,805,168 shares respectively, related to options
      and warrants; and approximately 18,375,000 shares as of December 31, 2004,
      related to shares to be issued upon the conversion of the convertible
      debt.




F-10


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


***Stock
      Based Compensation***




On
      September 15, 2005, the Company adopted an Equity Incentive Plan that provides
      for the granting of stock options and
      other stock-based awards for the benefit of employees, officers, consultants,
      directors and persons who the Company believes may have made a valuable
      contribution to the Company. The total number of shares that may be issued
      under
      the plan amounts to 6,000,000. The exercise price per share must be at least
      equal to the fair market price at the time of the grant.




The
      Company applies the fair
      value method of Statement of Financial Accounting Standards No. 123,
“ *Accounting
      for Stock Based Compensation”* (“SFAS
      No. 123”) in accounting for its stock option plan. This standard states that
      compensation cost is measured at the grant date based on the value of the award
      and is recognized over the service period, which is usually the vesting period.
      The fair value of each option granted is estimated on the date of the grant
      using the Black-Scholes option pricing model. The compensation cost has been
      charged to salaries, wages, and benefits in accordance with SFAS No. 123.




***Concentration
      of Credit Risk***




The
      Company obtains detailed credit evaluations of customers generally without
      requiring collateral, and establishes credit limits as required. Exposure to
      losses on receivables is principally dependent on each customer’s financial
      condition. The Company monitors its exposure for credit risk losses and
      maintains an allowance for anticipated losses.




For
      the
      year ended December 31, 2005 and for the year ended December 31, 2004, the
      Company’s three largest customers accounted for approximately 59% and 48% of net
      revenues, respectively. As of December 31, 2005 and 2004, the Company’s three
      largest customers accounted for 65% and 56% of net receivables, respectively.
      The loss of any of these customers could have a material adverse effect on
      the
      operations of the Company.




***Income
      Taxes***




The
      Company follows Statement of Financial Accounting Standards No. 109 *“Accounting
      for Income Taxes”* (“SFAS
      No. 109”) *.* Under
      the
      asset and liability method of SFAS No. 109, deferred tax assets and liabilities
      are recognized for the future tax consequences attributed to differences between
      the financial statements carrying amounts of existing assets and liabilities
      and
      their respective tax base. Deferred tax assets and liabilities are measured
      using enacted tax rates expected to apply to taxable income in the years in
      which those temporary differences are expected to be recovered or settled.
      Under
      SFAS No. 109, the effect on deferred tax assets and liabilities of a change
      in
      tax rates is recognized in the results of operations in the period that includes
      the enactment date. If it is more likely than not that some portion of a
      deferred tax asset will not be realized, a valuation allowance is
      recognized.




***Translation
      of Foreign Currency***




The
      functional currency of the Company’s United Kingdom subsidiaries is the Great
      Britain Pound. The Company’s financial statements are reported in United States
      Dollars and are translated in accordance with Statement of Financial Accounting
      Standards No. 52, “ *Foreign
      Currency Translation”* (“SFAS
      No. 52”), which requires that foreign currency assets and liabilities be
      translated using the exchange rates in effect at the balance sheet dates.
      Results of operations are translated using the weighted average exchange rates
      prevailing during the period. For purposes of SFAS No. 52 *,* the
      Company considers the Dollar to be the reporting currency. The effects of
      unrealized exchange fluctuations on translating foreign currency assets and
      liabilities into Dollars are reported under “accumulated other comprehensive
      loss-foreign currency translation adjustment” which is included as a separate
      component in the stockholders’ deficit. Realized gains and losses from foreign
      currency transactions are included in the statements of operations for the
      period.




F-11


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


***Research
      and Development***




All
      research and development costs are expensed as incurred and include salaries
      of,
      and expense relating to, employees and consultants who conduct research and
      development.




***Recently
      Issued Accounting Standards***




In
      January 2003, the Company adopted the provisions of Statement
      of Financial Accounting Standards No. 143,
“ *Accounting
      for Asset Retirement Obligations* ”
(“SFAS
      No. 143”). SFAS No. 143 addresses accounting and reporting for obligations
      associated with the retirement of tangible long-lived assets and the associated
      asset retirement costs. As of the date of adoption of SFAS 143, the Company
      had
      no tangible long-lived assets. During the second quarter of 2003, the Company,
      through the reverse acquisition of Inyx Pharma acquired property, plant and
      equipment, including the manufacturing facility for CFC-based respiratory
      inhalers. The Company evaluates the carrying value of property, plant and
      equipment to determine whether there is any impairment. Our evaluations have
      indicated no such impairment to date. Management believes that as the Company
      increases its marketing and commercial activities in the United States and
      Latin
      America where the market for CFC-based respiratory inhalers still exists, the
      Company will be increasingly utilizing its production line for such products
      and
      any idle capacity will be eliminated.




In
      April
      2003, the FASB issued Statement
      of Financial Accounting Standards No. 149,
“ *Amendment
      of Statement 133 on Derivative Instruments and Hedging
      Activities”* (“SFAS
      No. 149”) *.* SFAS No.
      149 amends and clarifies accounting for derivative instruments, including
      certain derivative instruments embedded in other contracts, and for hedging
      activities under SFAS No. 133 and is effective for contracts entered into or
      modified after June 30, 2003. The adoption of SFAS No. 149 did not have a
      material effect on the Company’s consolidated financial statements. The Company
      does not currently have derivative instruments or hedging activities. However,
      the Company is currently evaluating an arrangement with a financial institution
      to participate in currency forward contracts for the purpose of mitigating
      foreign exchange fluctuations.




In
      December 2003, the FASB issued FASB Interpretation No. 46R, “Consolidation of
      Variable Interest Entities,” which addresses how a business enterprise should
      evaluate whether it has a controlling financial interest in an entity through
      means other than voting rights and accordingly should consolidate the entity.
      The adoption of this standard had no effect on the Company’s financial
      statements.




In
      November 2004, the FASB issued Statement of Financial Accounting Standards
      No. 151, “ *Inventory
      Costs”* —an
      amendment of ARB No. 43, Chapter 4”, which is the result of the FASB’s
      project to reduce differences between U.S. and international accounting
      standards. SFAS No. 151 requires idle facility costs, abnormal freight,
      handling costs, and amounts of wasted materials (spoilage) be treated as
      current-period costs. Under this concept, if the costs associated with the
      actual level of spoilage or production defects are greater than the costs
      associated with the range of normal spoilage or defects, the difference would
      be
      charged to current-period expense, not included in inventory costs. SFAS
      No. 151 will be effective for inventory costs incurred during fiscal years
      beginning after June 15, 2005, or for our fiscal year 2006. The Company
      does not expect that the adoption of SFAS No. 151 will have a material
      effect on the Company’s consolidated financial statements.




In
      December 2004, the Financial Accounting Standards Board issued SFAS
      No. 123 (revised 2004), “ *Share-Based
      Payment* ”
(“SFAS
      No. 123R”). SFAS No. 123R requires companies to recognize in the
      income statement the grant-date fair value of stock options and other
      equity-based compensation issued to employees, but expresses no preference
      for a
      type of valuation model. SFAS No. 123R eliminates the intrinsic value-based
      method prescribed by Accounting Principles Board Opinion No. 25,
“ *Accounting
      for Stock Issued to Employees* ”.
      SFAS
      No. 123R requires the Company to adopt the new accounting provisions
      beginning in the first annual reporting period that begins after
      December 15, 2005. The Company does not expect that the adoption of SFAS
      No. 123R will have a material effect on the Company’s consolidated financial
      statements.




In
      May
      2005, the Financial Accounting Standards Board issued SFAS No. 154, *“Accounting
      Changes and Error Corrections”* (“SFAS
      No. 154”)-a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS No.
      154 requires retrospective application of changes in accounting principle to
      prior periods’ financial statements, unless it is impracticable to determine the
      effect of the change. SFAS No. 154 requires that such retrospective application
      of changes in accounting principle be limited to direct effects of the change
      and also requires that a change in depreciation, amortization, or depletion
      method for long-lived, non-financial assets be accounted for as a change in
      accounting estimate effected by a change in accounting principle. The Company
      does not expect that the adoption of SFAS No. 154 will have a material effect
      on
      the Company’s consolidated financial statements.




F-12


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


***Reclassifications***




Certain
      amounts from prior year consolidated financial statements and related notes
      have
      been reclassified to conform to the current year presentation.




**Note** **3.****Acquisition
      of the Business Assets of Aventis PR**




On
        March
        31, 2005, Inyx USA acquired the business assets of Aventis PR from the
        Sanofi-Aventis Group. The acquisition was accounted for as a business
        combination in accordance with Statement of Financial Accounting Standard
        No.
        141 *“Business
        Combinations”* (“SFAS
        No. 141”) *.* In
        connection with this acquisition, Inyx USA paid approximately $20.7 million
        as a
        total purchase price comprising of a cash payment of approximately $19.7
        million
        paid upon closing, approximately $2.7 million in direct transaction costs
        (including approximately $90,000 of additional transaction costs incurred
        subsequent to closing), a subsequent purchase price adjustment of approximately
        $570,000 paid to Aventis PR in August 2005, and received a purchase price
        reduction amounting to approximately $2.3 million relating
        to the final value assigned to the commercial contracts transferred to the
        Company on acquisition as agreed by the Company and Aventis PR, pursuant
        to a
        purchase price settlement adjustment in November 2005. Aventis PR is a
        pharmaceutical manufacturing operation producing dermatological, respiratory
        and
        allergy products under contract manufacturing agreements with third party
        customers. The results of operations of the acquired Aventis PR business
        assets
        are included in the Company’s consolidated results of operations effective April
        1, 2005 (the day after completion of the acquisition of such business
        assets).


