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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-KSB (Mark One) þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2004 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the transition period ____________to Commission file number 333-83152 INYX, INC. (Name of small business issuer in its charter) Nevada
(State or other jurisdiction of
incorporation or organization)
    
    75-2870720
(I.R.S. Employer
Identification No.)825 Third Avenue, 40th Floor, New York, New York
(Address of principal executive offices)
    
    10022
(Zip Code)
 Issuer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. Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the
issuer was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. YES þ NO o Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained herein, and none will 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-KSB or any
amendment to this Form 10-KSB. þ The issuers revenues for its most recent fiscal year were: $15,700,000. 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 $20,516,578 at
February 19, 2005. At March 31, 2005, the registrant had outstanding 39,983,983 shares of par value $.001 common
stock. DOCUMENTS INCORPORATED BY REFERENCE None. Transitional Small Business Disclosure Format (check one): Yes o No þ




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TABLE OF CONTENTS PART I
    
    
    1ITEM 1. DESCRIPTION OF BUSINESS
    
    
    1ITEM 2. PROPERTIES
    
    
    44ITEM 3. LEGAL PROCEEDINGS
    
    
    44ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    44PART II
    
    
    45ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
    
    
    45ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
    
    
    46ITEM 7. FINANCIAL STATEMENTS
    
    
    68ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    69ITEM 8A. CONTROLS AND PROCEDURES
    
    
    69ITEM 8B. OTHER INFORMATION
    
    
    70PART III
    
    
    70ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
    
    
    70ITEM 10. EXECUTIVE COMPENSATION
    
    
    74ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    
    
    77ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    78ITEM 13. EXHIBITS
    
    
    81ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    85Stock Purchase Warrant Agreement-Douglas BrownStock Purchase Warrant Agreement-Douglas BrownStock Purchase Warrant Agreement-Viktoria BenkovitchStock Purchase Warrant Agreement-Viktoria BenkovitchStock Purchase Warrant Agreement-Jay GreenStock Purchase Warrant Agreement-Jay GreenStock Purchase Warrant Agreement-Stephan SpitzStock Purchase Warrant Agreement-Spitz Business SolutionsStock Purchase Warrant Agreement-Sharon BrownStock Purchase Warrant Agreement-Enzo BarichelloStock Purchase Warrant Agreement-Robert Carrigan Jr.Manufacturing and Supply Agreement$3.5 Million Promissory NoteConsent of Berkovits, Lago & Company, LLPCertification of the CEO under Section 302Certification of the CFO under Section 302Certification of the CEO under Section 906Certification of the CFO under Section 906




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INYX, INC. 
 PART I 
 ITEM 1.DESCRIPTION OF BUSINESS General Inyx, Inc. (Inyx, we, us, our, or the Company), through its wholly-owned
subsidiaries, Inyx Pharma Limited (Inyx Pharma), Inyx Canada Inc. (Inyx Canada) and Inyx USA,
Ltd. (Inyx USA), 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 selected aerosol pharmaceutical products and drug delivery applications
for the treatment of respiratory, allergy, dermatological, and 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. We have limited product distribution capabilities and
although we perform some sales and marketing functions until we build or contract our own sales
force, we will initially depend on our customers distribution channels or strategic partners to
market and sell our own proprietary pharmaceutical products that we are presently developing or
planning to commercialize. 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 and, 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
$19.7 million. 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. Inyx Pharma is a corporation formed under the laws of England and Wales with offices and
product development and manufacturing facilities in Runcorn, Cheshire, England. Inyx Canada is a Canadian corporation, located in Toronto, Canada 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. Inyx USA is 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. Our common stock is traded on the NASDAQs Over-the-Counter Bulletin Board. We file annual,
quarterly and periodic reports with the Securities and Exchange Commission (SEC) pursuant to
Section 15(d) of the Securities Exchange Act of 1934. We maintain a website at www.inyxinc.com and
publish all such SEC reports on our website. 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.




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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 March 26, 2003, we issued a press release announcing that change of control transaction and
that we would now pursue strategic investment opportunities in a number of sectors within the
pharmaceutical, biotechnology and medical devices industries. These opportunities would include
research and development, manufacturing, distribution, and intellectual property acquisitions. 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 total cost
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. Pursuant to our acquisition of Inyx Pharma, on April 17, 2003, we entered into an agreement
with five parties under which we issued 2,450,000 restricted shares of our common stock as a fee to
these parties for their role in facilitating the transaction with Inyx Pharma. On April 21, 2003,
we also entered into a two-year Business Advisory and Financial Consulting Services Agreement with
a consultant to provide advice and counsel regarding our strategic business plans and growth
strategies. As consideration for this consulting arrangement, we issued 1,500,000 shares of
restricted securities to that consultant. 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 (the Exchange), representing approximately 64% of the approximately
25,000,000 shares issued and outstanding in our Company after the Exchange. As a result of the
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 the Exchange was the business 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 May 15, 2003, we formed Inyx Canada, a wholly owned Canadian corporation. Inyx Canada
performs certain administrative and business development functions for the Company. Such business
development activities include consulting services to the United Nations Development Programme
(UNDP) Montreal Protocol unit, assisting candidate developing countries meet the requirements of
the Montreal Protocol to phase out the consumption of ozone depleting chlorofluorocarbon (CFC)
gases in the pharmaceutical industry. 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
pharmaceutical aerosol development and manufacturing expertise. As such, on September 21, 2004, we
completed what we believe is a significant milestone in our development when we acquired a
patented, novel drug delivery technology from Phares Technology B.V. (Phares), a European drug
development company. The Phares technology is based on the utilization of a lipid-binding matrix
for delivering incompatible or unstable drug substances. We believe that this is an important
development for our Company as we expect this technology to enable us to more readily develop and
manufacture inhalation-therapy drugs in user-friendly pulmonary metered dose inhalers (MDIs),
including 2




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combinations of drugs which normally cannot be combined in one drug delivery device. For
example, in November 2004, we received positive results from a two-year Phares stability study
utilizing the lipid-binding matrix that we acquired on an HFA-propelled bronchodilator
(Salbutamol) for use in an MDI. We intend to now test the Phares technology on other types of
respiratory drugs that we are currently developing or planning to develop. We also continually evaluate opportunities to make strategic acquisitions of complementary
pharmaceutical businesses. In December 2004, we established Inyx USA, an Isle of Man company, to
manage and operate our U.S. pharmaceutical operations including the business assets of Aventis PR. On March 31, 2005, we closed a definitive agreement with Aventis Pharmaceuticals, Inc., a U.S.
subsidiary of the sanofi-aventis Group, to acquire the business assets of Aventis PR for a purchase
price of approximately $19.7 million. The Aventis PR operation is an FDA-approved pharmaceutical
manufacturing facility that produces respiratory, allergy, dermatological and topical
pharmaceutical products. We expect that our acquisition of the Aventis PR business acquisition
will more than triple our existing business, facilities and staff. The operation is located in Manati, Puerto Rico and consists of five buildings totaling approximately 140,000 square feet and
extending over 9.5 acres. We funded the acquisition through a $46 million credit facility from a unit of Westernbank
Puerto Rico. Such facility provided $19.7 million for the purchase price and acquisition related
costs of approximately $3.0 million, $12.4 million to repay our existing debt to Laurus Master
Fund, Ltd. (Laurus Funds), and up to $13.9 million for working capital and future projects. All
of our Companys assets are now pledged to Westernbank as collateral for the facility. No equity
securities were issued or reserved for issuance under any options or warrants to Westernbank. 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 Manati, Puerto Rico. As a result of the purchase, we also
received approximately $2.3 million of raw material and packaging inventory. We have accounted for the Aventis PR transaction utilizing the purchase method of accounting
with the purchase price and direct transaction costs allocated to the identifiable net tangible and
intangible assets acquired based on their estimated fair values, and based on an independent
third-party fair value valuation. Based on independent third-party valuations of the Aventis PR
assets, the purchase price paid to Aventis PR was lower than the fair value of the assets acquired. See Management  Certain Relationships and Related Transactions for information about the
interests of certain directors, executive officers and promoters of the company in the formation
and reorganization transactions described above. All monetary amounts described herein are stated in either United States dollars ($) or Great
Britain pounds (£). The exchange rate between the two currencies on December 31, 2004, was £1 =
$1.93, and the average exchange rate for the period from January 1, 2004, through December 31,
2004, was £1 = $1.83. The exchange rate between the two currencies on December 31, 2003, was £1=
$1.78, and the average exchange rate for the period from April 28, 2003, through December 31, 2003,
was £1 = $1.67. 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, and 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 have limited product distribution capabilities and although we
perform some sales and marketing functions, until we build or contract our own sales force, we will
initially depend on our customers distribution channels or strategic partners to market and sell
the pharmaceutical products we are planning to develop. We are continuously attempting to
complement our organic growth opportunities through 3




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strategic acquisitions of pharmaceutical products and drug delivery devices that are
complementary with our expertise, including those through the acquisition of other pharmaceutical
companies. We currently operate in 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 are primarily supporting our
manufacturing operations for the benefit of our customers. Segment reporting on our business will
begin to occur as we move into additional business activities such as the development and sales of
our own proprietary products including both drug delivery devices and pharmaceutical products that
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 believe that once we have developed
and marketed our own product lines, we can improve our revenue and profitability opportunities as
such products may 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-CFC or 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 2005 (see Product Development). We plan to distribute our proprietary products
through our own customers distribution channels or in collaboration with strategic marketing
partners, although we do not, as of yet, have any distribution agreements for our planned products
finalized. As of December 31, 2004, we developed and manufactured 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.
As a result of our acquisition of the Aventis PR operation, we now also have the capabilities of
developing and manufacturing dermatological creams, lotions and ointments. We believe that our March 31, 2005 acquisition of the Aventis PR pharmaceutical facility is
very complementary to our existing operation and that it will materially enhance our business and
customer base within the pharmaceutical industry. We expect that the Aventis PR business
acquisition will more than triple our existing business, facilities and staff, and will allow us to
better serve existing and potential customers in the North American market. Pursuant to the
transaction, Aventis PR has also agreed to transfer its third-party manufacturing client base and
own manufacturing product support requirements at the Manati Site to Inyx. 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 being
in a format suitable for rapid absorption into the skin. In addition, the hydrocarbons used are
deodorized, so the drug can be administered in an odorless way, leaving no residue on the skin. We
currently utilize two hydrocarbon aerosol filling lines, although we have just commenced utilizing
our second line. 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 4




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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 two 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. Metered Dose Inhalers (MDIs) We also develop and manufacture metered dose inhalers (MDIs), used primarily for respiratory
conditions, which employ both chlorofluorocarbon (CFC) and hydrofluroalkane (HFA) propellant
technologies. CFC-based products include Salbutamol, a mild asthma and rescue therapy, and
Beclomethasone, a steroid 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
as they are absorbed directly into the systemic circulation thereby providing faster onset and also
bypassing the gastrointestinal tract which may reduce the dose requirements for the patient. In the past, our CFC-based MDIs were sold throughout Europe, Australia, Canada and South
America. Given growing global restrictions on ozone-depleting CFC products, we believe that the
use of HFA-propelled MDI opportunities within the pharmaceutical industry will increase.
Specifically, we are now developing a number of 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, which
is Genpharm, a Canadian-based subsidiary of Merck Generics. Utilizing client-funded product and
process development applications, we plan to continue changing to HFA MDI production in 2004, while
continuing to utilize CFC MDI manufacturing capabilities and CFC allocations for markets which have
not banned CFC use as of yet. 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. For example,
we believe that based on our capabilities in this area, early in 2004, we were selected by the
United Nations Development Programme (UNDP)  Montreal Protocol to assist a developing country with
the transition of CFC MDIs to HFA MDIs. Dry Powdered Inhalers (DPIs) We assist in the development and production of dry powder inhalers (DPIs), which are
primarily used for respiratory ailments such as asthma. Specific products in this area include
Salbutamol, which we believe is the leading product in the area, and Beclomethasone, which we
believe is the second leading product in the area. We are also reviewing the possible use of
Budesonide, an anti-inflammatory corticosteroid, and Formeterol, a bronchodilator, as DPIs. Our
major customer in the DPI area has licensed the DPI device (the Clickhaler) that we currently
manufacture under a license agreement from a UK-based biotechnology company. This U.K.-based
biotechnology company is also in the process of licensing its product to a number of other
pharmaceutical companies. Subject to the results of this licensing program, we expect to continue
to manufacture DPIs for third-party licensees. 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 as this mode of drug delivery is
beginning to enjoy increased use not only for respiratory inhalants but as a mode of delivery for
other products. Such other products include those which target systemic disease, which may include
insulin for diabetes and pain management drugs. 5




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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 on capitalizing on growing 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. Saline Aerosols 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 believe that we may now be one of the largest
manufacturers of sterile saline and alcohol aerosols in the United Kingdom. We are actively
pursuing new technologies such as a bag-in-can wound spray that may provide enhanced spraying
parameters for sterile wound aerosols. Dermatological Creams, Lotions and Ointments As a result of our acquisition of the Aventis PR operation, we now also have the capabilities
of developing and manufacturing creams, lotions and ointments for dermatological and topical drug
applications. The drug is usually a corticosteroid or similar anti-inflammatory agent specifically
formulated with excipients and is 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. Product Rights The processes used to develop and commercialize our clients products utilize spray
technologies that are proprietary to the Company and can therefore be used to support other
activities. Such technologies consist of the process of filling and packaging aerosols 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 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
dependant 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
reverse acquisition of Inyx Pharma, we have signed and commenced a number of new customer contracts
and purchase orders. For the year ended December 31, 2004 and for the combined periods from
January 1, 2003 through to March 6, 2003 and from March 7, 2003 through December 31, 2003, our top
three customers accounted for approximately $7.5 million in net revenues or approximately 48% of
total net revenues, and $6.6 million in net revenues or approximately 43% of total net revenues,
respectively. 6




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During the past two years, our top three customers were the Merck Generics group of companies
(Merck Generics), that are part of an international pharmaceutical and chemical company
headquartered in Darmstadt, Germany; SSL International Plc (SSL International), a healthcare
company headquartered in London, England; and Genpharm Inc. (Genpharm), a generic drug company
headquartered near Toronto, Canada (Genpharm is an affiliate of the Merck Generics group of
companies but currently operates independently of that group). As a result of our acquisition of the Aventis PR operation, we have added a number of new
customers that will expand our existing customer base commencing in 2005. Such customers include
sanofi-aventis, a French pharmaceutical company that is currently the largest pharmaceutical
company in Europe and the third largest in the world, and Kos Pharmaceuticals, Inc., a specialty
pharmaceutical company headquartered in Cranbury, New Jersey. The loss of any one of our top three customers would have a material adverse affect on our
Companys revenues and profitability opportunities. 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. Merck Generics Group of Companies As of December 31, 2004, our top customer has been Merck Generics, the generic pharmaceutical
division of Merck KGaA, an international pharmaceutical and chemical company headquartered in
Darmstadt, Germany. According to its website, Merck KGaA owns 168 companies and has approximately
28,700 employees. Merck Generics focuses on the research and development and marketing of generic pharmaceutical
products. Our revenues from Merck Generics include revenues from Merck Generics UK, Merck Colombia
and Merck Mexico. For Merck Generics UK and Merck Colombia, we manufacture and package for
distribution in Europe and Colombia, metered dose Beclomethasone Dipropionate (BDP) nasal pumps
for anti-allergic and anti-inflammatory applications. For Merck Mexico, we manufacture and package
CFC salbutamol metered dose inhalers for use as a bronchodilator in the treatment of asthma. For the year ended December 31, 2004, Merck Generics accounted for $4.2 million in net
revenues or approximately 27% of our total net revenues for the year and for the combined periods
from January 1, 2003 through March 6, 2003 and from March 7, 2003 through December 31, 2003, they
accounted for approximately $3.1 million in net revenues or approximately 20% of our total net
revenues. Current revenues from Merck Generics are based on irrevocable and confirmed purchase orders
with payment due on the 20th of the month following date of shipment. We also provide Merck
Generics contract product development and support services in the respiratory inhalant sector on a
fee-for-service basis. Such services include product commercialization and are based on confirmed
purchase orders with 50% of the fee due upon placement of the order and the balance of the fee due
upon completion of the work provided. We expect revenues from Merck Generics to continue on
current levels for the foreseeable future. Genpharm Inc. Genpharm is a Canadian generic pharmaceutical company headquartered in Etobicoke, Ontario, a
suburb of the city of Toronto, Canada. Genpharm focuses on the development and marketing of
generic pharmaceuticals and hospital supplies for the Canadian market. According to their website,
Genpharm is currently one of the top 20 pharmaceutical companies in Canada. Our revenues from Genpharm are based on irrevocable and confirmed purchase orders for three
products, an HFA-based sublingual nitroglycerin (GTN) spray used for the treatment of angina, a
metered dose corticosteroid nasal pump for the treatment of allergic and non-allergic rhinitis, and
an ipratropium bromide nasal pump utilized as an anticholinergic agent. We are also providing
contract product development and support services to Genpharm as they attempt to expand these
products into different geographic markets. Such services include product stability 7




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studies and are based on confirmed purchase orders with 50% of the fee due upon placement of
the order, with the balance of the fee due upon completion of the work provided. For the year ended December 31, 2004, Genpharm accounted for $1.5 million in net revenues or
approximately 9.9% of our total net revenues for the year and for the combined periods from January
1, 2003 through March 6, 2003 and from March 7, 2003 through December 31, 2003, they accounted for
approximately $2.2 million in net revenues or approximately 14.5% of our total net revenues. We
expect revenues from Genpharm to continue on current levels for the foreseeable future. As part of our cost of goods associated with the GTN sublingual spray product, we pay two
vendors, 3M and Bespak Europe Ltd., 5.5% and 0.5% of our sales to Genpharm, respectively. These
are in the form of royalty payments for the use of a Bespak actuator and 3Ms rubber, within that
valve, in the HFA GTN product. As of December 31, 2004, we owed approximately $73,000 in royalty
fees to 3M and approximately $7,000 in royalty fees to Bespak. SSL International Plc SSL International, headquartered in London, England, is an internationally focused
manufacturer and distributor of consumer healthcare products, with over 4,500 employees worldwide. Our revenues from SSL International are based on irrevocable and confirmed purchase orders for
the manufacture of a range of hydrocarbon aerosol consumer products including those for the
treatment of burns, wounds and insect bites, and head lice in children. For the year ended December 31, 2004, SSL International accounted for $1.8 million in net
revenues or approximately 11.3 of our total net revenues for the year and for the combined periods
from January 1, 2003 through March 6, 2003 and March 7, 2003 through December 31, 2003, they
accounted for approximately $1.3 million in net revenues or approximately 8.5% of our total net
revenues. We expect revenues from SSL International to continue on current levels for the
foreseeable future. Stiefel Laboratories, Inc. Stiefel Laboratories, Inc. (Stiefel) is a privately-held generic dermatological company,
headquartered in Coral Gables, Florida. With approximately 2,500 employees, Stiefel focuses on
branded generic pharmaceutical products and markets and sells products through its own sales force.
Stiefel also markets generic pharmaceuticals and consumer health products through its Glades
Division, a wholly-owned subsidiary. On March 6, 2003, we entered into four agreements with
Stiefel to obtain financing and provide certain contract manufacturing and product development
services to Stiefel, including assisting them with the commercialization of specific hydrocarbon
aerosol dermatological products for global markets. First, on March 6, 2003, Inyx Pharma issued a £2.5 million GBP (or approximately $4.0 million,
based on currency exchange rates at the time) principal amount Convertible Promissory Note due
March 6, 2007, to Stiefel (the Stiefel Convertible Note). The proceeds were used by Inyx Pharma
to fund its working capital requirements as part of its acquisition of the majority of the business
assets of Miza UK on March 7, 2003. Interest is payable annually at a rate of 6%, beginning March
7, 2004. Second, on March 6, 2003, we entered into a three-year Product Development Agreement with
Stiefel (the Stiefel Development Agreement). This agreement initially allowed for two new
steroidal foam products for dermatological and topical applications to be developed in conjunction
with Stiefel at a fixed price and over a specific project timeline. The agreement was later
amended on November 30, 2004, to add a third hydrocarbon foam product (the Stiefel Products).
With respect to the Stiefel Products, the Company has agreed to timely complete all of the
activities set forth in a work schedule to the Stiefel Development Agreement. Such activities
include the acquisition, testing and evaluation of drugs, excipients and components required to
develop the Stiefel Products; formulation and manufacturing process assessments to facilitate the
production of the Stiefel Products; the development and preparation of necessary clinical testing
supplies to clinically test the Stiefel Products as may be required; and support in the preparation
and review of all necessary regulatory support and submission documents relating to the Stiefel
Products. The Company has also agreed that all intellectual property created specifically in 8




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connection with the development of the Stiefel Products including formulations, inventions or
discoveries shall remain the property of Stiefel. In return, and subject to confidentiality
requirements, Stiefel has granted us a royalty-free, non-exclusive, worldwide right and license to
make, use and sell pharmaceutical products that incorporate any intellectual property directly
derived from the development and processing of the Stiefel Products. Commercial terms under the Stiefel Development Agreement provide for a 50% deposit (per
product) to be paid immediately upon placement of an order, a 25% progress payment on completion of
the work, and the remaining 25% to be paid when the regulatory filing of an Abbreviated New Drug
Application (aNDA) has been completed. We have estimated that Stiefel will pay us, in aggregate,
approximately $3.1 million over the three-year term of the development agreement to develop the
three products they require. The initial estimated cost to Stiefel for the original two products
was approximately $925,000 per product. The estimated cost to Stiefel for their third required
product is approximately $1.3 million. As of December 31, 2004, Stiefel has paid Inyx a total of
approximately $1.2 million under the Stiefel Development Agreement. This includes approximately
$910,000 in development and product support fees for the original two products and approximately
$315,000 as an up-front payment for the third product. Based on our exclusive agreements with
Stiefel, we expect development revenues from this customer to continue to expand as they continue
to commercialize more of their planned dermatological and topical products in the hydrocarbon
aerosol sector. Third, on March 6, 2003, we also entered into a manufacturing and supply agreement with
Stiefel (the Stiefel Manufacturing and Supply Agreement). The Stiefel Manufacturing and Supply
Agreement is an exclusive agreement under which we are to manufacture and supply Stiefel foam
aerosol products for dermatological and topical applications, based on product specifications
provided to us by Stiefel, and in accordance with current Good Manufacturing Practices (cGMP) of
the FDA and the equivalent manufacturing requirements of the European regulatory authorities. The
agreement initially lists two generic steroidal foam products to be commercialized and manufactured
by Inyx using Stiefels own proprietary formulation. Pursuant to that agreement, the Company and
Stiefel have also agreed to deal with each other on an exclusive basis with respect to the
manufacture and supply of such products. The term of the Stiefel Manufacturing and Supply Agreement is for an initial period of four
years commencing on March 6, 2003 and ending as of March 6, 2007. This exclusive agreement
automatically extends for successive one-year periods, at Stiefels option, or based on both
parties mutual consent and agreement. Either Stiefel or Inyx may terminate the agreement without
cause by giving the other party twelve (12) months prior written notice. Either party may
terminate the agreement for cause if the other party files for bankruptcy or insolvency petition
that is not dismissed within sixty (60) days or the other party is unable to perform its
obligations under the agreement for six (6) months in the event of force majeure including natural
causes or government acts, orders or restrictions. Stiefel or Inyx may also terminate the
agreement for a material breach by the other party that is not cured or if a plan is not
implemented to cure the breach within sixty (60) days. In the event of a termination of the
agreement, for any reason, Stiefel is obligated to pay Inyx for any products that have been
manufactured but undelivered including Inyx costs for work in progress and raw materials and
components that have been purchased for Stiefel. Additionally, any material breach by Inyx of any covenant, agreement, warranty,
representation, or obligation under the Stiefel Manufacturing and Supply Agreement that is not
cured within 60days after written notice from Stiefel of the breach constitutes a default by Inyx
of the Stiefel Convertible Note. In the event of an Inyx default on that convertible loan, Stiefel
has the right to demand immediate payment of all outstanding principal and accrued interest
balances. For production planning purposes, Stiefel is to provide us with an annual forecast for their
required product supply. Stiefel is also required to update that forecast on a monthly basis,
including a 90 day rolling forecast, setting forth their required quantities and delivery dates.
All required product is to be confirmed to Inyx with a written purchase order approximately 10
weeks prior to the required shipping date. All such purchase orders are governed by the terms and
conditions of the Stiefel Manufacturing and Supply Agreement. Inyx is obliged to confirm in
writing each Stiefel purchase order within 15 days of receiving that order. Once a Stiefel
purchase order is confirmed by Inyx, the order cannot be delayed or cancelled by either party
without penalty. For Stiefel, such penalties may amount up to 100% of the amount owed under the
purchase order to Inyx, and for Inyx, up to 15% of the cost of the product for each month it delays
in delivering that product to Stiefel, unless the order is cancelled by Stiefel. Payment to Inyx
for any supplied and accepted product is due within 45 days of invoice. 9