The
      purchase price was allocated to the identifiable net assets acquired including
      the identifiable intangible assets based on their estimated fair market values
      at the date of acquisition as determined by the Valuations Services Practice
      of
      BearingPoint, Inc. (“BearingPoint”).




The
      fair
      value of the assets acquired from the transaction totalled approximately $62.9
      million based on independent third-party appraisals and valuations, which
      resulted in negative goodwill of $42.1 million. The negative goodwill was
      proportionately allocated over the non-current tangible and intangible assets
      acquired as follows:




Fair
                Value of Assets Acquired
            
            Allocation
                of Negative Goodwill
            
            Allocation
                of Purchase Price of Assets AcquiredLand
            
            $
            3,040
            
            $
            (2,129
            )
            $
            911Building
            
            
            12,700
            
            
            (8,893
            )
            
            3,807Machinery
                and equipment
            
            
            21,809
            
            
            (15,090
            )
            
            6,719Computer
                hardware and software
            
            
            1,185
            
            
            (720
            )
            
            465Inventory
            
            
            2,334
            
            
            -
            
            
            2,334*Identifiable
                intangible assets subject to amortization:*Customer
                contracts
            
            
            4,700
            
            
            (3,291
            )
            
            1,409Customer
                relationships
            
            
            17,100
            
            
            (11,975
            )
            
            5,125$
            62,868
            
            $
            (42,098
            )
            $
            20,770





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 is
      depreciated based on the Company’s existing depreciation policies. The
      intangible assets, which represent the value assigned to customer contracts,
      are
      amortized on a straight line basis over three years. The intangible asset which
      represents the value assigned to customer relationships is amortized on an
      accelerated period of ten years.




F-13


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


**Note
      4.**   **Acquisition
      of CMSL**




On
      August
      31, 2005, Inyx Europe, a wholly-owned United Kingdom subsidiary of the Company,
      completed the purchase of all of the outstanding shares of CMSL from UCB Pharma.
      On September 9, 2005, the Company changed the “CMSL” name to Ashton
      Pharmaceuticals Limited.




The
      Ashton share acquisition was accounted for as a business combination in
      accordance with Statement of Financial Accounting Standard No. 141 *“Business
      Combinations”* (“SFAS
      No. 141”) *.* The
      total purchase price of approximately $38.3 million consisted of an initial
      deposit of approximately $610,000, a cash payment at closing of approximately
      $23.2 million, a purchase price deferral of approximately $9.8 million payable
      in six (6) equal installments commencing on April 30, 2006 and an amount
      equivalent to $4.6 million, representing the excess working capital over a
      targeted working capital at closing agreed to between the parties. The Company
      also incurred approximately $2.4 million in direct transaction costs for a
      total
      purchase price of approximately $40.7 million.




The
      Ashton acquisition was funded through a credit facility
      from Westernbank. The
      Westernbank financing consists of a revolving loan, three term loans and a
      mezzanine loan, together referred to as the “Second Westernbank Credit
      Facility”.




The
      purchase price was allocated to the identifiable net assets acquired including
      the identifiable intangible assets based on their estimated fair market values
      at the date of acquisition as determined by the Valuations Services Practice
      of
      BearingPoint.




The
      fair
      value of the assets acquired from the transaction totaled approximately $55.6
      million based on independent third-party appraisals and valuations, which
      resulted in negative goodwill of $14.9 million. The negative goodwill was
      proportionately allocated over the non-current tangible and intangible assets
      acquired as follows:




Fair
                Value of Assets and Liabilities Acquired
            
            Allocation
                of Negative Goodwill
            
            Allocation
                of Purchase Price of Assets and Liabilities AcquiredLand
            
            $
            1,787
            
            $
            (577
            )
            $
            1,210Buildings
            
            
            7,146
            
            
            (2,310
            )
            
            4,836Machinery
                and equipment
            
            
            26,799
            
            
            (8,661
            )
            
            18,138Net
                working capital
            
            
            7,000
            
            
            -
            
            
            7,000Excess
                over agreed working capital
            
            
            4,607
            
            
            -
            
            
            4,607*Identifiable
                intangible assets subject to amortization:*Trademarks
                and trade names
            
            
            160
            
            
            (52
            )
            
            108Customer
                relationships
            
            
            8,400
            
            
            (2,715
            )
            
            5,685Product
                Licenses
            
            
            1,820
            
            
            (588
            )
            
            1,232Deferred
                tax liability
            
            
            (1,858
            )
            
            -
            
            
            (1,858
            )Assumed
                liability
            
            
            (230
            )
            
            -
            
            
            (230
            )$
            55,631
            
            $
            (14,903
            )
            $
            40,728





**Note** **5.****Accounts****Receivable, Net**




Accounts
      receivable consist of the following:




December
                31, 2005
            
            December
                31, 2004Trade
                receivables
            
            **$**
            **20,824**
            
            $
            1,849Less
                allowance for doubtful accounts
            
            
            **(1,042**
            **)**
            
            (152
            )**$**
            **19,782**
            
            $
            1,697




F-14


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


As
      of
      December 31, 2005 the Company had billed certain customers approximately $7.2
      million in advance for raw materials and for services to be provided pursuant
      to
      arrangements under contract manufacturing and product support and services
      agreements that it has in place. Such advance invoicing has allowed the Company
      to acquire certain raw materials and components that have longer lead times
      and
      are required to manufacture such customers’ production requirements on a timely
      basis. Such amounts have been offset against deferred revenue for financial
      statement presentation purposes.






**Note
      6.**   **Inventory,
      Net**




Inventory
      is comprised of the following:




December
                31, 2005
            
            December
                31, 2004Finished
                goods
            
            **$**
            **1,244**
            
            $
            107Work
                in process
            
            
            **3,145**
            
            
            551Raw
                materials
            
            
            **8,000**
            
            
            1,338**12,389**
            
            
            1,996Less
                provision for obsolescence
            
            
            **(1,058**
            **)**
            
            (476
            )**$**
            **11,331**
            
            $
            1,520







**Note
      7.**   **Prepaid
      Expenses and Other Current Assets**




Prepaid
      expenses and other current assets consist of the following:




December
                31, 2005
            
            December
                31, 2004Prepaid
                vendor invoices
            
            **$**
            **1,501**
            
            $
            352Deferred
                legal and consulting fees
            
            
            **67**
            
            
            -Prepaid
                rent, property and sales tax
            
            
            **85**
            
            
            83Prepaid
                insurance
            
            
            **289**
            
            
            125Other
                prepaid expenses
            
            
            **292**
            
            
            36Other
                non-trade receivables
            
            
            **355**
            
            
            -**$**
            **2,589**
            
            $
            596







**Note** **8.****Property,
      Plant and Equipment, Net**




Property,
      plant and equipment consist
      of the following:




December
                31, 2005
            
            December
                31, 2004Land
            
            **$**
            **2,662**
            
            $
            546Buildings
            
            
            **9,144**
            
            
            1,059Machinery,
                equipment and office furniture
            
            
            **26,152**
            
            
            3,541Computer
                hardware and software
            
            
            **1,156**
            
            
            509**39,114**
            
            
            5,655Less
                accumulated depreciation
            
            
            **(4,201**
            **)**
            
            (966
            )**34,913**
            
            
            4,689Equipment
                held for future use (a)
            
            
            **1,541**
            
            
            1,541Construction
                in progress (b)
            
            
            **4,327**
            
            
            -**$**
            **40,781**
            
            $
            6,230




F-15


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


For
      the
      years ended December 31, 2005 and 2004, depreciation expense of property, plant
      and equipment was approximately $3.3 million and $619,000, 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 approximately
      $500,000 in 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 $12.0
      million over the next two years. As of December 31, 2005, the Company has
      approximately $1.6 million of outstanding capital expenditure commitments
      relating to these projects.




**Note
      9.** **Deferred
      Financing Costs, Net**




As
      of
      December 31, 2005, the deferred financing costs, net, are comprised of bank
      fees
      and legal costs incurred in connection with obtaining the First and Second
      Westernbank Credit Facilities. The Company incurred $969,000 in such costs
      and
      fees on March 31, 2005, when obtaining the First Westernbank Credit Facility,
      and an additional $788,000 on August 31, 2005 in obtaining the Second
      Westernbank Credit facility used to fund the Company’s acquisition of Ashton.
      Such deferred financing costs are being amortized to interest and financing
      costs over the three year term of the Westernbank credit facilities




As
      of
      December 31, 2004, deferred financing costs, net are comprised of fees related
      to convertible debt issued to Laurus Master Funds, Ltd (“Laurus Funds”) in 2003.
      All amounts due to Laurus Funds were refinanced on March 31, 2005 through the
      Company’s First Westernbank Credit Facility. (See Note 12 “Borrowing under
      Working Capital Lines of Credit”.) 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 on the
      date of the refinancing.




Interest
      and financing costs resulting from the amortization of deferred financing costs
      totaled $323,000 and $336,000 for the years ended December 31, 2005 and 2004
      respectively.