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As of December 31, 2004, we have not received any purchase orders from Stiefel under the
Stiefel Manufacturing and Supply Agreement as all of their intended products are still under
development. As a result, we have not yet received any manufacturing revenues from Stiefel and all
of our revenues from this customer have been as a result of our product development agreement with
them as they continue to develop and commercialize their intended products. Fourth, on March 6, 2003, Inyx Pharma entered into a Quality Agreement with Stiefel (the
Stiefel Quality Agreement). In support of the Stiefel Manufacturing and Supply Agreement, this
agreement defines responsibilities and relationships between the parties with respect to quality
matters as related to the formulation, and filling and packaging of Stiefels products during the
duration of the Stiefel Manufacturing and Supply Agreement. We do not receive any revenues from
Stiefel under the Stiefel Quality Agreement as this agreement is intended to outline the respective
parties technical support responsibilities as part of the overall commercial and business
relationship between the parties. As noted above, pursuant to our reverse acquisition of Inyx Pharma and under the terms of its
convertible loan agreement with Inyx Pharma, at Stiefels option, Stiefel was entitled to 4 million
common shares of our common stock, adjustable for any accrued interest, at anytime before March 6,
2007. On April 6, 2005, the Company amended the repayment of its March 6, 2007 Promissory Note to
Stiefel to December 31, 2005 and agreed to repay the Stiefel Convertible Note in three equal
payments commencing on June 30, 2005. As a result of this amendment, Stiefel agreed to cancel
their option entitling them to 4 million common shares of the Companys common stock. AstraZeneca AB According to its website, AstraZeneca AB (AstraZeneca) is one of the leading pharmaceutical
companies in the world. Headquartered in London, England, AstraZeneca has over 60,000 employees
worldwide with revenues in 2004 totaling approximately $21.4 billion. AstraZeneca is focused on
the development and marketing of pharmaceutical products for cancer, cardiovascular,
gastrointestinal, infection, neuroscience and respiratory applications. On June 29, 2004, we announced a new manufacturing and supply agreement (the AZ Supply
Agreement) with AstraZeneca to assist them with the commercialization and production of a
non-ozone depleting hydroflouralkane (HFA) version of AstraZenecas Pulmicort (Budesonide)
asthma metered dose inhaler (HFA Pulmicort) that they have developed with SkyePharma PLC for
European markets. AstraZeneca has been marketing the CFC version of Pulmicort in Europe and now
intends to transition the product to a CFC-free version, in accordance with the Montreal Protocol. Subject to the termination provisions noted below, the AZ Supply Agreement is for an initial
period of 3.5 years, with commercial production planned to commence in the first half of 2005.
Under the agreement, we are to supply AstraZeneca two dosage forms of HFA Pulmicort: a lower
strength 100 ug/dose (meaning 100 micrograms of budesonide drug per puff of the inhaler) and a
higher strength 200 ug/dose (meaning 200 micrograms of budesonide drug per puff of the inhaler).
AstraZeneca requires two different strengths for its intended markets as asthmatic patients usually
require a lower dosage once their symptoms improve. The initial production forecast provided by AstraZeneca estimates that, subject to receiving
the required regulatory approvals in targeted market areas during 2005, their annual production
volume requirements will be approximately 1 million units of the lower strength 100 ug/dose HFA
Pulmicort and approximately 1.8 million units of the higher strength 200 ug/dose HFA Pulmicort.
The Supply Agreement with AstraZeneca is priced in British pounds. Based on an estimated average
currency exchange rate, as published by JP Morgan Chase Bank, of $1.88 per £1 pound sterling over
the next 3.5 years, our price to AstraZeneca is approximately $2.14 per fully packaged unit of the
100 ug/dose HFA Pulmicort and approximately $2.43 per fully packaged unit of the 200 ug/dose HFA
Pulmicort. Therefore, based on our unit sales price to AstraZeneca for each dosage strength, our
estimated annual revenues are expected to be approximately $2.1 million for the 100 ug/dose product
and approximately $4.4 million for the 200 ug/dose product, or approximately $6.5 million in
aggregate annual revenues under the agreement. 10




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Based on initial production schedules, our aggregate annual costs to manufacture both dosage
forms, including labor, active ingredients and excipients, components and packaging materials,
amount to approximately $5.6 million. The AZ Supply Agreement is subject to price revision based
on annual material average price changes, to be reviewed on an annual basis and based on mutual
agreement between the parties, revised as may be necessary to a new unit-selling price. For each calendar quarter during the term of the AZ Supply Agreement, AstraZeneca is to
provide us with a non-binding rolling 12 month forecast regarding their product requirements.
However, the forecast submitted to Inyx in October of each year will cover a 15 month period.
Under the contract, AstraZeneca has to place a firm purchase order for product supply with a
minimum lead-time of 26 weeks. At their option, they may also place a standing one-year purchase
order for required product supply. In such cases, the production and delivery lead-time is reduced
to 16 weeks. Payment to Inyx for the product is due 30 days net of shipment and there are no
minimum payment provisions in the AZ Supply Agreement. Either Inyx or AstraZeneca may terminate the AZ Supply Agreement without cause by giving the
other party 12 months prior written notice although such notice may not be given during the initial
30 months of the term of the contract. Either party may also terminate immediately if the other
party files for bankruptcy or ceases to operate and for cause, including for a breach of the
contract that is not cured within 6 months after notice of that breach is provided. AstraZeneca
may also immediately terminate the agreement with written notice if Inyx delivers product that does
not pass AstraZenecas quality inspections, delays the delivery of required product supply to
AstraZeneca by more than 60 days, or undergoes a change of control by more than 50% through a
merger, consolidation, sale or similar transaction. Additionally, AstraZeneca may immediately
terminate the AZ Supply Agreement with written notice if for any reason, in its sole discretion, it
chooses to cease marketing and selling the HFA Pulmicort. In such an event of termination,
AstraZeneca is obligated to compensate Inyx for the price of any ordered and undelivered products,
Inyx costs as a result of work in progress, and raw material and component costs already paid for
by Inyx. In association with the AZ Supply Agreement, we have commenced providing product support,
commercialization and scale-up services to AstraZeneca. These services, that are based on ongoing
agreed to quotations between the parties, include the production of experimental and process
validation batches, analytical and chemistry work, and product stability and regulatory support
services. We provide such services to AstraZeneca through confirmed purchase orders that are based
on 30-day payment terms. 75% of the fee is due upon completion of the work, based on certain
project milestones agreed to between the parties, and the balance of the fee due upon the
completion and delivery to AstraZeneca of any associated technical reports. We expect that, in the aggregate, potential revenues for such product support services may
amount to approximately $2.5 million over the term of the AZ Supply Agreement. As of December 31,
2004, AstraZeneca has already paid or committed to pay approximately 70% of that amount. These revenues include approximately $585,000, that we have already received from AstraZeneca,
for the installation of new filling components in our HFA manufacturing suite (approximately
$423,000), the purchase of raw materials to be used for scaling up the product for manufacturing
(approximately $135,000), and the initial analytical method transfer work required to transfer the
production process into our Inyx Pharma facility (approximately $27,000). Services to be provided also include the production of one experimental batch and six
validation batches (three of each strength of the HFA Pulmicort) intended to verify the quality of
the manufactured product and the reproducibility of the manufacturing process on a commercial
scale. AstraZeneca has agreed to pay Inyx a total of $952,000 for the production of these batches.
As of December 31, 2004, six of the seven batches have been produced for AstraZeneca. As a
result, we have already received $816,000 in revenues for producing these batches that have now
been placed on stability testing. We expect an additional $173,000 in fees over the term of the Supply Agreement for generating
monitoring and stability data and reports on these batches for AstraZeneca. As part of the
stability testing program for AstraZeneca, we will test the HFA Pulmicort manufactured in the
validation process, at different time points, to ensure the stability of the product through its
shelf-life. To date we have not received any revenue for providing such reports but expect to
commence revenues for such services in the first half of 2005. 11




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We also expect to receive approximately $790,000 in product support fees over the term of the
Supply Agreement for regulatory support services, continuous enhancement of the HFA manufacturing
and packaging line including procurement and validation activities for further automation the
entire production process, and the manufacturing and testing of demonstration samples for
AstraZenecas sales and marketing initiatives for the HFA Pulmicort. Although there is no formal
agreement or signed quotations with AstraZeneca to provide them with such products and services,
based on our discussions with AstraZeneca, we expect to start receiving such fees in the second
half of 2005 when we believe that AstraZeneca will commence their sales and marketing initiatives,
subject to receiving their required product marketing approvals in targeted territories in Europe. NovaDel Pharma Inc. According to information NovaDel Pharma Inc. (NovaDel) publishes on its website, that entity
is a specialty pharmaceutical company that is developing a lingual spray as a drug delivery system
to deliver prescription and OTC therapeutics through the oral mucosa into the systemic circulation.
NovaDel is headquartered in Flemington, New Jersey and is currently focused on developing six
types of lingual spray products. In a September 29, 2004, press release, NovaDel announced that
the FDA accepted for review that companys first New Drug Application (NDA), an aerosol
nitroglycerin lingual non-CFC spray product (the NovaDel GTN Spray) intended for the short-acting
relief or prophylaxis of angina pectoris due to coronary heart disease. In that press release,
NovaDel also announced that it expected a formal response back to its application from the FDA by
June 4, 2005, and that the company had also granted Par Pharmaceuticals Companies, Inc. (Par) of
Spring Valley, New York, exclusive marketing, selling and distribution rights to the NovaDel GTN
Spray, once the product was approved for sale. On November 23, 2004, we announced that Inyx had been selected by NovaDel to produce the
NovaDel GTN Spray in a CFC-free oral metered dose dispenser for NovaDel and its designated
marketing partners under a ten year contract (the NovaDel Manufacturing and Supply Agreement),
with the first five year term of the contract being on an exclusive basis and the second five year
term of the contract on a non-exclusive basis. Thereafter, the contract renews automatically on a
non-exclusive basis for further two-year periods, unless either party provides notice to the other
party that it does not intend to renew the contract and that the notice is given at least twelve
months prior to the expiry of the relevant period. NovaDel expects to commence the commercial production of its product in the second half of
2005, subject to receiving the necessary FDA approval it has submitted for. We, therefore, expect
to manufacture the NovaDel GTN Spray for NovaDel and its marketing partners at our Puerto Rico
facility. Pursuant to the agreement, Inyx must manufacture and supply the NovaDel GTN Spray at an
FDA-approved cGMP manufacturing facility. The NovaDel Manufacturing and Supply Agreement currently has no minimum production quantities
but as the agreement is on an exclusive basis for five years, we expect to receive all of NovaDels
and its marketing partners product supply requirements, subject to the product being approved for
marketing by the FDA and other respective regulatory agencies such as the TPD in Canada and the
EMEA in Europe. We have also agreed with NovaDel to confirm the supply price of the NovaDel GTN
Spray to them and their marketing partners in the first half of 2005, once we complete their
required validation and scale-up studies. Under our agreement, NovaDel and its marketing partners are to provide us with written
quarterly forecasts of the quantities of the NovaDel GTN Spray they expect to order for each
rolling twelve-month period. Such forecasts are firm orders only when a purchase order for
required product supply is submitted to Inyx. However, the first three months of each forecast
will be regarded as a firm requirement and NovaDel or its marketing designee will provide Inyx a
firm purchase order accordingly. Once a purchase order is received and confirmed by Inyx (within
three days of receiving that order), the Company has 60 days to manufacture and ship the NovaDel
GTN Spray to the ordering party. Once a purchase order is confirmed by Inyx, and NovaDel or its
marketing designee modify or cancel that order within 60 days prior to the delivery date, then that
party is obligated to reimburse Inyx for any out-of-pocket costs that it may have incurred as a
direct result of that order modification or cancellation. All confirmed purchase orders are to be
governed by the terms and conditions of our manufacturing and supply contract with NovaDel.
Payment to Inyx for any supplied and accepted product is due within 30 days of invoice. NovaDel may, in its sole discretion, terminate its manufacturing and supply agreement with us,
with ninety 90 days notice, if we fail to deliver product under a confirmed purchase order for a
period exceeding 90 cumulative 12




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days in any given 365-day period. The NovaDel Manufacturing and Supply Agreement may only be
terminated for cause if either party commits a material breach of the contract and fails to remedy
or commence to remedy the breach within 30 business days of being notified of that breach by the
other party or if one of the party defaults on the agreement as a result of being insolvent or
being wound up. In association with our manufacturing and supply agreement with NovaDel and in order to assist
NovaDel and its marketing partners to commercialize the CFC-free NovaDel GTN Spray, we have
commenced providing product support and product scale-up services to NovaDel through quotations
provided by Inyx that the parties have agreed to. Such services include an experimental study on
the manufacturing process; the production of six process validation batches, with three batches to
be produced in the first quarter of 2005 and three batches to be produced in the second quarter of
2005; validation support work; method testing and analytical work; and a 36-month product stability
testing program. We provide such services to NovaDel through confirmed purchase orders and agreed to payment
terms that are based on certain project milestones. In the aggregate, we expect that our fees to
NovaDel for these product support and scale-up services will total approximately $1.2 million over
a period of three years. As of December 31, 2004 we have received approximately $141,000 from
NovaDel for the provision of such services. In addition to the fees they are to pay us for our product commercialization and support
services, NovaDel has provided us with approximately $275,000 for the purchase of semi-automatic
filling, manufacturing and product-handling equipment to be utilized to scale-up the manufacturing
process of the NovaDel GTN Spray. NovaDel will own this equipment and have agreed to locate it at
our manufacturing facility for their exclusive use. They have also agreed to directly purchase
from respective vendors other equipment they we will require to assist commercializing their
product in its initial stages. In return, Inyx has agreed to purchase the necessary equipment to
allow the manufacturing process to become more automated (approximately $365,000 in costs for
manufacturing and gassing equipment) once full-scale manufacturing of the NovaDel GTN Spray
commences in the latter half of 2005, and subject to the parties receiving the necessary regulatory
approvals to manufacture and market the product. sanofi-aventis According to its website, sanofi-aventis 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 2004 totaling approximately  billion Euros.
Sanofi-aventis was created as a result of the acquisition of Aventis Pharmaceuticals by
Sanofi-Synthélabo in 2004. On March 31, 2005, we closed a definitive agreement with Aventis Pharmaceuticals, Inc.
(Aventis), a U.S. subsidiary of the sanofi-aventis Group, to acquire the business assets of
Aventis PR for a purchase price of approximately $19.7 million. Pursuant to that asset purchase
agreement, 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 Manati, Puerto Rico manufacturing facility that we acquired from Aventis PR (the Aventis
Supply Agreement). Subject to the termination provisions noted below, the Aventis Supply 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
(the Aventis Products). There are no minimum quantity provisions or guarantees under the Aventis
Supply Agreement. The supply price for each required product shall be Aventis 2005 standard costs of production
with annual price adjustments in the event that our combined costs for components or raw materials
increases or decreases by more than five percent (5%) within a year. In such a case, our selling
price to Aventis shall be adjusted to reflect a dollar for dollar increase or decrease and such
prices shall then become the new benchmark for the remaining term of the supply agreement.
Additionally, under the Aventis Supply Agreement, Inyx is obligated to meet or exceed key
performance indicators (KPIs), including on time delivery, yield, costs and quality that have
been established by Aventis during each year of the term of the supply agreement. Any cost
reductions resulting from improvements in the established KPIs are to be shared equally between
Aventis and Inyx in terms of the supply price to Aventis. 13




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All amounts invoiced to Aventis under the supply agreement are due and payable within 45 days
from the date of invoice. In terms of forecasts and purchase orders, within fifteen (15) days after the day of each
calendar month during the term of the supply agreement, Aventis is to provide us a written twelve
(12) month rolling forecast of its anticipated purchase orders for the Aventis Products. One
hundred percent (100%) of those quantities specified for the first three months of each such
forecast and fifty percent (50%) of those quantities specified for the second three months of each
such forecast shall constitute firm purchase orders. In addition, by September 1 of each contract
year under the agreement, Aventis will provide Inyx with a written three (3) year rolling
forecasts. Such forecasts will not be purchase commitments but utilized by Inyx for planning
purposes only. The Klaron product is excluded from such forecasts and commitments to purchase as
under the Aventis Supply Agreement Aventis has the right to purchase the supply of Klaron from Inyx
at anytime during the term of the agreement. Aventis or Inyx are only able to terminate the supply agreement through mutual written
agreement. Either party may also terminate immediately if the other party files for bankruptcy or
ceases to operate and for cause, including for a breach of the contract that is not cured within
ninety (90) calendar days after notice of that breach is provided. Aventis may also immediately
terminate the supply agreement if Inyx becomes debarred or receives notice of action or threat of
action with respect to its debarment. In association with the Aventis Supply Agreement, we have commenced providing product support
and product stability services to Aventis. These services, that are based on ongoing agreed to
quotations between the parties include analytical and chemistry work, and product stability and
regulatory support services. We provide such services to Aventis through confirmed purchase orders
that are based on 45-day payment terms. Additionally, pursuant to the Asset Purchase Agreement with Aventis PR, Inyx received a $3.5
million advance from Aventis PR for strategic and business development start-up activities to be
carried out by the Company subsequent to its acquisition of the pharmaceutical manufacturing assets
of Aventis PR. Such advance is secured by a promissory note provided to Aventis PR by Inyx. The
Aventis advance carries a ten percent (10%) per annum interest rate and is to be repaid by Inyx to
Aventis PR in two equal installments of one million seven hundred fifty thousand dollars
($1,750,000) each. The first of these installments shall be paid to Aventis PR on July 29, 2005 and
the second of these installments shall be paid to Aventis PR on December 30, 2005. Kos Pharmaceuticals, Inc. Based on information published on its website, Kos Pharmaceuticals, Inc. (Kos),
headquartered in Cranbury, New Jersey, is 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 two proprietary drugs for the treatment of cholesterol disorders and one 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. On March 31, 2005, Aeropharm also consented to the assignment
of that supply agreement (the Aeropharm Supply Agreement) to Inyx USA, effective April 1, 2005. Under the Aeropharm Supply Agreement, our subsidiary Inyx USA is to manufacture and supply to
Aeropharm commercial and sample units of Kos Azmacort in a CFC gas-propelled metered dose inhaler (MDI)
for respiratory inhalation. Azmacort is a corticosteroid anti-inflammatory
drug used for the maintenance treatment of asthma as a prophylactic therapy and for those asthma
patients who required corticosteroid administration where adding Azmacort as part of the therapy
may also reduce the need for systemic corticosteroids that may cause deleterious side effects to
the patient. The active ingredient in Azmacort is Triamcinolone Acetonide (TAA) and the Azmacort
MDI is available in 200, 400 and 800 microgram doses. 14




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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 (the
Minimum Annual Volume). On April 15, 2005, Aeropharm
and Inyx agreed to amend the Aeropharm Supply
Agreement effective April 1, 2005 (Amendment No. 1 to the Supply Agreement). Under
the terms of Amendment No. 1 to the Supply Agreement, Aeropharm and Inyx have
agreed to expand the product and supply agreement to include an HFA version of Azmacort, increase
the term of the agreement to ten (10) years and adjust the
supply price to Aeropharm to $4.50 unit from
Aventis PRs original supply price. Any costs for raw materials
provided to Inyx by Aeropharm for use in
the Azmacort Product would also be reduced from the selling price to
Aeropharm. The parties also agreed
to annually review the cost of materials to manufacture and package the Azmacort MDI and to take
into account any changes in the cost in Inyxs supply price to Aeropharm. Aeropharm also agreed to provide Inyx with firm purchase orders for the Azmacort six (6)
months in advance and to be invoiced ninety (90) days in advance to receipt of such orders. The
Minimum Annual Volume of 1.5 million units was retained by the parties. Under other remaining terms of the Aeropharm Supply Agreement, Aeropharm is to supply Inyx with a
short-term twelve (12) month rolling forecast on the first day of each month of the agreement. Such
short-term rolling forecast is to include the type of Azmacort required, and quantities and
shipping dates required. Aeropharm can only increase or decrease such short-term orders by a maximum of
50%. In addition, by July 1 of each calendar year of the term of the Supply Agreement, Aeropharm is to
also to provide Inyx with a non-binding long-term forecast for the type and amount of Azmacort
required for the next three years of the term of the agreement. As noted above, in
addition to a minimum annual volume of 1.5 million units to be supplied to Aeropharm, all orders required
for the next six months upon placement of an order by Aeropharm are considered firm purchase orders. Either party may only be able to terminate the Aeropharm Supply Agreement if the other party
files for bankruptcy or ceases to operate and for cause, including for a breach of the contract
that is not cured within 30 days or within a time period as may be required to cure that breach
after notice of that breach is provided, or as may be required by law. Aeropharm may also immediately
terminate the agreement with twelve (12) months written notice after twenty-four (24) months from
the effective date (i.e. the earliest the Aeropharm Supply Agreement
could be terminated is thirty-six (36) months after the Effective Date or March 30, 2008). In association with Amendment No. 1 to the Supply Agreement, Aeropharm and Inyx
have also agreed to collaborate on the research and development of an HFA version of the Azmacort
and that they will agree on the specifics of such a collaboration and utilize good faith
efforts to negotiate the terms of a research and development agreement related to Kos HFA Azmacort
prior to June 30, 2005. Product Development Our 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 2005. 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 customers distribution
channels or with strategic partners. We are presently in discussions with a number of our major
clients regarding the use of their sales and marketing, and distribution capabilities to sell our
products through their sales channels, although at this time no agreements have been formalized
except with Stiefel Laboratories, Inc., where we are able to market and sell any products that we
develop for them in markets that they decide not to enter. 15




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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 are also used to
remove dead tissue while keeping healthy tissue intact. We expect to have our wound-care product
ready for commercial launch in Europe in 2005. 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 2005. 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 late 2005, with
commercial marketing launch planned for late 2006. 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 had completed the acquisition of a patented, novel
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. 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, the United Kingdom Medicines and Healthcare Regulatory Agency, the
European Community Evaluation Agency , and the Canadian Therapeutic Products Directorate. 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. At this time, the Company has not made any regulatory filings for product approvals, but we
anticipate that we will do so within the next 12 months. While there is a risk that respective
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 do not
market these products, but we do intend to also commence marketing these products in the United
Kingdom within the next 12 months. 16




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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 although we are in discussions with a number of our
consultants regarding expanding those capabilities into North America. Additionally, as a result of
our March 31, 2005 acquisition of the Aventis PR operation, we believe that we now also have better
capabilities to provide product development support including scale-up and analytical work and
stability support services to 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 do 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 Contract Services We have experience in the development and manufacturing of CFC-free or HFA MDIs for asthma and
other respiratory diseases, and through our wholly owned subsidiaries, Inyx Canada and Inyx Pharma,
we have been seeking to provide contract consulting services to the United Nations Development
Programme (UNDP) for a project that will be funded by the United Nations Multilateral Fund
(MLF) to assist selected developing countries comply with the requirements of the Montreal
Protocol on Substances that Deplete the Ozone Layer. The Montreal Protocol is an international
agreement signed by 180 countries (both developed and undeveloped nations) designed to eliminate
the production and consumption of substances that deplete the stratospheric ozone layer including
the reduction of the use of CFCs within the pharmaceutical industry. Our consulting activities
are anticipated to include advice on the procurement and installation of manufacturing facilities
and equipment, and the training of personnel in the use of ozone-friendly HFA propellants in
developing countries as specified by the UNDP. In February 2004, the UNDP informed us that Inyx Pharma and Inyx Canada had been selected to
participate in the UNDPs Montreal Protocol implementation project to assist developing countries
replace CFCs with non-polluting CFC-free propellants in respiratory aerosol inhalers. Contracts
under the project for each developing country will be awarded separately. We believe that once we commence our consulting services under this initial arrangement, we
may also be requested by the UNDP to provide such services in countries seeking to achieve
compliance with the Montreal Protocol. The largest markets for such services are for nationally
owned pharmaceutical entities in developing countries in Latin America and Asia, including China
and India. Manufacturing Process and Capabilities Facilities Our existing manufacturing facilities are located at Astmoor, Runcorn, Cheshire, in the United
Kingdom. and in Manati,Puerto Rico. Our United Kingdom 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 UK manufacturing operation
consists of over 60,000 square feet of manufacturing, laboratory and warehouse space and we
currently have 100 employees working at the facility. 17