Deferred
      financing costs, net consist of the following:




December
                31, 2005
            
            December
                31, 2004Deferred
                financing costs
            
            **$**
            **1,757**
            
            $
            1,027Less
                accumulated amortization
            
            
            **(323**
            **)**
            
            (376
            )**$**
            **1,434**
            
            $
            651






**Note** **10.****Deferred
      Costs and Deposits**




Deferred
      costs and deposits consist of the following:





December
                31, 2005
            
            December
                31, 2004Deferred
                acquisition costs (a)
            
            **$**
            **407**
            
            $
            1,975Rent
                deposits (b)
            
            
            **24**
            
            
            45**$**
            **431**
            
            $
            2,020





(a)
            The
                Company defers legal, consulting, finder’s fees, costs for appraisals,
                travel and other direct costs relating to the business development
                activities and strategic acquisitions, including intellectual property
                acquisitions that the Company is currently working on. In management’s
                judgment, these business development activities and strategic acquisitions
                have a high probability of being successful and are expected to be
                completed within the next twelve
                months.




F-16


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


Deferred
      costs associated with successful negotiations will be included as part of the
      acquisition costs of such investments. If the project is abandoned, any deferred
      costs are expensed in the Company’s results of operations.




The
      amount as at December 31, 2004 of approximately $2.0 million represents the
      direct costs associated with the acquisition of Aventis PR which was completed
      on March 31, 2005. These costs include consulting fees, due diligence costs
      and
      manufacturing equipment costs were capitalized in 2005 and were included as
      part
      of the purchase price of Aventis PR. (See Note 3 Acquisition of the Business
      Assets of Aventis PR)




(b)
            Under
                the terms of its lease agreement for its New York office, the Company
                was
                required to make a deposit with the landlord equal to two months
                rent
                payments. This deposit will be reimbursed at the termination of the
                lease.




**Note
      11.**   **Purchased
      Intangible Assets, Net**




Purchased
      intangible assets consist of the following:




December
                31, 2005
            
            December
                31, 2004Customer
                relationships (accelerated 10 year life and 15 year life)
            
            **$**
            **10,607**
            
            $
            -Customer
                contracts (3 year life)
            
            
            **1,409**
            
            
            -Customer
                list (12 year life)
            
            
            **1,372**
            
            
            1,280Product
                licenses (10 year life)
            
            
            **1,188**
            
            
            -Know-how
                (10 year life)
            
            
            **641**
            
            
            598Patent
                (7 year life)
            
            
            **132**
            
            
            132Trademarks
                and trade names (3 months)
            
            
            **104**
            
            
            -**15,453**
            
            
            2,010Less
                accumulated amortization
            
            
            **(1,671**
            **)**
            
            (305
            )**13,782**
            
            
            1,705Intangible
                assets not subject to amortization:Intellectual
                properties (a)
            
            
            **1,000**
            
            
            -**$**
            **14,782**
            
            $
            1,705







(a)
            These
                costs include direct costs associated with the acquisition of certain
                intellectual property from a related party of $1.0 million.




Purchased
      intangible assets are carried at cost less accumulated amortization. For the
      years ended December 31, 2005 and 2004, amortization expense related to
      intangible assets totaled approximately $1.4 million and $166,000, respectively.
      The aggregate estimated amortization expense for intangible assets as of
      December 31, 2005 for each of the following four years and thereafter is as
      follows:




2006
            
            $
            2,0392007
            
            
            2,0172008
            
            
            1,5952009
            
            
            1,497Thereafter
            
            
            6,634$
            13,782





F-17


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




**Note** **12.****Borrowings
      under Working Capital Lines of Credit**




On
      March
      31, 2005, the Company, through its wholly owned subsidiary Inyx USA Limited,
      obtained a three-year revolving working capital line of credit facility
      from Westernbank, under the First Westernbank Credit Facility, allowing the
      Company to borrow up to $10 million. On September 1, 2005, the limit was
      increased to $15 million.  Advances under this facility are limited to 85%
      of eligible accounts receivables and together with the reserve amounting to
      $500,000 shall not exceed $15.0 million, and 60% of eligible inventory which
      shall not exceed a sub-limit of $5 million for such inventory.  As of
      December 31, 2005, total advances under this facility amounted to approximately
      $15.0 million.




On
      November 22, 2005, the Company obtained an additional amount of $5.0 million
      from Westernbank under the First Westernbank Credit Facility. This Secured
      over
      Formula Advance (“SOFA”) facility will be utilized to fund prepayment of
      inventory and is revolving in nature. As at December 31, 2005, total advances
      under this facility amounted to approximately $3.8 million.




On
      August
      31, 2005, the Company, through its wholly owned subsidiary Inyx Europe Limited,
      obtained an additional three-year revolving working capital line of credit
      facility with Westernbank, under the Second Westernbank Credit Facility,
      allowing the Company to borrow up to $11.7 million.  Advances under this
      facility are limited to 85% of eligible accounts receivables together with
      the
      reserve of $500,000 that shall not exceed $11.7 million plus a reserve of
      $500,000, and 60% of eligible inventory which shall not exceed a sub-limit
      of $5
      million for such inventory.  As of December 31, 2005, total advances under
      this facility amounted to approximately $11.2 million. Subsequent to year end
      the limit available under this facility was increased by $5 million to $16.7
      million.




Borrowings
      under the above facilities bear interest at Westernbank’s prime rate (7% as of
      December 31, 2005) plus 1.0%.  Borrowings under the revolving working
      capital lines of credit are collateralized by the eligible receivables and
      inventories and are guaranteed by the Company and its subsidiaries.  The
      Company is required to maintain compliance with certain financial covenants
      including a specified working capital and net worth levels based on the
      Company’s consolidated operating results.  As of December 31, 2005,
      Westernbank has waived certain requirements of the loan and security agreements
      such that non-compliance of certain covenants shall not trigger an event of
      default.




**Note** **13.****Deferred
      Revenues**




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




**Note** **14.****Loan
      Payable to Seller of Ashton**




As
      of
      December 31, 2005 the Company owed the previous owner of Ashton, UCB Pharma,
      approximately $9.5 million (€8.0 million) of the purchase price and
      approximately $4.5 million (£2.5 million) as payment for the additional net
      current assets acquired not considered when the purchase price was negotiated
      between the parties.




The
      balance of the purchase price is non-interest bearing and is payable by the
      Company to UCB Pharma in six equal monthly payments of approximately $1.6
      million; such payments commencing April, 2006. The Company is also
      entitled, at any time prior to payment of the balance of the purchase price,
      to
      set-off against any unpaid claim it may have against UCB Pharma under the share
      purchase agreement of Ashton. As security collateral for the purchase price
      deferral, and to be released upon full payment of such deferral, the Company
      granted UCB Pharma a secondary security position over the Company’s assets
      behind Westernbank’s current first security position. Westernbank and UCB Pharma
      have also agreed to an inter-creditor agreement to be terminated upon full
      payment of the purchase price deferral.




The
      amount payable as a result of the additional net current assets acquired
      amounted to approximately $4.5 million, is interest bearing at Barclay’s Bank
      base rate. The Company has reached an agreement with UCB Pharma which defers
      payment of this amount until May 31, 2006.




F-18


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





**Note** **15.****Debt,
      Net of Current Portion and Debt Discount**




Debt,
      net
      of current portion consists of the following:




December
                31, 2005
            
            December
                31, 2004Prime
                + 2% Secured Term Promissory Note A issue to Westernbank
                (1)
            
            **$**
            **2,315**
            
            $
            -Prime
                +2% Secured Tem Promissory Note B issue to Westernbank (1)
            
            
            **12,780**
            
            
            -Prime
                + 2% Secured Term Promissory Note C issue to Westernbank
                (1)
            
            
            **11,407**
            
            
            -15%
                Term loan D Promissory Note issued to Westernbank (1)
            
            
            **4,500**
            
            
            -Prime
                + 2% Secured Term Promissory Note A issue to Westernbank by Inyx
                Europe
                (2)
            
            
            **2,983**
            
            
            -Prime
                + 2% Secured Term Promissory Note B issue to Westernbank by Inyx
                Europe
                (2)
            
            
            **9,637**
            
            
            -Prime
                + 2% Secured Term Promissory Note C issue to Westernbank by Inyx
                Europe
                (2)
            
            
            **2,950**
            
            
            -15%
                Term loan D Promissory Note issued to Westernbank by Inyx Europe
                (2)
            
            
            **8,850**
            
            
            -Revolving
                line of credit due to Laurus Funds, net of debt discount of $0 at
                March
                31, 2005 and $740,000 at December 31, 2004, paid from proceeds of
                Westernbank on March 31, 2005 (3)
            
            
            **-**
            
            
            6,3687%
                convertible term note due to Laurus Funds, collateralized by accounts
                receivable and other assets of the Company, net of debt discount
                of
                $692,000 at December 31, 2004, paid from proceeds of Westernbank
                on March
                31, 2005 (3)
            
            
            **-**
            
            
            4,027Uncollateralized
                6% convertible promissory note due to customer, paid in
                2005
            
            
            **-**
            
            
            4,013Uncollateralized
                7% to 18% demand notes due to stockholders and various executives
                of the
                Company, principal and interest due on demand, paid in
                2005
            
            
            **-**
            
            
            150Capital
                lease obligations, due to financial institutions, paid in
                2005 collateralized by software and equipment, due in monthly
                installments of $14,000 including interest of 10% to 27%, through
                2006
                (4)
            
            
            **102**
            
            
            227**55,524**
            
            
            14,785Less
                debt refinanced, net of discount
            
            
            **-**
            
            
            (10,395
            )Less
                current portion
            
            
            **(9,288**
            **)**
            
            (4,277
            )**$**
            **46,236**
            
            $
            113







(1)
            On
                March 31, 2005 the Company secured a non-dilutive asset based secured
                credit facility from Westernbank originally totaling $46 million,
                and then
                increased to $56 million in aggregate by Westernbank by November
                22, 2005.
                The First Westernbank Credit facility is comprised of a revolving
                loan
                (see Note 12) of up to$15
                million including a reserve of $500,000,
                a
                SOFA line of up to $5.0 million, three term loans (Term loan “A”, “B” and
                “C”) amounting in aggregate to up to $31 million for purpose of
                refinancing the indebtedness to Laurus Funds and purchasing the business
                assets of Aventis PR, and a capital expenditure mezzanine loan (Term
                loan
                “D”) of up to $5 million for the purpose of funding construction or
                the
                acquisition of new equipment. The revolving working capital line
                of credit
                associated with the First Westernbank Credit Facility is secured
                by the
                Company’s eligible receivables and inventory, including those of Inyx USA
                and Inyx Pharma. The term notes are collateralized by substantially
                all
                the property of the Company and its subsidiaries whether now owned
                or
                thereafter to be acquired. All the term loans mature March 31, 2008.
                Three
                of the Term Notes bear interest at Westernbank prime rate + 2%. The
                fourth
                Term Note (Term Note D) bears interest at the rate of 15% per annum.
                Payment of the amounts due under the Term Notes accelerates upon
                the
                occurrence of an Event of Default.  Westernbank has waived certain
                requirements of the loan and security agreements such that non-compliance
                of certain covenants shall not trigger an event of
                default.