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Twenty-seven of these employees are in quality operations with the remainder in engineering,
manufacturing, packaging and supply chain management, and clerical and support staff. The
remainder of our United Kingdom staff (36 employees including three Company executives) is located
at the Manor Park office and development facility in finance, commercial, administrative human
resource, and product development functions. 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 DPI production facility, which represents a new type of drug delivery
technology for respiratory conditions and other ailments including pain management. Our recently acquired 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 Manati in north central Puerto Rico, about 30 miles outside of San Juan, at 604 San
Jose Road, Cotto Norte Industrial Park, Manati, 00674 (the
Manato Site). The Manati 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 141 persons at this site, including 132 production personnel and 9 managers. Manufacturing Capabilities The following is a discussion of our manufacturing facilities in the United Kingdom as they
existed at December 31, 2004. As discussed below, our aerosol pharmaceutical development and
manufacturing capabilities and facilities were substantially enhanced as a result of our
acquisition of the assets of Aventis PR in Puerto Rico. With respect to hydrocarbon aerosol production, we utilize two of what we believe are
state-of-the-art hydrocarbon filling lines that are capable of bulk manufacture, filling, valve
placements, gassing, water-bath testing, and packaging, including individual cartons into a wide
variety of packs. Based on three shifts, our two hydrocarbon filling lines are capable of
producing 9.7 million units annually. We are currently running one shift on these lines. Based on
one shift, annual capacity on these lines, combined, is three million units. As of December 31,
2004, based on one shift, our capacity utilization on these lines has been averaging 100% on an
annual basis. With respect to MDIs, we employ two filling lines. One MDI manufacturing line produces
CFC-based inhalers. The CFC manufacturing line has a capacity of 25.8 million units annually,
based on three shifts. The second MDI manufacturing line produces CFC-free or HFA inhalers. The
HFA line is capable of manufacturing 8.8 million units annually, based on three shifts. Each such
line consists of valve placements, filling, check-weighing and packing operations. These lines are
also capable of bulk manufacture feeding and come with integrated downstream packaging. As of
December 31, 2004, due to the phase out of CFC-based inhalers, our capacity utilization on the CFC
line has been minimal (less than 2%). As of December 31, 2004, our capacity utilization of the HFA
line, based on one shift, has been averaging 31% on an annual basis. Based on one shift, the
capacity of the HFA line is three million units, annually. In producing dry powder inhalers, we utilize a semi-automatic process that includes bulk
manufacture, device assembly and printing, filling and packaging. Our annual output capacity for
dry powder inhalers is currently 2.5 million units, based on three shifts. Our DPI filling and
blending equipment is owned by the innovator (a U.K.-based biotechnology company) of the dry powder
inhaler device. As of December 31, 2004, based on one shift, our capacity utilization on the DPI
line has been averaging 23% on an annual basis. Based on one shift, the capacity of the DPI line
is one million units, annually. With respect to pump spray production, we employ 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 11 million units annually, based on three shifts. As of December 31, 2004, based on one
shift, our average annual capacity utilization on the pump spray line is approximately 49%. Based
on one shift, the capacity of the pump spray line is four million units, annually. 18




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With respect to continually sterilized saline aerosol manufacturing, we are capable of bulk
manufacture, sterile filling, valve placement, actuation/capping and packaging into final product
shipper. Based on three shifts, the saline aerosol line is capable of producing 10.7 million units
annually. As of December 31, 2004, based on one shift, our capacity utilization on the aerosol
saline line averages 26% on an annual basis. Based on one shift, the capacity of the saline
aerosol line is four million units annually. Finally, with respect to secondary packaging, we utilize two discrete packaging areas 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 23.8 million MDI units
annually. Below is a capacity summary in connection with our Companys United Kingdom manufacturing run
rate as of December 31, 2004. 2004 Capacity SummaryAnnualcapacity based
    
    
    
    Annualon 3 shifts at
    
    
    
    capacity based
    
    
    
    
    
    
    
    
    PresentAverage line
    
    
    
    100% capacity
    
    
    
    on current run
    
    
    
    Estimated 2004
    
    
    
    utilization rateProduction
    
    
    run speed
    
    
    
    utilization
    
    
    
    rate (1 shift)
    
    
    
    production
    
    
    
    based on singleline
    
    
    (cpm)*
    
    
    
    (units 000s)
    
    
    
    (units 000s)
    
    
    
    units (000s)
    
    
    
    shift (%)Saline
    
    
    
    40
    
    
    
    
    10,710
    
    
    
    
    3,672
    
    
    
    
    953
    
    
    
    
    26Pump Spray
    
    
    
    50
    
    
    
    
    11,025
    
    
    
    
    3,780
    
    
    
    
    1,864
    
    
    
    
    49DPI
    
    
    
    10
    
    
    
    
    2,520
    
    
    
    
    864
    
    
    
    
    198
    
    
    
    
    23HFA
    
    
    
    31
    
    
    
    
    8,789
    
    
    
    
    3,013
    
    
    
    
    923
    
    
    
    
    31CFC
    
    
    
    100
    
    
    
    
    25,830
    
    
    
    
    8,856
    
    
    
    
    305
    
    
    
    
    3.5MDI Pack. No.1
    
    
    
    42
    
    
    
    
    10,584
    
    
    
    
    3,629
    
    
    
    
    208
    
    
    
    
    6MDI Pack. No.2
    
    
    
    56
    
    
    
    
    13,230
    
    
    
    
    4,356
    
    
    
    
    289
    
    
    
    
    7Hydrocarbon
    
    
    
    40
    
    
    
    
    9,702
    
    
    
    
    3,326
    
    
    
    
    3,326
    
    
    
    
    100
 * cpm = containers per minute On March 31, 2005, our manufacturing facilities tripled in size due to our acquisition of the
business assets of Aventis PR. Such business assets consist of a 140,000 square foot
pharmaceutical manufacturing facility consisting of five buildings, extending over 9.5 acres. The
Aventis PR operation currently manufactures respiratory inhalers, utilizing both CFC and HFA
propellants, nasal and allergy pumps and dermatological creams, lotions and ointments. Based on one shift, the Aventis PR facility is currently running at approximately 22% capacity
utilization. We expect to gradually enhance our capacity utilization as a result of our sales and
marketing activities. As a result of the acquisition of that site we have already added three key
clients at the site and expect to add two more clients in 2005. As noted above, we also expect to
transfer some of our product development and commercialization activities from the United Kingdom
to our Manati site. 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. Commencing in 2005, we plan to spend approximately
$3.6 million in capital expenditures, over three years, to improve our pharmaceutical manufacturing
technologies, production capabilities, plant quality and safety systems, and information systems,
so that we are able to pursue expanding commercial and product manufacturing opportunities with
existing and potential multinational pharmaceutical and biotechnology clients. 19




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We also plan to make capital improvements to our newly acquired Manati, Puerto Rico operation.
Planned capital expenditures include approximately $2 million in 2005 for the installation of a
new hydrocarbon aerosol manufacturing and packaging line for new and existing customers and
approximately $3.5 million in 2006 for the implementation of sterile fill capabilities in order to
capitalize on a number of ophthalmic development and manufacturing opportunities in the U.S.
market. In addition, due to the NovaDel Manufacturing and Supply Agreement we signed in November 2004,
we have committed to the customer to spend approximately $365,000 to purchase the necessary
equipment to automate the manufacturing process we utilize for their CFC-free GTN spray. We intend
to make this investment commencing in April 2005, subject to the parties receiving the necessary
regulatory approvals to manufacture and market the product, and we expect to spend this amount over
a period of 120 days. We have also commenced implementation of a new business information system with related
computer hardware and software that we intend to complete by the first half of 2005. The system
will ultimately cost approximately $1.0 million, which includes various operating modules. We have
already financed approximately half of this cost through capital lease financing and the direct
purchase of software. Suppliers We utilize a variety of suppliers as indicated by our own and our customers respective
requirements. There are six 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 could result
in an adversity in which we would be forced to seek an alternative source. 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. As of December 31, 2004, our key suppliers and their terms of payment were:  1.
    Cebal UK Limited: Provides various types of cans. We pay Cebal at the end of
the month following the date of invoice.2.
    Valois UK Ltd.: Provides valves for MDIs. We pay Perfect Valois on a pro forma
basis, meaning that we pay in advance for our supply of valves from this company.3.
    LABLABO: Provides actuators for steroidal foam products. Payment terms are 30
days from the date of invoice.4.
    Bespak Europe Ltd.: Provides actuators/valves for MDIs and the Clickhaler
device. Payment terms are 30 days from the date of invoice. Royalty fees to Bespak
(0.5% of HFA GTN sprays) and 3M (5.5% of HFA GTN sprays) are due quarterly.5.
    Precision Valve (UK) Ltd.: Provides aerosol can valve supplier. Payment terms
are 30 days from the date of invoice.6.
    Nussbaum (UK) Ltd.: Can supplier. Payment terms are 30 days from the date of
invoice. As a result of our acquisition of our recent acquisition of the Aventis PR operation in Puerto
Rico, many of our current suppliers will also be supplying our Manati Site, due to the
complementary nature of that operation to our current business operations. 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 a warehouse at our production
site in the United 20




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Kingdom. 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, that is a five minute drive from our
Astmoor manufacturing site, provides analytical and formulation development, stability testing,
scale-up and validation outsourcing services to our clients. 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. 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 to allow 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. 21




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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 BDP 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. 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. 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, as well as from the increased presence of biopharmaceutical
and virtual pharmaceutical companies in the healthcare market. These types of companies usually
lack an in-house manufacturing infrastructure and, therefore, we expect that these companies 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 believe 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 believe we can assist our clients develop sterile-fill
manufacturing processes to commercialize new or innovative products. We also believe 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. 22




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Focus on quality, versatility, innovative solutions and outstanding customer service: We believe that 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 United States Food and Drug
Administration (FDA) and the United Kingdom Medicines and Healthcare Products Regulatory
Authority (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 believe 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. 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. We believe 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 believe 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. We believe 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 may become even more prevalent in the event that highly specialized development processes or
equipment is required. We believe this type of relationship may lead to a strategic relationship
with such potential clients. These types of ventures may become even more prevalent in the event
that a highly specialized development process or production 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. Capitalize on the increasing conversion from ozone-depleting CFC aerosol pharmaceutical
products to non-CFC pharmaceuticals: We believe that we are one of the few pharmaceutical companies in the world that has proven
experience in the conversion from CFC to CFC-free (namely HFA propellant) aerosol pharmaceuticals,
and we have conducted such transition for clients in Europe and Canada. 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 view 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 believe 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. 23




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Insurance Coverage and Risk Management We maintain insurance coverage, including property, casualty and business interruption;
foreign medical costs; freight; motor vehicles; title insurance on owned real properties; errors
and omissions including product liability; and employee injury liability. We also maintain
director and officer liability coverage. We now also maintain wind coverage for our Manati Site in
the event of major weather catastrophes in that area. 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 cGMPs (current Good Manufacturing
Practices) 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. Industry and Market Sectors The Pharmaceutical Manufacturing Market According to two financial reports (National Bank Financial and CIBC World Markets) published
in November 2001, market spending for global pharmaceutical manufacturing has reached $53 billion,
or just over 13% of a total global pharmaceutical market of $400 billion. The $53 billion global
manufacturing market represents both in-house and outsourced pharmaceutical manufacturing and is
divided between two market segments: primary manufacturing and secondary manufacturing. Primary
manufacturing relates to the manufacture of active pharmaceutical ingredients (API) in bulk.
Spending in this segment has reached $19 billion. Secondary manufacturing refers to the processing
of APIs into finished dosage-form pharmaceutical products (fill and finish). Spending in this
segment has reached $34 billion. The highlighted reports further outline that of the total $53
billion spent annually on the pharmaceutical manufacturing market, approximately $14.8 billion of
those expenditures are in the manufacturing outsourcing sector and approximately $38.4 billion of
those expenditures are in the in-house manufacturing sector. Pharmaceutical Manufacturing Outsourcing Sector According to the noted reports, 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 2001, the primary manufacturing outsourcing
sector accounted for $9.7 billion of expenditures, and the secondary manufacturing outsourcing
sector accounted for $5.1 billion of expenditures. Outsourcing in the primary manufacturing
segment is well established, due to the availability of large-scale, low cost-base facilities.
Given the maturity of this sector, outsourcing growth opportunities are relatively limited. In
contrast, outsourcing of finished dosage-form drugs (secondary manufacturing outsourcing) is a
relatively new trend in the pharmaceutical industry. Demand in the secondary manufacturing
outsourcing sector emerged mainly from escalating drug research, development and regulatory costs,
and the need to access manufacturing capacity. We are focused on sterile-fill manufacturing
applications in the secondary finished dosage-form manufacturing segment. According to the
Freedonia Group, an industry market research organization, sterile-fill applications account for
approximately $8.2 billion of the total $34 billion secondary manufacturing market segment. Targeted Market Sectors Due to the added regulatory scrutiny and resulting high barriers to entry, we have focused our
expertise on the sterile aerosol pharmaceutical market sector. Aerosol pharmaceuticals are those
drugs that are administered via varying spraying mechanisms through the use of propellants, forced
air or mechanical pump actions. Propellants 24




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include CFC and HFA gases for use in respiratory aerosols, or hydrocarbon propellants which
are used in dermatological aerosols to create a foamed solution. We have also targeted the
following market sectors: Respiratory Market  According to publicly available published reports, the respiratory
patient population is one of the fastest growing segments in the healthcare market. Asthma and
chronic obstructive pulmonary diseases affect approximately 10% of the population in industrialized
countries, with significant growth forecasted as a result of increasing incidents and awareness.
This includes allergy, asthma, chronic obstructive pulmonary disease and coughs and colds.
According to a recent respiratory market report by the industry research group Datamonitor, the
global asthma market alone is estimated to have reached $11.5 billion annually. 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. Given that many of the branded
inhalant products are scheduled to lose patent protection within the next three years, market
demand and the subsequent development and production of such drugs should increase significantly.
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. The Systemic Drug Delivery Market  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, however, also reach the
circulatory system very quickly, bypassing the digestive track the same way as an injection. As
there is no pain or reluctance associated with needle use, patient compliance may be much higher
with oral-spray delivery. As a result, respiratory aerosols may be an excellent alternative to
injections. According to publicly available documents regarding the biotechnology industry, with the
recent mapping of the human genome, it has been reported that 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. 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. The Dermatological Market  In 2001, the worldwide retail prescription market for
dermatological pharmaceuticals was estimated by IMS Health to be $9 billion and growing at 5% per
year. In the same year, the U.S. retail prescription market for dermatological pharmaceuticals was
valued at $4 billion. 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 manner
that allows 25




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the active ingredient to be quickly absorbed into the skin leaving no residues. This may
result in better patient compliance and, in turn, greater usage and demand for the drugs
administered in this fashion. 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 this new delivery system. Competition According to two financial reports (National Bank Financial and CIBC World Markets) published
in November 2001, and other publicly available documents, the global contract service industry was
comprised of more than 1,000 contract manufacturing organizations (CMOs) and contract research
organizations (CROs) combined. These reports further indicate that 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. 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. 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, ML20165/1, 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 in February 2008. Product Licenses Inyx Pharma owns product licenses granted by the MHRA in the U.K. market for Oxymetazoline
decongestant nasal spray (expiration August 2005), Chlorhexidine Gluconate mouth spray (expiration
December 2005) and Beclomethasone Dipropionate (BDP) nasal spray (expiration August 2008). 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 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 26




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its review, it extends the expiration date on the license for another five years, when the
licensing review cycle is repeated again. 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 the
Company to enter the hospital supply market in the United Kingdom. These product licenses are
issued by the MHRA and give us the exclusive production and distribution rights in the U.K. through
September 2005 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 and are
summarized as follows: 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 these products through their sales channels
although currently no such agreements have been formalized. We also are attempting to identify and
recruit a manufacturing partner for these products as we do not currently have the production
capabilities to manufacture these products. 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. Such certification must be renewed annually, and we
received approval in March 2005 for the ensuing twelve months. Registered Marks and Logos We are presently using 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. We
are currently continuing such applications in other major countries. 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),that we believe will enable
us to more readily 27




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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 bronchodilator (Salbutamol) 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 aerosol products, including:  1.
    Metered dose inhalers  utilizing HFA 134a or CFC as propellants2.
    Sublingual and throat sprays  utilizing propellants or as pump sprays3.
    Dry powder inhalers4.
    Hydrocarbon topical and foam products5.
    Nasal pump sprays6.
    Barrier pack systems 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 pending acquisition of the business assets of Aventis PR, subject to the
successful completion of that transaction, we will be receiving from Aventis PR 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. 28




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Databases and Software Protection We have replaced our existing information technology and business management system with the
Sage 500 Management Information System, which will be fully operational in the first half of 2005.
This system is intended to support many of our business functions, including manufacturing,
warehousing, distribution, logistics, sales reporting, accounting, inventory, quality control,
budgeting, financial reporting, and operating and strategic reporting. In connection with the Sage
500 implementation, we have incurred total related costs of approximately $500,000 as a one-time
cost for the purchase of hardware and operating software, and expect to incur an additional
$500,000 in implementation costs, plus annual maintenance and support costs of approximately
$65,000. Other databases 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, currently being utilized at our Manati Site. Software As part of the Sage 500 Management Information system purchase, we will ultimately own both
the associated hardware and operating system software (Sage) that will require newer version
annual updates. The proprietary licenses for off-the-shelf software that we have traditionally
utilized are held by the providers. As a result of our acquisition of the business assets of Aventis PR, we received from Aventis
PR computer software, data and documentation related to the former Aventis PR aerosol and
dermatological pharmaceutical operation at the Manati Site. All necessary licenses to operate our
information systems at the Manati Site, including the JD Edwards enterprise management system, were
transferred to Inyx USA by Aventis PR. Domain Names We have registered several domain names, including inyxinc.com, inyxcorp.com,
inyxpharm.com, inyx-pharma.co.uk, inyx-pharma.com, and inyxusa.com. Our primary website is
located on the world-wide web at inyxinc.com. Government Regulation Our business as a pharmaceutical company is regulated by government authorities in the United
States, the United Kingdom, and other jurisdictions where we and our customers market and
distribute products, including Canada, 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 MHRA under cGMP
(current Good Manufacturing Practices) regulations for pharmaceutical manufacturers. Our
products and services must also continuously comply with the requirements of the European Agency
for the Evaluation of Medicinal Products (the EMEA), and the Canadian Therapeutic Products
Directorate (the 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, 29




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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 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 FDA also mandates that drugs be manufactured, assembled and labeled in conformity with
such cGMPs. In complying with cGMP regulations, we are required to continue to expend time, money
and effort in production, record keeping, and quality control to ensure that the products meet the
necessary and applicable specifications. The FDA periodically inspects manufacturing facilities to
ensure compliance with applicable cGMP requirements. Failure to comply with the statutory and
regulatory requirements subjects the manufacturer to regulatory or, in some extreme instances, to
possible legal action, such as suspension of manufacturing, seizure of product, or voluntary
recall. Where FDA inspections result in cGMP non-compliances being observed a written report
(known as a FDA Form 483) is issued. These observations are reported to the manufacturer to assist
in complying with the FDC Act and the regulations enforced by FDA. The last FDA inspection of our
United Kingdom manufacturing facility resulted in the issuance of a Form 483 that required the
facility to resolve a number of observations, but did not require us to delay or discontinue the
production of any products made at its facility for the U.S. market as the non-compliances issued
were corrected. Adverse experiences with products in the market must be reported to the FDA and
could result in the imposition of market restrictions through labeling changes or product removal.
Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or
if problems concerning safety, or efficacy of the product occurs after approval. 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 facility holds a Manufacturers License granted by the U.K.s
Medicines Control Agency, which, on April 1, 2003, merged with the U.K.s Medical Device Agency to
form the MHRA. This license permits 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 (in the U.K. known as The Medicines Act) that
controls the approval of all medicinal products used within the U.K. As a member 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. Following an inspection, the MHRA issues a report (called a Post Inspection Letter) that
highlights any observation or deficiencies noted at the facility, to aid the manufacturer to
resolve any non-compliances noted during the inspection. At the last inspection in October 2001, a
Post Inspection Letter was issued that highlighted a number of non-compliances to be addressed.
This did not require the interruption of manufacturing activities nor require any impact upon
products supplied from our facility, as the non-compliances issued were corrected. 30




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As a result of acquisition of the Aventis PR pharmaceutical manufacturing operation in Puerto
Rico, we were also granted an FDA manufacturing license to manufacture pharmaceutical products at
the site for U.S. markets. 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. In addition to regulations that govern the manufacture and supply of pharmaceutical products,
our facility is 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., Labor
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, 2004, we employed a total of 141 personnel, consisting of 6 senior
executives, 4 senior managers, 18 managers, 11 clerical staff, 40 technical personnel (including 13
scientific research and development personnel), and 62 production and maintenance staff. Upon
closing the Aventis PR transaction on March 31, 2005, we obtained 141 new employees in our Puerto
Rico facility. Our success is heavily dependent on the performance of our executive officers and managers.
We have entered into employment agreements with these individuals, including Dr. 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 and John Hamerski, Vice President and
Chief Financial 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 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 a
chief financial officer and business development personnel to join our Company. All
but six of our employees currently reside in the United Kingdom. Our Chief Executive
Officer and three other key executives (our Vice President and Chief
Financial Officer, our Vice President of Finance and our Executive Vice
President of Corporate Development) reside in North America and our President and Chief Scientific
Officer reside in the United Kingdom. Our senior sales and marketing executive is also located in
Europe. Currently, none of our employees is a member of any union. Our United Kingdom subsidiary,
Inyx Pharma, consults with its 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. Environmental Impact We utilize a variety of chemicals in our business, many of which are dangerous if used or
handled improperly. As of December 2004, we utilized approximately 170 raw material chemicals to
formulate over 160 bulk products that in turn are used to produce approximately 400 finished goods.
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 31




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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. RISK FACTORS Persons interested in the Company should carefully review and consider the following risks as
well as all other information contained herein or incorporated herein by reference, including our
consolidated financial statements and the notes to those statements. The following risks and
uncertainties are not the only ones facing us. Additional risks and uncertainties of which we are
currently unaware or which we believe are not material also could materially adversely affect our
business, financial condition, results of operations, or cash flows. To the extent any of the
information contained in this report constitutes forward-looking information, the risk factors set
forth below are cautionary statements identifying important factors that could cause our actual
results for various financial reporting periods to differ materially from those expressed in any
forward-looking statements made by or on behalf of INYX and could materially adversely affect our
financial condition, results of operations or cash flows. 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 88% of our revenues are derived
from contract manufacturing of pharmaceutical products and 12% 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. We believe we have benefited from the
growing tendency of pharmaceutical and biotechnology companies to engage independent organizations
to conduct development and testing projects and to produce the pharmaceuticals necessary for such
projects and for commercial sale. 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. We have a limited operating history. In April 2003, we acquired the common stock of Inyx Pharma, Ltd. (Inyx Pharma), which had
only recently acquired certain assets and business of Miza Pharmaceuticals (UK) Limited (Miza UK)
from an Administrator in the United Kingdom (the United Kingdom equivalent to a bankruptcy
reorganization trustee). Miza UK had been in business since May 2001 when it acquired its business
assets from CCL Industries, Inc. Prior to its acquisition of Miza UKs business assets, Inyx Pharma
had nominal operations and nominal net assets. Additionally, during the Administration process,
our predecessor companies lost a significant amount of business 32