(2)
            In
                connection with the acquisition of Ashton, the Company, through its
                wholly
                owned subsidiary, Inyx Europe, obtained an additional non-dilutive
                asset
                based secured credit facility from Westernbank totaling $36.5 million.
                The
                Second Westernbank Credit Facility is comprised of a revolving loan
                of up
                to $11.7 million plus a reserve of $500,000 (see Note 12) plus a
                series of
                four term loans (Term Loan “A”, “B”, “C” and “D”), amounting in aggregate
                up to $24.8 million, and utilized to help fund the acquisition of
                the
                outstanding stock of Ashton. The revolving working capital line of
                credit
                associated with the Second Westernbank Credit Facility is secured
                by
                Ashton’s eligible receivables and inventory. The Loans are secured by all
                of the assets of the Company, Inyx Europe and Ashton, and are guaranteed
                by those parties pursuant to Guarantor General Security Agreement.
                In
                addition, the Company has pledged the stock of Inyx Europe, and Inyx
                Europe has pledged the stock of Ashton to Westernbank, as part of
                the
                collateral for the Loans, in each case pursuant to a Pledge and Security
                Agreement (the “Pledge Agreement”). The principal payments of loan “A”,
                “B” and “C” commence on December 1, 2005. All of the Term Notes mature on
                March 31, 2008. Three of the Term Notes bear interest at Westernbank
                prime
                rate + 2%. The fourth Term Note (Term Note D) bears interest at the
                rate
                of 15% per annum, principal payments based on an agreed upon formula
                commencing January 1, 2006. Payment of the amounts due under the
                Term
                Notes accelerates upon the occurrence of an Event of Default. 
                Westernbank has waived certain requirements of the loan and security
                agreements such that non-compliance of certain covenants shall not
                trigger
                an event of default.




F-19


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




(3)
            The
                aggregate maturities of long term debt are as follows: for the year
                ending
                December 31, 2006-$9.2 million, for the year ending December 31,
                2007-$9.5
                million, and for the year ending December 31, 2008-$36.8 million.
                The
                Westernbank loans are automatically renewable after the initial three
                year
                period ending on March 31, 2008 on a year to year basis, unless terminated
                by the Company or Westernbank. The amortization schedules for repayment
                of
                the term loans range from 60 months to 180 months.




(4)
            On
                March 31, 2005, the Company wrote off deferred charges, relating
                to the
                Laurus Master Funds revolving line of credit and convertible term
                note, of
                approximately $651,000 and debt discount of approximately $1.4 million.
                On
                such date the Company also recorded an early termination fee of $1.6
                million, and repaid in full the debt to Laurus Funds




(5)
            The
                Company leases computers and furniture under capital leases that
                expire in
                2006. Interest rates on these leases range from 10% to 27% per
                annum.




**Note** **16.****Net
      Loss per Share**




The
      Company follows the guidelines of Statement of Financial Accounting Standards
      No. 128, “ *Earnings
      per Share* ”
(“SFAS
      No. 128”) in calculating its loss per share. SFAS No. 128 states basic and
      diluted earnings per share are based on the weighted average number of shares
      of
      common stock and potential common stock outstanding during the period. 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 stock options and warrants
      as well as shares issued upon conversion of convertible debt from the
      calculation of diluted net loss per share because these securities are
      anti-dilutive.




Accordingly,
      as of December 31, 2005 and December 31, 2004, the Company had common stock
      equivalents of approximately 3,043,172 and 1,805,168 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 December
      31,
      2005.




F-20


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





**Note** **17.****Commitments
      and Contingencies**




***Leases***




The
      Company has commitments under various long-term operating lease agreements
      for
      various premises. For the year ended December 31, 2005, total rent of office
      space was approximately $202,000 (2004 - $180,000). In addition to rent, the
      Company and its subsidiaries are responsible for operating costs, real estate
      taxes and insurance. As of December 31, 2005, future minimum annual rental
      commitments under operating leases are as follows:






2006
            
            $
            1,1142007
            
            
            9712008
            
            
            7122009
            
            
            4232010
            
            
            220Thereafter
            
            
            31$
            3,471







***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
      affect on the Company’s operations.




***Key
      Customers***




For
      the
      year ended December 31, 2005, the Company’s three top customers accounted for
      approximately $29.2 million of revenue or approximately 59% of total net
      revenues. In comparison, for the year ended December 31, 2004, the Company’s top
      three customers accounted for approximately $7.5 million in net revenues or
      approximately 48% of total net revenues.




The
      Company’s management believes that a delay in the production requirements for
      any one of the Company’s major customers or the loss of any one of the
      Company’s top three customers would have a material adverse affect on operations
      and on the realizability of the Company’s assets.




**Note** ******18****.****Subsequent
      Events**




Subsequent
      to year end, on January 4, 2006, our wholly owned subsidiary Exaeris Inc.
      commenced formal operations. Exaeris oversees sales and marketing activities
      independent of Inyx’s client manufacturing operations. Pursuant to the Company’s
      September 8, 2005 agreement with King Pharmaceuticals, Exaeris is directing
      the
      re-launch of King’s asthma medication Intal® (cromolyn sodium) in specialty markets, including allergists, pulmonologists,
      and pediatricians, and will co-market Tilade® (nedocromil sodium), another of King’s respiratory products.




Subsequent
      to year end, between January 1, 2006 and March 24, 2006, the Company issued
      4,574,517 shares of its restricted common stock upon the exercise of 4,574,517
      warrants at prices per share ranging from $0.81 to $2.10, for total cash
      proceeds of approximately $4.5 million. All such proceeds were used for
      operating activities and working capital. In addition, pursuant to certain
      cashless exercise of warrants approximately 587,957 shares of common stock
      were
      returned into treasury.




F-21


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


Subsequent
      to year end, the limit available under the revolving working capital line of
      the
      Second Westernbank Credit Facility was increased by $5 million to $16.7 million
      to accommodate the increased business activity.




Subsequent
      to year end the Company entered into an agreement with Laurus Funds to amend
      certain terms of payment of the exercise price and to change the exercise price
      on one of the existing warrant agreements.




Subsequent
      to year end the Company granted 170,000 options to purchase 170,000 shares
      of
      the Company’s common stock. The fair value of these options approximating
      $226,000 was calculated using the Black-Scholes option pricing model with the
      following assumptions: a risk free interest rate of 4.2%, an expected life
      of
      four years, a volatility factor of 56.8% and a dividend yield of
      0%.




**Note** **19.****Stockholders’
      Deficit**




During
      the year ended December 31, 2005, the Company issued 380,000 shares of its
      restricted common stock as payment of $304,000 of principal due under the
      refinanced Laurus Note. Additionally, the Company issued 300,000 five-year
      stock
      purchase warrants to Laurus in conjunction with a waiver received and certain
      amendments to the registration rights agreement. The fair value of the warrants
      was approximately $162,000 based on the Black-Scholes option pricing model
      with
      the following weighted average assumption: a risk free interest rate of 3.14%,
      an expected life of four years, a volatility factor of 57%, and a dividend
      yield
      of 0%. This amount was charged to interest and financing costs on the
      consolidated statement of operations. On March 31, 2005, the Company issued
      1,591,504 shares of the Company’s restricted common stock valued at
      approximately $1.3 million as payment of certain early termination fees in
      connection with the repayment of all amounts due to Laurus Funds as of March
      31,
      2005. Such repayment approximated $12.3 million.




During
      the year ended December 31, 2005, the Company recorded approximately $3.1
      million of additional paid-in capital resulting from stock option compensation
      costs incurred 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% to 4.20%, an expected life of four years, a volatility
      factor of 71% to 77%, and a dividend yield of 0%. This amount is included in
      general and administrative expenses in the consolidated statement of
      operations.




During
      the year ended December 31, 2005, the Company issued 10,000 shares of its common
      stock for exercising stock options at a price of $1.10 per share.




For
      the
      year ended December 31, 2005, the Company charged costs to additional paid
      in
      capital relating to a Form SB-2 registration statement amounting to $163,000
      and
      approximately $7,000 for stock offering costs.




During
      the year ended December 31, 2005, the Company recorded approximately $3.4 of
      additional paid-in capital resulting from the exercise of 3,395,939 warrants
      at
      prices ranging from $1.00 to $1.35 per share. Proceeds amounting to
      approximately $3.4 million were used in for operating activities and working
      capital. In addition, pursuant to certain cashless exercise of warrants
      approximately 210,000 shares of common stock were returned into
      treasury.