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and customer relationships, requiring us to engage in a significant rebuilding of the acquired
businesses since early 2003. We are still engaged in this process and will face significant
challenges to restore this business and create new sources of business. Therefore, our operating
history and results of operations in our current configuration is limited only to approximately 25
months. Additionally, before our acquisition of Inyx Pharma, Ltd., the Companys financial
statements were qualified in each year of our existence by our auditors relating to an uncertainty
in connection with our ability to continue as a going concern. 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, 2004, we had a net loss of approximately
$16.9 million compared to a net loss of $13.4 million for the period from March 7, 2003 through
December 31, 2003, subsequent to the write-off of deferred tax of $1.3 million in 2004 and other
non cash charges of $2.4 million relating to the beneficial conversion feature relating to the
convertible debt with Laurus Funds and the issuance of warrants and options for the year ended
December 31, 2004. Comparatively, we had similar non-cash charges of $6.5 million for the period
from March 7, 2003 through December 31, 2003. See Managements Discussion and Analysis of
Financial Condition or Plan of Operations for further details on our operations. As we continue
to lose money and continue to require funding to implement our longer term business strategies,
including the development of our own proprietary pharmaceutical products, we will continue to
require external financing to operate and grow our business. Following our acquisition of Inyx
Pharma, our financing activities have produced approximately $22 million in net proceeds. 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 in 2005. On a longer term
basis, over the next three years, we will require additional funding of at least approximately
$20.0 million by March 31, 2005, to fund our acquisition of the business assets Aventis PR,. plus
approximately $8.0 million in additional annual funding in order to continue to implement our
business development strategies, capital expenditure plans and the development and
commercialization of our own proprietary pharmaceutical products. 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 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, 2004, our total indebtedness outstanding was approximately $7.7 million
plus approximately $7.1 million in additional borrowings under a revolving line of credit. Our
annual debt service requirements are approximately $990,000 (which includes approximately $450,000
relating to the service of the revolving credit facility). Such debt is secured by a lien on all
of our assets and properties. The Company has an option of paying interest on these borrowings in
cash or by issuing common stock, except the interest relating to the uncollateralized 6% promissory
note due to Stiefel, Inc. (Stiefel) which amounts to approximately $240,000 per annum. This is
based on a £2.5 million British pounds (or approximately $4.0 million based on currency exchange
rates at the time the loan was issued) convertible loan provided to the Company by Stiefel on March
6, 2003. In the event we are unable to generate sufficient cash flow from our operations or use
proceeds derived from our financing efforts, we will face difficulties in servicing our substantial
debt load. Additionally, any default on our manufacturing and supply agreement with Stiefel that
is not cured within 60 days gives Stiefel the right to 33




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demandaimmediate payment of all outstanding principal and accrued interest balances owed to
them under their convertible note. As of December 31, 2004, the outstanding amount, including
principal and interest, we owed under that note totaled approximately $4.25 million. Upon the
occurrence of uncured defaults, we may be forced to seek protection from our creditors, which could
also cause liquidation of Inyx in order to repay its creditors. Our long-term debt begins to
mature in 2006, and we will be challenged to show results from the operating strategies described
herein in order to produce sufficient cash flow to service our debt. In the event we use funds
derived from our financing efforts to service our debt, such funds will not be available for use in
our business operations for our working capital or business expenditure requirements.
Additionally, we intend to raise capital to fund the acquisition of the business assets of Aventis
PR through additional borrowings or the issuance of a combination of debt and equity securities,
although we do not currently have any financing agreements or commitments in place with respect to
such a financing plan. Subsequent to year end, on March 31, 2005, we entered into a new non-dilutive, asset base
revolving credit, term loan and security agreement (Debt Agreement) totaling $46 million 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 Debt Agreement provides up to $10.0
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 the Inyx, Inc. and its 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 line 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 commencing on July 1, 2005 through
maturity. The mezzanine term loan bears interest at the rate of 15.0% with monthly principal
payments commencing on July 1, 2005 through maturity. The availability under the Debt Agreement 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. 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, 2004, our top three customers accounted for approximately $7.5 million in
net revenues or approximately 48% of total net revenues of approximately $15.7 million. During the
year ended December 31, 2004, our top three customers were the Merck Generics group of companies
(Merck Generics), accounting for approximately $4.2 million in net revenues or approximately
26.9% of total net revenues for the period; SSL International Plc (SSL), accounting for
approximately $1.8 million in net revenues or approximately 11.3% of total net revenues; and
Genpharm Inc. (Genpharm), accounting for approximately $1.5 million in net revenues or
approximately 9.8% of total net revenues. In comparison, for the combined periods from Janaury 1,
2003 through March 6, 2003 and from March 7, 2003 through December 31, 2003, our top three
customers accounted for approximately $6.6 million or approximately 43% of our total net revenues
of approximately $15.5 million. These customers were Merck Generics, accounting for approximately
$3.1 million in net revenues or approximately 20% of total net revenues for the reporting period;
Genpharm, accounting for approximately $2.2 million in net revenues or approximately 14.4% of total
net revenues; and SSL, accounting for approximately $1.3 in net revenues or approximately 8.5% of
total net revenues. Until our acquisition of the business assets of Aventis PR, on March 31, 2005, our largest
customer was the Merck Generics group of companies. Net revenues from that customer declined from
$8.7 million or approximately 35% of total net revenues in 2002 to $2.5 million or approximately
19% of total net revenues during the comparative period in 2003. This was a result of the
transition from chlorofluorocarbon (CFC) aerosol respiratory inhalers (MDIs) to CFC-free or
hydrofluoralkane (HFA) MDIs over the comparative periods. This required transition was due to
the Montreal Protocol Treaty requiring phase out of the consumption and production of
ozone-depleting 34




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CFC products and is being implemented in the entire pharmaceutical industry. The Merck
Generics group of companies has already commenced this transition, which has resulted in a decrease
in their requirements for CFC MDIs while it completes the development and commercialization of
CFC-free or HFA MDIs. We expect that the Merck Generics group of companies will have completed
such transition to CFC-free MDIs during 2005. We therefore believe that this will restore
previously experienced revenue levels from the Merck Generics group of companies, once that company
has fully commercialized such HFA MDIs. Even after our acquisition of the business assets of
Aventis PR, there can be no assurance that our business will not continue to be dependent on
certain customers or that our annual results will not be dependent upon the performance of a few
large projects for specific customers. 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 and 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 2005. 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. 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 U.S. Food & Drug
Administration (FDA), the Canadian Therapeutic Products Directorate (TPD), the U.K. Medicines
and Healthcare Products Regulatory Authority (MHRA), the European Agency for the Evaluation of
Medicinal Products (EMEA), and other such regulatory agencies where we manufacture or distribute
our products 35




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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. If we are able to develop proprietary pharmaceutical products, there is no assurance we can market
them successfully. We do not have a sales force capable of marketing any pharmaceutical products that we are able
to develop and obtain approval for. We may either have to invest in creating such a sales force,
attempt to create strategic marketing alliances with our existing customers and/or establish
strategic marketing relationships with other companies in the industry. Our only agreement to date
in this regard is to market products we produce for Stiefel Laboratories in markets it does not
enter. To date, no sales have been made under this arrangement. Our lack of sales and marketing experience could affect our ability to market our potential
products, which could adversely affect our potential revenues from future product sales. Currently, we have no experience in developing, training or managing a sales force. We will
incur substantial additional expenses if we have to undertake these business activities, and the
costs of establishing 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 and marketing capabilities and expertise substantially greater than ours. As a
result, any marketing and sales efforts that we may undertake on our own may be unsuccessful and
may deplete our limited capital resources. 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. 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. Furthermore, as we have limited sales and marketing
capabilities and lack an integrated product sales force, even if we obtain rights to a regulatory 36




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approved pharmaceutical product or acquire a company, we may not be able to generate sales
sufficient to create a profit or otherwise avoid a loss. We are engaged in product and corporate
acquisition discussions with various parties. It is not appropriate to disclose these early-state
efforts, because (i) there are too many uncertainties whether such contemplated transactions will
be completed, (ii) disclosure could arouse an interest in our Company that may later prove to be
unjustified, and (iii) our competitors may also have an interest in the identified targets and, in
turn, may adversely compete with us for those targets. If successful in agreeing to terms and
conditions on such acquisitions, there is also no certainty that we will be able to raise
sufficient capital through additional borrowings or the issuance of additional debt or equity
securities to successfully complete such transactions. 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. We expect that the Aventis PR business acquisition, closed on March 31, 2005, will more than
triple our existing business, facilities and staff. The operation is located in Manati, Puerto
Rico, and consists of five buildings totaling approximately 140,000 square feet and extending over
9.5 acres. Aventis PR had 322 employees, of which we have retained approximately 141, We will face
significant challenges in managing the sudden growth we expect to experience including integrating
the Puerto Rico facilities and employees into our Company, and the need to fully integrate our
management staff at all of our business operations. There will be a further challenge to integrate
the cultures of our United Kingdom and Puerto Rico units, and promote cooperation and synergy in
our operations, which will include the integration of information technology systems. If we have
any significant delays in integrating the Aventis PR acquisition into our business, there is no
assurance that we can operate that facility profitably. 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 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 U.S. Food and Drug
Administration (the FDA) and FDA-administered cGMP (current Good Manufacturing Practices)
regulations for pharmaceutical manufacturers. Our 37




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products and services must also continuously comply with the requirements of the regulatory
agencies where we distribute our products or services, including the United Kingdom Medicines and
Healthcare Products Regulatory Authority (the MHRA), the European Agency for the Evaluation of
Medicinal Products (the EMEA), and the Canadian Therapeutic Products Directorate (the 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 and 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
disqualified our data, barred our products or closed 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
limited to approximately $9 million with respect to these risks, and we believe such coverage is
adequate for our present level of operations. 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; 38




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-
    challenges to credit and collections;-
    expropriation; and-
    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. If we fail to obtain the necessary governmental permits, authorizations or export certificates, we
may not be able to sell our products or services in a particular jurisdiction. We have been informed by the United Nations Development Programme (UNDP) that our
subsidiaries, Inyx Canada and Inyx Pharma have been selected to participate in the United Nations
Montreal Protocol implementation project to assist developing countries replace ozone-depleting CFC
propellants with ozone-friendly CFC-free propellants in essential-use pharmaceutical products. The
Montreal Protocol is an international agreement signed by 180 countries (both developed and
undeveloped nations) designed to eliminate the production and consumption of substances that
deplete the stratospheric ozone layer. The project for the reduction of the use of CFCs within
the pharmaceutical industry is funded by the United Nations Multilateral Fund (MLF) and
administered by the UNDP Montreal Protocol. 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, and at our Inyx USA
Puerto Rican facility, if and when we close on that transaction. 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. 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 six 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; and Nussbaum & Guhl, which 39




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also provides us with cans. We will also utilize these suppliers 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. If the implementation or integration of a new information technology system is not successfully
completed, our business could be disrupted. In November 2003, we began the process of implementing a new information technology system,
the Sage 500 Management Information System (Sage 500 MIS). The first phase of this project was
successfully completed in January 2004. We have commenced the second phase of this project, which
includes the balance of the modules to be implemented by early 2005. In connection with this
implementation, we will incur additional related costs of approximately $500,000, plus annual
maintenance costs of approximately $65,000. The Sage 500 MIS is intended to support many of our
business functions, including manufacturing, warehousing, distribution, logistics, sales reporting,
accounting, inventory, quality control, budgeting and financial reporting, and other company
functions. We are utilizing a controlled project plan consisting of the noted two phases to ensure
the successful implementation of this information technology system; however, in the event we do
not successfully implement this system in a timely manner or in the event the new system does not
operate as expected or designed, our business could be disrupted and we may have to incur
additional expenses to rectify such potential problems. We could also incur additional costs to
ensure complete and accurate conversion of historical information from the old to the new system.
Additionally, as a result of our acquisition of the business assets of Aventis PR, we may incur
unforeseen costs or have business disruptions attempting to integrate our existing information
systems and database with that operations existing information technology systems, which includes
a JD Edwards enterprise resources planning system. 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
United States Securities and Exchange Commission (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,
Colin Hunter, our Chief Scientific and Regulatory Officer and John Hamerski, our Vice President and
Chief Financial 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 scientific, management and
sales and marketing personnel, and investment in the professional development of the expertise of
our existing employees and management. We are currently seeking a chief financial officer and
sales and marketing personnel 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 obtaining, recruiting and retaining such personnel in 40




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sufficient numbers to maintain our revenues or results of operations at their current levels
or 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 (£) and the Euro Dollar (). 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
British pound and the U.S. dollar, and to a lesser extent, the Euro and the Canadian dollar. In
2003, more then 76% of our consolidated sales were realized in British pounds (including a Canadian
customer), the balance of the consolidated sales were to customers in the European Union and
realized in Euros. 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, in 2003, our
gross profit decreased by 57% as compared to 2002. However, at 2002 exchange rates, our gross
profit would have decreased by 65%. We do not currently engage in any hedging activities designed
to stabilize the risks of foreign currency fluctuations. However, we intend to implement hedging
transactions in the future. Such fluctuations could adversely affect the value of our revenues and
the results of our operations stated in U.S. Dollars. 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 41