**Note
      20.**  **Accumulated
      Comprehensive Loss**




The
      accumulated comprehensive loss reflected in the consolidated statement of
      changes in stockholders’ deficit and other comprehensive loss represents
      accumulated foreign currency translation adjustments associated with the
      conversion of the Company’s United Kingdom and Canadian subsidiaries’ accounts
      to US dollars. These amounts are not adjusted for income taxes as they relate
      to
      an indefinite investment in foreign subsidiaries.




**Note
      21.**  **Equity
      Incentive Plans**




On
      August
      28, 2005, the Company adopted the 2005 Equity Incentive Plan (the “2005 Plan”),
      which provides for the granting of incentive awards,
      which include stock options,
      restricted stock and other stock-based awards for the
      benefit of employees, officers, directors and  those
      persons who the Company believes may have made a valuable contribution to the
      Company. The 2005 Plan authorizes total stock awards of up to 6,000,000 shares
      of the Company’s common stock.




F-22


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


On
      May 1,
      2003, the Company’s Board of Directors adopted the 2003 Stock Option Plan (the
“2003 Plan”) which provides for the granting of stock options to employees,
      officers, directors and those making valuable contributions to the Company.
      The
      total number of shares of the Company’s common stock available for granting
      under the 2003 Plan is 5,000,000.




All
      options granted pursuant to the 2003 Plan and the 2005 Plan shall be exercisable
      at a price
      per share at least equal to the fair market price at the time of grant. Unless
      otherwise specified, all options expire ten years from the date of grant. Both
      the 2003 Plan and the 2005 Plan are administered by the Company’s Compensation
      Committee.




The
      weighted average fair
      value, at the date of the grant of the individual options granted during 2005
      and 2004 was estimated at $1.36 and $1.18 respectively. The fair value of these
      options was estimated using the Black-Scholes option-pricing model, with the
      following assumptions for the year ended December 31, 2005: volatility rate
      of
      71% to 77%, risk free interest rate of 3.14% to 4.20%, and expected life of
      four
      years and no dividend yield. The assumptions used to estimate the fair value
      of
      the options for the year ended December 31, 2004 were: volatility rate of 57%,
      risk free interest rate of 3.14%, an expected life of four years and no dividend
      yield for all periods.




Total
      compensation costs relating to stock options granted to employees, officers,
      directors, and other persons approximated $3.1 million for the year ended
      December 31, 2005 and $293,000 for the year ended December 31, 2004. These
      amounts are included in general and administrative expenses in the consolidated
      statement of operations, as the Company expects that it will continue to issue
      stock options to such persons.




A
      summary
      of stock option activity under the plans is shown below:




For
                the Year Ended December 31, 2005
              (000’s)
            
            For
                the Year Ended December 31, 2004
              (000’s)
            
            For
                the Period from March 7, 2003 to December 31, 2003
              (000’s)Beginning
                balance
            
            
            **4,450**
            
            
            4,860
            
            
            -Granted
            
            
            **5,450**
            
            
            773
            
            
            6,185Exercised
            
            
            **(10**
            **)**
            
            (325
            )
            
            (75
            )Forfeited
            
            
            **(270**
            **)**
            
            (410
            )
            
            (250
            )Cancelled
            
            
            **(655**
            **)**
            
            (448
            )
            
            (1,000
            )Ending
                balance
            
            
            **8,965**
            
            
            4,450
            
            
            4,860Exercisable
            
            
            **6,614**
            
            
            3,627
            
            
            3,212







The
      following table summarizes information concerning outstanding and exercisable
      options at December 31, 2005 and at December 31, 2004.




Options
                Outstanding
            
            Options
                ExercisableRange
                of
              Exercise
                Price
            
            Shares
              Outstanding
              (000’s)
            
            Weighted
                Average
              Remaining
              Contractual
              Life
                (Years)
            
            Weighted
              Average
              Exercise
              Price
            
            Shares
              Exercisable
              (000’s)
            
            Weighted
              Average
              Exercise
              PriceDecember
                31, 2005
            
            
            **$**0.90-$1.88
            
            
            **8,965**
            
            
            **9**
            
            **$**
            **1.25**
            
            
            **6,614**
            
            **$**
            **1.25**December
                31, 2004
            
            
            $0.90-$1.75
            
            
            4,450
            
            
            9
            
            $
            1.18
            
            
            3,627
            
            $
            1.18





F-23


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


**Note** **22****.****Warrants**




During
      the year ended December 31, 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 year ended December 31, 2005.




During
      the year ended December 31, 2005, the Company received approximately $3.4
      million in cash proceeds from the exercise of 3,395,939 warrants at prices
      ranging from $1.00 to $1.35 per share. All such proceeds were used in for
      operating activities and working capital. In addition, pursuant to certain
      cashless exercise of warrants approximately 210,000 shares of common stock
      were
      returned into treasury.




Comparatively,
      during the year ended December 31, 2004 there were 9,974,187 warrants granted
      to
      purchase a maximum of 9,974,187 shares of common stock. 9,190,901 warrants
      were
      issued pursuant to the issuance of equity and are non-detachable 783,286 were
      granted to consultants as consideration for services in connection with the
      issuance of equity.




Additionally
      during the year ended December 31, 2004, there were 2,575,000 detachable
      warrants issued pursuant to consulting and investment banking agreements. These
      warrants allow the holders to purchase the Company’s common stock at prices
      ranging from $0.80 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 $907,000 and was charged
      as
      general and administrative expenses to the Company’s consolidated statement of
      operations for the year ended December 31, 2004.




Additionally
      during the year ended December 31, 2004, there were 1,400,000 warrants were
      issued in conjunction with promissory notes to related parties issued during
      the
      year. The value assigned to these warrants based on the Black-Scholes option
      pricing model was $425,000 and was charged as interest and financing expense
      to
      the Company’s consolidated statement of operations for the year ended December
      31, 2004.




F-24


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





**Note** **23.****Supplemental
      Cash Flow Information**




For
                the Year Ended December 31, 2005
            
            For
                the Year Ended December 31, 2004
            
            For
                the Period From March 7, 2003 to December 31, 2003**Supplemental
                Disclosure of Cash Flow Information:**Cash
                paid for interest
            
            **$**
            **4,155**
            
            $
            341
            
            $
            261**Supplemental
                Disclosure of Non-Cash Financing Activities:**Acquisition
                of business assets of Aventis PR:Debt
                issued - Westernbank
            
            
            **33,423**
            
            
            -
            
            
            -Repayment
                of Laurus Funds debt
            
            
            **11,984**
            
            
            -
            
            
            -Acquisition
                of CMSL:Debt
                issued - Westernbank
            
            
            **25,215**
            
            
            -
            
            
            -Deferred
                purchase price
            
            
            **9,778**
            
            
            -
            
            
            -Excess
                over agreed working capital
            
            
            **4,607**
            
            
            -
            
            
            -Issuance
                of stock for services
            
            
            **-**
            
            
            323
            
            
            -Debt
                discount
            
            
            **-**
            
            
            522
            
            
            -**Supplemental
                Disclosure of Non-Cash Investing Activities:**Conversion
                of shareholder debt of $100,000 into shares of stock
            
            
            **-**
            
            
            100
            
            
            -Write-off
                of unamortized beneficial feature related to retired Laurus Funds
                debt
            
            
            **565**
            
            
            -
            
            
            -Write-off
                of unamortized debt discount related to retired Laurus Funds
                debt
            
            
            **1,245**
            
            
            -
            
            
            -Capital
                leases
            
            
            **-**
            
            
            25
            
            
            -Acquisition
                of patent
            
            
            **-**
            
            
            37
            
            
            -







**Note** **24****.****Income
      Taxes**




The
      Company’s U.S. and foreign components of net loss before income tax expense
      (benefit) and provision for income taxes consists of the following:




For
                the Year Ended December 31, 2005
            
            For
                the Year Ended December 31, 2004
            
            For
                the Period From March 7, 2003 to December 31, 2003Net
                loss before income taxesUnited
                States
            
            **$**
            **(20,155**
            **)**
            $
            (8,689
            )
            $
            (9,055
            )Non-U.S.
            
            
            **(10,854**
            **)**
            
            (6,920
            )
            
            (5,631
            )**$**
            **(31,009**
            **)**
            $
            (15,609
            )
            $
            (14,686
            )





F-25


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




The
      reconciliation between the provision for income taxes computed at the U.S.
      federal tax rate and the amount reported is as follows:




For
                the Year Ended December 31, 2005
            
            For
                the Year Ended December 31, 2004
            
            For
                the Period From March 7, 2003 to December 31, 2003Computed
                at U.S. statutory income tax rate of 35%
            
            **$**
            **(10,853**
            **)**
            $
            (5,463
            )
            $
            (5,140
            )Lower
                effective tax rates on losses
            
            
            **1,965**
            
            
            -
            
            
            -Tax
                losses for which no tax benefit has been recorded
            
            
            **8,888**
            
            
            5,463
            
            
            3,846Increase
                in valuation allowances
            
            
            **-**
            
            
            1,333
            
            
            -Provision
                for income taxes
            
            **$**
            **-**
            
            $
            1,333
            
            $
            (1,294
            )







**Deferred
      Tax Assets and Liabilities**




Deferred
      income taxes reflect the net tax effects of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes. Significant components of the net
      deferred taxes at December 31, 2005 and 2004 are set forth in the table
      below.




December
                31, 2005
            
            December
                31, 2004Deferred
                tax liabilities:Tax
                versus book basis of fixed assets
            
            **$**
            **(1,923**
            **)**
            $
            -Total
                deferred tax liabilities
            
            
            **(1,923**
            **)**
            
            -Deferred
                tax assets:Bad
                debt reserves
            
            
            **6**
            
            
            -Interest
                expense
            
            
            **1,426**
            
            
            -Acquisition
                related costs
            
            
            **3,359**
            
            
            -Net
                operating loss carry-forwards
            
            
            **12,580**
            
            
            5,607Other,
                net
            
            
            **170**
            
            
            -Total
                deferred tax assets
            
            
            **17,541**
            
            
            5,607Valuation
                allowance for deferred tax assets
            
            
            **(17,476**
            **)**
            
            (5,607
            )Deferred
                tax assets, net of allowances
            
            
            **65**
            
            
            -Net
                deferred tax liability
            
            **$**
            **(1,858**
            **)**
            $
            -




**Other
      Items**




At
      December 31, 2005, the Company had approximately $22 million of U.S. operating
      loss carry-forwards expiring from 2006 through 2025; approximately $2 million
      of
      foreign loss carry-forwards expiring from 2006 through 2012 and approximately
      $18 million with an indefinite life. The Company has not made any provision
      for
      United States federal or foreign taxes that may result from future remittance
      of
      undistributed earnings of foreign subsidiaries because it is expected that
      such
      earnings will be permanently reinvested in the foreign operations.




**Note** **25****.****Related
      Party Transactions**




JK
      Services, a partnership of companies owned by the Company’s Chairman and CEO and
      his immediate family members, provides the services of the Chairman and CEO
      to
      the Company under certain sales commission and management services agreements.
      During the year ended December 31, 2005, the Company paid sales commissions
      of
      $642,000 to JK Services related to new commercial contracts initiated and
      completed by the Company’s Chairman and CEO. For the year ended December 31,
      2005, such amounts are included in selling expenses in the Company’s
      consolidated statement of operations. There were no similar sales commission
      expenses paid to the Company’s Chairman and CEO for the year ended December
      31,2004.In March 2003, the Company’s Chairman and CEO agreed to contribute
£400,000 to Inyx Pharma so it could meet the shareholders equity requirement
      of
      its lender Venture Finance. Such contribution was made with an understanding
      that the Company would repay it when it could meet the financial covenant on
      its
      own, and the contribution was returned in November 2003 in the form of a
      management fee to JK Services. During 2003, amounts paid to JK Services were
      approximately $753,000 and were included in the Company’s general and
      administrative expenses in the consolidated statement of operations.




F-26


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


Kachkar
      Air LLC (“Kachkar Air”), a holding company owned by the Company’s Chairman and
      CEO leased a private aircraft from an unrelated aircraft management company,
      Priester Aviation. From time to time, the Company was allowed to utilize such
      leased aircraft for the Company’s own corporate travel requirements. In such
      instances, the Company paid Priester Aviation directly for the use of the
      aircraft and such fees amounted to the direct costs of the usage of the
      aircraft. Kachkar Air and Dr. Kachkar did not directly or indirectly receive
      any
      fees or compensation for allowing the Company to utilize its leased aircraft.
      For the year ended December 31, 2005, the Company paid approximately $680,000
      to
      Priester Aviation for the use, service and maintenance of the Kachkar Air leased
      aircraft. The Priester Aviation charges were included in the Company’s general
      and administrative expenses in the consolidated statement of operations. There
      were no similar transactions in 2004 and 2003, respectively.




Carr
      Pharmaceuticals, Inc. (f/k/a Miza Pharmaceuticals USA, Inc.) (“Carr”), was an
      eye care product manufacturing and marketing company that was placed into
      Chapter 11 bankruptcy protection by its owners in May 2003, and was then
      subsequently liquidated by its secured lenders under a bankruptcy plan during
      2005. Carr was previously owned by an entity controlled by the spouse of the
      Company’s Chairman and CEO. For the year ended December 31, 2005, the Company
      paid approximately $1.1 million to acquire all of the intellectual property
      of
      Carr. Such intellectual property consists of all of the manufacturing protocols,
      standard operating procedures, know-how, testing, stability and technical data,
      and FDA product registrations for seven prescription eye care formulations
      and
      five over-the-counter eye care and contact lens solutions which accounted for
      approximately $6.0 million in annual revenues during Carr’s last fiscal year of
      operations. Approximately $1.0 million of the total acquisition cost recorded
      in
      purchased intangibles on the Company’s consolidated balance sheet as of December
      31, 2005, and the balance of approximately $100,000 was included in the
      Company’s general and administrative expenses in the consolidated statement of
      operations. The Company has subsequently transferred all of the acquired eye
      care intellectual property to its manufacturing facility in Puerto Rico in
      February 2006, and intends to commence manufacturing and commercializing the
      acquired eye care products in 2007.




Karver
      International, Inc. (“Karver”) is an affiliated company that subleases office
      space from the Company at its headquarters in New York City. This consists
      of
      approximately 25% of the Company’s total office space on the 40 th Floor,
      825 Third Avenue, New York, 10022. For
      the
      year ending December 31, 2005 and 2004, the Company charged Karver International
      approximately $36,000 and $30,000, respectively, for the sublease of furnished
      office space and approximately $15,000 in 2005 for management services in
      accordance with a related management services agreement. Under that management
      services agreement, certain Inyx employees located at the Company’s office in
      Toronto, Canada provide information technology and book-keeping services to
      Karver International; such services consist of approximately ten hours of
      allocated work-time per week. There were no similar charges in
      2003.




During
      the years ended December 31, 2004 and 2003, the Company also paid to an
      affiliate approximately $12,000 and $66,000, respectively, for the sublease
      of
      office furniture and equipment in Toronto, Canada. Such costs were included
      in
      general and administrative expenses in the Company’s consolidated statement of
      operations for those respective years. There were no such sublease fees paid
      by
      the Company for the year ended December 31, 2005.




During
      the year ended December 31, 2004, the Company issued three promissory notes
      in
      aggregate amounting to $700,000 to two of the Company’s executives and an
      independent director. These notes carry interest of 10% per annum. The parties
      were issued warrants with a fair value of $178,000 for the issuance of the
      notes. This amount was charged to interest and financing costs in the
      consolidated statement of operations. The Company renewed these promissory
      notes
      upon maturity and as additional consideration for the renewal, the Company
      granted five-year warrants to the lenders to purchase an aggregate of 700,000
      shares of its common stock at $0.95 per share. The fair values of these warrants
      amounted to $246,000 was charged to interest and financing costs in the
      consolidated statement of operations. During 2005, all amounts under these
      promissory notes including accrued interest were repaid.




F-27


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


On
      April
      14, 2004, Inyx Realty, Inc., a subsidiary which the Company established solely
      to operate a corporate office lease in Miami Florida, was sold to First Jemini
      Trust, a discretionary family trust for the benefit of the Company’s
      Chairman/CEO’s family. As consideration for the sale, this related party assumed
      $100,000 of Inyx Realty’s liabilities. First Jemini Trust unconditionally
      assumed all of the liabilities associated with Inyx Realty, thus terminating
      all
      of the Company’s obligations under that lease.


During
        the year the Company paid $1.47 million to Aldo Union for pharmaceutical
        product
        dossiers. The Aldo Union dossiers are for products to be manufactured in
        Spain
        only - in this instance, we are extracting from those dossiers, relevant
        information/technical data/historical validation and stability information
        in
        order for us to copy generic versions of those products for other markets
        (i.e.
        outside of Spain) and to create new drug delivery formats for the active
        ingredients of these products. We have more work to do before these products
        will be ready for commercial production.  Therefore, these are only
        technical data dossiers that we are expending money on to create new products.
        We have expensed these payments for we are not absolutely certain whether
        these
        dossiers will have a definitive benefit to future periods. Dr. Santiago Calzada,
        who owns 100,000 shares in the Company as of December 31, 2005 is a principal
        of
        Aldo-Union. None of the Company’s management or its affiliates have or have had
        any interest or equity associations, or directorships in Aldo
        Union.


The
      table
      below summarizes the related party transactions of the Company for the periods
      discussed:




Summary
                of Related Party Expenses (Income)




Year
                ended December 31, 2005
            
            Year
                ended December 31, 2004
            
            Period
                from March 7, 2003 through December 31, 2003Rental
                income from affiliates
            
            $
            (36
            )
            $
            (30
            )
            $
            -Management
                fee charged to affiliates
            
            
            (15
            )
            
            -
            
            
            -Sales
                commission expense to JK Services
            
            
            642
            
            
            -
            
            
            -Consulting
                expense to JK Services
            
            
            -
            
            
            -
            
            
            753Costs
                for Priester Aviation
            
            
            680
            
            
            -
            
            
            -Interest
                expense for promissory notes to two of the Company’s executives and an
                independent director
            
            
            37
            
            
            12
            
            
            -Office
                furnishings expense to affiliate
            
            
            -
            
            
            12
            
            
            66Interest
                and financing charges on warrants issued to two of the Company’s
                executives and an independent director
            
            
            -
            
            
            424
            
            
            -Compensation
                costs associated with warrants issued to two of the Company’s executives
                and an independent director for finders fees relating to the acquisition
                of Aventis PR
            
            
            -
            
            
            158
            
            
            -Compensation
                costs associated with warrants issued to two of the Company’s executives
                and an independent director relating to private placements
            
            
            -
            
            
            530
            
            
            158Purchase
                of intellectual properties from Carr Pharmaceuticals
            
            
            1,000
            
            
            -
            
            
            -Finders
                fee to Carr Pharmaceuticals
            
            
            100
            
            
            -
            
            
            -







Amounts
      due to related parties are included in accrued expenses and other current
      liabilities which were approximately $200,000 as of December 31, 2005. There
      were no amounts due from related parties as of December 31, 2005.




**Note** **26.****Liquidity
      and Capital Resources**




The
      accompanying consolidated financial statements have been prepared in conformity
      with accounting principles generally accepted in the United States of America,
      which contemplates continuation of the Company as a going concern.  The
      Company has experienced recurring operating losses and has an accumulated
      deficit and negative working capital. Additionally, the Company has significant
      debt which is due within the next twelve months.




The
      management of the Company intends to mitigate any factors relating to future
      liquidity and capital resources from:




1)
      Income
      generated from its recent acquisitions - the Ashton business, that the Company
      acquired, through its wholly-owned subsidiary, Inyx Europe, on August 31, 2005,
      has historically been a profitable operation and the Company expects it to
      continue to be so. The Company also expects to generate profits from its
      manufacturing facility in Puerto Rico that it acquired on March 31, 2005, and
      from its Inyx Pharma facility as two previously delayed major customer contracts
      have now commenced in late 2005. Additionally, the Company’s Exaeris subsidiary
      commenced operations in January, 2006 and the Company believes that it can
      establish new sources of revenue by marketing its own proprietary pharmaceutical
      products or selected clients’ products through collaborative agreements with its
      clients such as its September 8, 2005 product marketing an collaborative
      agreements with King Pharmaceuticals, Inc.




F-28


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


2)
      Its
      Westernbank credit facilities including its revolving working capital lines
      of
      credit and capital expenditure loans. During 2005, the Company received
      increased limits on the First Westernbank Credit Facility amounting in aggregate
      to $10 million. In addition, subsequent to year end, the Company received an
      additional $5 million increase to its limit under the Second Westernbank Credit
      Facility.




3)
      Issuance of equity or debt securities to assist funding its operations and
      growth strategies.




There
      can
      be no assurances that the Company’s intentions will be achieved or that
      additional financing will be obtained.




**Note** **27.****Financial
      Information about Geographic Areas**




Net
      revenue, classified by the major geographic areas in which we operate, is set
      forth in the following table. The sum of the regions may not be equal to the
      total in the Consolidated Statements of Operations due to rounding:




Year
                ended December 31, 2005
            
            Year
                ended December 31, 2004
            
            Period
                from March 7, 2003 through December 31, 2003United
                States
            
            **$**
            **17,276**
            
            $
            1,566
            
            $
            993North
                America, excluding United States
            
            
            **1,178**
            
            
            1,780
            
            
            2,016United
                Kingdom
            
            
            **23,895**
            
            
            9,146
            
            
            7,536Europe,
                excluding United Kingdom
            
            
            **6,774**
            
            
            2,852
            
            
            2,171South
                America
            
            
            **348**
            
            
            296
            
            
            375Australia/New
                Zealand
            
            
            **94**
            
            
            22
            
            
            8Other
            
            
            **-**
            
            
            37
            
            
            -Total
            
            **$**
            **49,565**
            
            $
            15,699
            
            $
            13,099




The
      net
      book value of our long-lived assets, classified by the major geographic areas
      in
      which we operate, is set forth in the following table:






December
                31,
              2005
            
            December
                31,
              2004United
                States
            
            **$**
            **14,086**
            
            $
            1,554North
                America, excluding the United States
            
            
            **191**
            
            
            68United
                Kingdom
            
            
            **26,504**
            
            
            4,608Total
            
            **$**
            **40,781**
            
            $
            6,230





**Note** **28.****Quarterly
      Selected Financial Information (Unaudited)**





The
      following tables set forth unaudited consolidated quarterly selected financial
      information for the years ended December 31, 2005 and 2004. The Company believes
      that this information includes all adjustments necessary for a fair presentation
      of such quarterly information when read in conjunction with the “Notes to
      Consolidated Financial Statements” included herein. The operating results for
      any quarter are not necessarily indicative of the results for any future period.




F-29


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




**2005**
              **For
                the Three Months Ended****December
                31**(3)
            
            **September
                30**
            
            **June
                30**
            
            **March
                31**Net
                revenues
            
            $
            25,479
            
            $
            12,908
            
            $
            8,501
            
            $
            2,677Gross
                profit
            
            
            6,856
            
            
            5,071
            
            
            2,637
            
            
            142Total
                operating expenses
            
            
            17,419
            
            
            9,565(1(2
            ))
            
            6,132
            
            
            2,540Loss
                from operations before interest and financing costs and income tax
                expense
                and extraordinary item
            
            
            (10,563
            )
            
            (4,494
            )
            
            (3,495
            )
            
            (2,398
            )Interest
                and financing costs
            
            
            2,163
            
            
            1,750
            
            
            1,534
            
            
            4,612Loss
                before extraordinary item
            
            
            (12,726
            )
            
            (6,244
            )
            
            (5,029
            )
            
            (7,010
            )Extraordinary
                item, net of taxes
            
            
            (917
            )
            
            -
            
            
            917
            
            
            -Net
                loss
            
            $
            (12,726
            )
            $
            (6,244
            )
            $
            (5,029
            )
            $
            (7,010
            )Basic
                and fully diluted loss per share
            
            $
            (0.33
            )
            $
            (0.16
            )
            $
            (0.13
            )
            $
            (0.18
            )Weighted-average
                number of shares used in computing basic and fully diluted loss per
                share
            
            
            40,802,851
            
            
            39,985,613
            
            
            39,983,983
            
            
            38,296,035






(1)
            Includes
                approximately $951,000 adjustment to costs relating to the acquisition
                of
                CMSL from UCB Pharma on August 31,
                2005




(2)
            Includes
                approximately $352,000 relating to stocks options granted in September
                of
                2005. Certain vesting periods of such options were modified subsequent
                to
                grant date. As a result, it was determined that compensation costs
                recorded in the third quarter of 2005 were
                understated.





(3)
            Reflects
                a reclassification of approximately $917,000 from extraordinary item,
                relating to the acquisition of the business assets of Aventis PR
                pursuant
                to a settlement agreement between the Company and the Seller dated
                November 2005.







**2004**
              **For
                the Three Months Ended****December
                31**
            
            **September
                30**
            
            **June
                30**
            
            **March
                31**Net
                revenues
            
            $
            4,150
            
            $
            4,249
            
            $
            2,774
            
            $
            4,526Gross
                profit (loss)
            
            
            226
            
            
            678
            
            
            (136
            )
            
            615Total
                operating expenses
            
            
            4,649
            
            
            3,755
            
            
            2,549
            
            
            2,669Loss
                from operations before interest and financing costs and income tax
                expense
                (benefit)
            
            
            (4,423
            )
            
            (3,077
            )
            
            (2,685
            )
            
            (2,054
            )Interest
                and financing costs
            
            
            896
            
            
            750
            
            
            698
            
            
            1,026Income
                tax expense (benefit)
            
            
            1,726
            
            
            -
            
            
            -
            
            
            (393
            )Net
                loss
            
            
            (7,045
            )
            
            (3,827
            )
            
            (3,383
            )
            
            (2,687
            )Basic
                and fully diluted loss per share
            
            $
            (0.19
            )
            $
            (0.12
            )
            $
            (0.12
            )
            $
            (0.09
            )Weighted-average
                number of shares used in computing basic and fully diluted loss per
                share
            
            
            38,013,000
            
            
            32,523,000
            
            
            28,747,582
            
            
            28,747,582




F-30





**UNAUDITED
      PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS**




The
      following unaudited consolidated pro forma statements of operations presented
      herein for the years ended December 31, 2005 and 2004, respectively, give effect
      to the acquisitions of the business assets of Aventis PR and the Ashton
      operations as if these acquisitions had taken place at the beginning of the
      respective periods presented.




The
      pro
      forma results for the year ended December 31, 2005, as summarized below, include
      the actual results of the Company for the year ended December 31, 2005 combined
      with the results of the acquired business of Aventis PR for the three months
      ended March 31, 2005, and the results of the acquired business of Ashton for
      the
      eight month period ended August 31, 2005; i.e. prior to the acquisition dates
      of
      those two respective businesses.




The
      comparative pro forma results for the year ended December 31, 2004, as
      summarized below, include the actual results of the Company for the year ended
      December 31, 2004 combined with the results of the acquired business of Aventis
      PR for the year ended December 31, 2004, and the results of the acquired
      business of Ashton for the year ended December 31, 2004.




The
      historical financial data presented is derived from the historical financial
      statements of both companies, prepared in accordance with generally accepted
      accounting principles in the United States of America. The unaudited pro forma
      adjustments and certain assumptions are described in the accompanying notes
      which should be read in conjunction with this unaudited pro forma consolidated
      statement of operations.




The
      preparation of the unaudited pro forma statement of operations for Aventis
      PR
      included an adjustment to back-out any revenues attributable to any Aventis
      PR
      inter-company sales and customer contracts not renewed at the date of
      acquisition. The Aventis acquisition was accounted for using the purchase method
      of accounting. The unaudited pro forma financial data is not necessarily
      indicative of the operations had the acquisition taken place at the beginning
      of
      the periods presented and such data is not intended to project the Company’s
      results of operations for any future period.




The
      Ashton acquisition was a share purchase agreement. As such, all historical
      financial information is assumed to be as recorded with the exception of the
      pro
      forma adjustments as described in the following notes.




**Unaudited
      Consolidated Pro Forma Statement of Operations**


**For
      the Twelve Months Ended December 31, 2005**







Aventis
                Pharmaceuticals Puerto Rico, Inc.
            
            Adjustments
            
            Aventis
                Puerto Rico (Acquired)
            
            CMSL
                Ashton UK (Acquired)
            
            Inyx,
                Inc.
            
            Aventis
                PR Pro Forma Adjustments
            
            CMSL
                UK Pro Forma Adjustments
            
            CombinedNet
                revenues
            
            
            15,575
            
            
            (11,905
            )
            
            3,670
            
            
            28,042
            
            
            49,565
            
            
            -
            
            
            -
            
            
            81,277Cost
                of sales
            
            
            12,242
            
            
            (10,261
            )
            
            1,981
            
            
            22,127
            
            
            34,859
            
            
            -
            
            
            -
            
            
            58,967Gross
                profit
            
            
            3,333
            
            
            (1,644
            )
            
            1,689
            
            
            5,915
            
            
            14,706
            
            
            -
            
            
            -
            
            
            22,310Operating
                expenses:Research
                and development
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,406
            
            
            -
            
            
            -
            
            
            3,406General
                and administrative
            
            
            2,609
            
            
            (1,729
            )
            
            880
            
            
            2,401
            
            
            24,575
            
            
            -
            
            
            -
            
            
            27,856Selling
            
            
            -
            
            
            12
            
            
            12
            
            
            635
            
            
            3,005
            
            
            -
            
            
            -
            
            
            3,652Depreciation
                and amortization
            
            
            -
            
            
            71
            
            
            71
            
            
            2,690
            
            
            3,283
            
            
            220
            
            
            248
            
            
            6,512Amortization
                of intangible assets
            
            
            -
            
            
            226
            
            
            226
            
            
            440
            
            
            1,387
            
            
            89
            
            
            605
            
            
            2,747Total
                Operating expenses
            
            
            2,609
            
            
            (1,420
            )
            
            1,189
            
            
            6,166
            
            
            35,656
            
            
            309
            
            
            853
            
            
            44,173Income
                (loss) from operations before interest and financing costs and income
                tax
                (benefit) expense
            
            
            724
            
            
            (224
            )
            
            500
            
            
            (251
            )
            
            (20,950
            )
            
            (309
            )
            
            (853
            )
            
            (21,863
            )Interest
                (benefit) expense
            
            
            (1,159
            )
            
            1,524
            
            
            365
            
            
            -
            
            
            10,059
            
            
            (3,061
            )
            
            1,728
            
            
            9,091Restructuring
                expense (benefit)
            
            
            7,965
            
            
            (7,965
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -(Loss)
                profit before income tax expense
            
            
            (6,082
            )
            
            6,217
            
            
            135
            
            
            (251
            )
            
            (31,009
            )
            
            2,752
            
            
            (2,581
            )
            
            (30,954
            )Income
                tax expense
            
            
            -
            
            
            -
            
            
            -
            
            
            98
            
            
            -
            
            
            -
            
            
            774
            
            
            872Net
                (loss) income
            
            
            (6,082
            )
            
            6,217
            
            
            135
            
            
            (153
            )
            
            (31,009
            )
            
            2,752
            
            
            (1,807
            )
            
            (30,082
            )




F-31








**Unaudited
      Consolidated Pro Forma Statement of Operations**


**For
      the Twelve Months Ended December 31, 2004**







Aventis
                Pharmaceuticals Puerto Rico, Inc.
            
            Adjustments
            
            Aventis
                Puerto Rico (Acquired)
            
            CMSL
                Ashton UK (Acquired)
            
            Inyx,
                Inc.
            
            Aventis
                PR Pro Forma Adjustments
            
            CMSL
                UK Pro Forma Adjustments
            
            CombinedNet
                revenues
            
            
            64,761
            
            
            (52,620
            )
            
            12,141
            
            
            45,762
            
            
            15,699
            
            
            -
            
            
            -
            
            
            73,602Cost
                of sales
            
            
            44,438
            
            
            (36,122
            )
            
            8,316
            
            
            35,506
            
            
            14,316
            
            
            -
            
            
            -
            
            
            58,137Gross
                profit
            
            
            20,323
            
            
            (16,498
            )
            
            3,825
            
            
            10,256
            
            
            1,383
            
            
            -
            
            
            -
            
            
            15,465Operating
                expenses:Research
                and development
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,745
            
            
            -
            
            
            -
            
            
            2,745General
                and administrative
            
            
            9,567
            
            
            (6,517
            )
            
            3,050
            
            
            3,187
            
            
            9,725
            
            
            -
            
            
            -
            
            
            15,962Selling
            
            
            -
            
            
            50
            
            
            50
            
            
            898
            
            
            367
            
            
            -
            
            
            -
            
            
            1,315Depreciation
                and amortization
            
            
            4,845
            
            
            (4,268
            )
            
            577
            
            
            3,727
            
            
            619
            
            
            589
            
            
            372
            
            
            5,884Amortization
                of intangible assets
            
            
            -
            
            
            -
            
            
            -
            
            
            134
            
            
            166
            
            
            1,259
            
            
            909
            
            
            2,469Total
                Operating expenses
            
            
            14,412
            
            
            (10,735
            )
            
            3,677
            
            
            7,946
            
            
            13,622
            
            
            1,848
            
            
            1,281
            
            
            28,375Income
                (loss) from operations before interest and financing costs and income
                tax
                expense (benefit)
            
            
            5,911
            
            
            (5,763
            )
            
            148
            
            
            2,310
            
            
            (12,239
            )
            
            (1,848
            )
            
            (1,281
            )
            
            (12,910
            )Interest
                (benefit) expense
            
            
            (2,632
            )
            
            2,632
            
            
            -
            
            
            -
            
            
            3,370
            
            
            2,867
            
            
            2,304
            
            
            8,541Restructuring
                expense (benefit)
            
            
            42,822
            
            
            (42,822
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -(Loss)
                income before income tax and expense (benefit)
            
            
            (34,279
            )
            
            34,427
            
            
            148
            
            
            2,310
            
            
            (15,609
            )
            
            (4,715
            )
            
            (3,585
            )
            
            (21,451
            )Income
                tax (benefit) expense
            
            
            (13,116
            )
            
            13,116
            
            
            -
            
            
            777
            
            
            1,333
            
            
            -
            
            
            (1,076
            )
            
            1,034Net
                (loss) income
            
            
            (21,163
            )
            
            21,311
            
            
            148
            
            
            1,533
            
            
            (16,942
            )
            
            (4,715
            )
            
            (2,509
            )
            
            (22,485
            )





F-32


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





Notes
      to Unaudited Pro Forma Consolidated Statement of Operations




For
      the
      Years Ended December 31, 2005 and 2004




(1)
            Reflects
                adjustments to back out certain revenues and expenses historically
                recorded or incurred by Aventis PR which related to those operations
                not
                acquired by Inyx USA.




a.
            Aventis
                PR’s revenue represents all manufacturing revenues relating to the
                carved-out business of Aventis PR and was derived using the actual
                product
                volumes of the products acquired in the acquisition on March 31,
                2005,
                extended at the newly negotiated unit prices for each one of these
                products.




(2)
            Reflects
                the actual revenue and expenses historically recorded by CMSL. The
                figures
                have been converted from GBP’s to US dollars based on average exchange
                rates for each year. Adjustments were made to reduce the cost of
                sale and
                correspondingly increase the selling, general and administration
                cost to
                reflect consistent with US reporting
                format.




(3)
            Reflects
                the following pro forma adjustments related to the Aventis PR
                acquisition:




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




b.
            The
                amortization of intangible assets was recorded to reflect the amortization
                of purchased intangible assets subject to amortization, including
                customer
                contract renewals and customer relationships that were acquired in
                the
                Aventis PR transaction on March 31, 2005, and based on valuations
                provided
                by an independent third party.




c.
            Reflects
                additional interest expense from the Westernbank credit facility
                closed on
                March 31, 2005 and a reduction of interest expense due to the repayment
                of
                the Laurus Master Funds credit facility also occurring on March 31,
                2005.




(4)
            Reflects
                the following pro forma adjustments related to the Ashton
                acquisition:




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




b.
            Amortization
                of intangible assets was recorded to reflect the amortization of
                purchased
                intangible assets subject to amortization including customer contract
                renewals and customer relationships acquired in the Ashton acquisition
                on
                August 31, 2005, and based on valuations provided by a third
                party.




c.
            Reflects
                additional interest expense from the new Westernbank credit facility
                closed on August 31, 2005.




F-33




**SIGNATURES**




Pursuant
      to the requirements of the Securities Act, the Company has duly caused this
      Annual Report to be signed on its behalf by the undersigned, thereunto duly
      authorized, in the City of New York, State of New York, on March 31,
      2006.




**INYX,
              INC.**By:
            /s/ Jack
              KachkarJack
              Kachkar, Chairman and Chief Executive
              Officer




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




Name
              
              Office
              
              Date/s/
                  Jack Kachkar
              
              Chairman,
                  Chief Executive
              
              March
                  31, 2006Jack
                  Kachkar
              
              Officer
                  and Director(Principal
                  Executive Officer)/s/
                  Rima Goldshmidt
              
              Vice
                  President of Finance
              
              March
                  31, 2006Rima
                  Goldshmidt
              
              and
                  Acting Chief FinancialOfficer(Principal
                  Accounting Officer)/s/
                  Steven Handley
              
              President
                  and Director
              
              March
                  31, 2006Steven
                  Handley/s/
                  Colin Hunter
              
              Vice
                  President and Director
              
              March
                  31, 2006Colin
                  Hunter/s/
                  Douglas Brown
              
              Director
              
              March
                  31, 2006Douglas
                  Brown/s/
                  Joseph Rotmil
              
              Director
              
              March
                  31, 2006Joseph
                  Rotmil