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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. 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. As of December 2004, we utilized approximately 170 raw material chemicals to
formulate over 160 bulk products that in turn are used to produce approximately 400 finished goods.
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
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. 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 42




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We do not expect to pay dividends. We do not anticipate paying any 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 April 15, 2005, we
believe that approximately 5,000,000 of the 38,983,983 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. Our company is substantially controlled by our management team. As of April 15, 2005, the executive officers, key employees and directors of our Company and
their family members, associates and their affiliates beneficially owned approximately 48% 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. Such price has ranged from $0.30 to
$2.85 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. 43




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As of December 31, 2004, there were outstanding options and warrants to purchase 25,155,687
shares of common stock, with exercise prices ranging from $0.80 to $3.10 per share. Currently, the
market price of our common stock is lower or near the exercise price of all options and warrants,
so their exercise is unlikely at this time. However, if the stock price rises and 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. 
 ITEM 2. PROPERTIES Properties Our principal executive offices are located at 825 Third Avenue, 40th Floor, New
York, New York 10022, consisting of approximately 4,000 square feet of leased space at an annual
rent of $120,000. Our UK manufacturing facilities are 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 two are leased
from the Warrington and Runcorn Development Corp. for annual rents of $45,000 and $163,000,
respectively. 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 $127,000. 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 Manati, Puerto Rico. The site is
located about 30 miles outside of San Juan, at 604 San Jose Road, Cotto Norte Industrial Park, Manati, 00674 (the Manato Site). 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. 44




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PART II 
 ITEM 5.MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS COMMON STOCK AND DIVIDEND POLICY 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 shows the price range of the Companys common stock
since it was initially quoted in February 2003 until December 31, 2004. Prior to May 14, 2003, our
common stock traded in the over-the-counter market on the NASDAQ OTC Bulletin Board under the
symbol DBLQ. All amounts are adjusted for a 5-for-1 stock split in March 2003. BID
    
    
    ASKQuarter Ended
    
    High
    
    
    Low
    
    
    High
    
    
    LowDec-31-02
    
    $
    0.30
    
    
    $
    0.30
    
    
    None
    
    NoneMar-31-03
    
    $
    0.35
    
    
    $
    0.25
    
    
    $
    2.85
    
    
    $
    1.25Jun-30-03
    
    $
    1.70
    
    
    $
    0.35
    
    
    $
    2.85
    
    
    $
    0.99Sep-30-03
    
    $
    1.53
    
    
    $
    1.09
    
    
    $
    1.59
    
    
    $
    1.15Dec-31-03
    
    $
    1.82
    
    
    $
    1.18
    
    
    $
    1.92
    
    
    $
    1.20Mar-31-04
    
    $
    1.36
    
    
    $
    1.01
    
    
    $
    1.38
    
    
    $
    1.04Jun-30-04
    
    $
    1.13
    
    
    $
    0.84
    
    
    $
    1.20
    
    
    $
    0.88Sep-30-04
    
    $
    1.27
    
    
    $
    0.87
    
    
    $
    1.30
    
    
    $
    0.97Dec-31-04
    
    $
    1.35
    
    
    $
    0.82
    
    
    $
    1.40
    
    
    $
    0.90
 Holders As of April 15, 2005, 39,983,983 common shares of the Companys common stock are held of
record by 298 holders of record, and approximately 887 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 On October 4, 2004, the Company granted 75,000 stock purchase warrants to our New York
solicitors, Gusrae Kaplan & Bruno, PLLC (GKB) in connection with two private placements the
Company had completed from August 3, 2004 through September 3, 2004. These 5-year warrants allow
GKB to purchase the Companys common stock at $1.08 per share. On November 19, 2004, Dr. Kachkar and his spouse, Mr. Brown and Mr. Green agreed to each renew
previous loans made to the Company. Such stockholder loans previously due by March 31, 2005 have
been subordinated as a result of the Westernbank credit facility which closed on March 31, 2005.
Net proceeds from these loans were utilized for working capital purposes. As additional
consideration for such loans and for additional services provided to the Company in connection with
the Companys corporate development and acquisition activities, the Company granted these
individuals five-year warrants to purchase, an aggregate of 1,150,000 shares of the Companys
common stock at an exercise price of $0.95 per share. 45




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On November 26, 2004, the Company granted Stephen Spitz and Spitz Business Solutions
(collectively Spitz) a five-year warrant to purchase an aggregate of 300,000 shares of the
Companys common stock at a price of $0.98 per share. These warrants were issued to Spitz in
relation to acquisition and due diligence-related services in connection with the Companys planned
acquisition of Aventis PR. On December 16, 2004, the Company granted Enzo Barichello a five-year warrant to purchase
100,000 shares of our common stock at a price of $1.11 per share. These warrants were issued to
Mr. Barichello in relation to business acquisition and corporate development services provided to
the Company in connection with the Companys planned acquisition of Aventis PR. On December 30, 2004, the Company granted to two parties (Sharon Brown and Robert Carrigan)
five-year warrants to each purchase 25,000 shares of the Companys common stock at a price of $1.35
per share. These warrants were issued in relation to business acquisition and corporate
development services provided to the Company in connection with the Companys planned acquisition
of Aventis PR. 
 ITEM 6.MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION Forward Looking Statements Statements that are not historical facts included in this report are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve
risks and uncertainties that could cause actual results to differ from projected results. Such
statements address activities, events or developments that the Company expects, believes, projects,
intends or anticipates will or may occur, including such matters as future capital, business
strategies, expansion and growth of the Companys operations, cash flow, marketing of products and
services, and development of new products and services. Factors that could cause actual results to
differ materially (Cautionary Disclosures) are described throughout this report. Cautionary
Disclosures include, among others: general economic conditions, the markets for and market price of
the Companys products and services, the Companys ability to find, acquire, market, develop and
produce new products and services, the strength and financial resources of the Companys
competitors, the Companys ability to find and retain skilled personnel, labor relations,
availability and cost of material and equipment, the results of financing efforts, and regulatory
developments and compliance. All written and oral forward-looking statements attributable to the
Company are expressly qualified in their entirety by the Cautionary Disclosures. The Company
disclaims any obligation to update or revise any forward-looking statement to reflect events or
circumstances occurring hereafter or to reflect the occurrence of anticipated or unanticipated
events. General Inyx, Inc. (Inyx, we, us, our, or the Company) through its wholly-owned
subsidiaries, Inyx Pharma Limited (Inyx Pharma), Inyx Canada, Inc. (Inyx Canada), and Inyx USA
Ltd. (Inyx USA) is a specialty pharmaceutical company. We focus our expertise on the development
and manufacturing of prescription and over-the-counter (OTC) aerosol pharmaceutical products and
drug delivery technologies for the treatment of respiratory, allergy, cardiovascular,
dermatological and topical conditions. Our client base primarily consists of ethical pharmaceutical
corporations, branded generic pharmaceutical distributors and biotechnology companies. Although we
perform some sales and marketing functions, we have limited product distribution capabilities and
so we depend on our customers distribution channels or strategic partners to market and sell the
pharmaceutical products we develop and manufacture for them. We intend to expand our product development and manufacturing activities into our own lines of
prescription and OTC pharmaceutical products, but as of December 31, 2004, we had not yet
commercialized or marketed our own products or drug delivery applications. Additionally, a material
element of our growth strategy is to expand our existing business through the strategic acquisition
of pharmaceutical products and drug delivery technologies that are complementary to our expertise
in the aerosol pharmaceutical sector, including those through the acquisition of other
pharmaceutical companies. We completed our first specialty pharmaceutical business acquisition, Inyx Pharma, pursuant to
a stock exchange agreement in April 2003 and, in December 2004, we signed a definitive agreement
with Aventis 46




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Pharmaceuticals, Inc., part of the sanofi-aventis Group, to acquire the business assets of
Aventis Pharmaceuticals Puerto Rico Inc. (Aventis PR) that was completed on March 31, 2005, for
$19.7 million. Our Company was incorporated on March 28, 2000, in the State of Nevada, under the name
Doblique, Inc. (Doblique). As Doblique, the Company was engaged in the business of breeding and
racing thoroughbred horses at various major horse racing venues throughout the United States. In
July 2002, we 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. Since July 2002, we have
filed annual, quarterly and periodic reports with the Securities and Exchange Commission pursuant
to Section 15(d) of the Securities Exchange Act of 1934. On March 6, 2003, management decided to discontinue the Companys thoroughbred horse operation
by selling the assets of that operation for cash to a third party; these assets and operations were
nominal. Then on March 26, 2003, we announced that our controlling stockholder had accepted an
unsolicited offer to sell a controlling block of 2,250,000 shares of our common stock, representing
approximately 45% of the Companys then issued and outstanding shares, to Medira Investments, LLC
(Medira), which later conveyed such shares to its sole member, Ms. Viktoria Benkovitch, our
Chairman and CEOs spouse. On April 28, 2003, subsequent to the discontinuance of our horse racing operations, we
concluded a reverse acquisition of Inyx Pharma Limited (Inyx Pharma), an aerosol pharmaceutical
manufacturing company incorporated under the laws of England and Wales. Reverse acquisitions occur
when one entity (the nominal acquirer) issues sufficient shares to the former owners of another
entity (the nominal acquiree) so as to cause the shareholders of the nominal acquiree to become the
majority shareholders of the resultant combined enterprise. The total purchase cost is allocated to
the net assets of the Company. The transaction consisted of an exchange of 100% of the outstanding common stock of Inyx
Pharma for 16,000,000 restricted shares of our common stock (the Exchange), representing
approximately 64% of the approximately 25,000,000 shares outstanding after the Exchange. As a
result of the Exchange, Inyx Pharma became our wholly-owned subsidiary and we changed our name to
Inyx, Inc. (Inyx). At that time, we also announced that we would pursue strategic investment
opportunities in a number of sectors within the pharmaceutical, biotechnology and medical devices
industries. We currently operate in one business segment, the manufacturing of pharmaceutical aerosol
products. Although we also perform product research and development activities, at this time, these
business activities are primarily supporting our manufacturing operations for the benefit of our
customers. Segment reporting on our business will begin to occur as we move into the additional
business activities described herein. On December 15, 2004, Inyx, Inc. (acting through its wholly-owned subsidiary Inyx USA, Ltd.)
signed an Asset Purchase Agreement with Aventis Pharmaceuticals Puerto Rico, Inc. (APR) to
acquire the real estate, equipment, and certain contract rights comprising its Manati, Puerto Rico
pharmaceutical manufacturing facility. On March 31, 2005, the acquisition of the assets from APR was closed, and Inyx, Inc. assumed
possession and control of the operations at such facilities. Such assets consisted of
approximately 140,000 square feet of improved real property in five buildings located on 9.5 acres
in Manati, Puerto Rico, together with all installed and existing equipment and fixtures. A total
of $2,334,327 of inventory was included in the purchase. The assets were acquired from APR, a subsidiary of the sanofi-aventis Group. There was no
pre-existing relationship between Inyx, any of its affiliates, any director or officer of
registrant or any associate of any such director or officer, and the seller. Following the
closing, Inyx will engage in certain contract manufacturing activities for sanofi-aventis. The consideration for the purchase was $19.7 million, which was obtained from the proceeds of
a credit facility provided by Westernbank Business Credit Division of Westernbank Puerto Rico
(Westernbank) that is discussed in a separate Current Report on Form 8-K filed on April 6, 2005. 47




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Recent Developments Since our reverse acquisition of Inyx Pharma, we have been actively marketing to our customer
base and expect that the manufacturing capacity utilization at our Inyx Pharma operation will
continue to increase as new customer contracts and purchase orders are signed and initiated. It has taken time to start-up a number of new client projects due to such clients own
required regulatory or business approvals, lead times required for critical raw materials and
components in the pharmaceutical aerosol sector, and as a result of the production commissioning
and validation processes involved in the pharmaceutical manufacturing industry. Such delays have
been particularly relevant in the transition of a chlorofluorocarbon (CFC) aerosol respiratory
MDI to a CFC-free or hydrofluoralkane (HFA) MDI for one of our major clients. This client, a
large international generic drug marketing and distribution company, has not yet received the
necessary regulatory approvals to market their CFC-free MDI for the treatment of asthma which has
led to a decrease in our revenues and profitability opportunities during 2004. This client
believes that they can complete the transition to a CFC-free MDI by mid-2005. 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 not in Inyxs control. One of the delayed contracts
valued at $6.5 million, is now scheduled to start production in the fourth quarter of this year
with full ramp-up in 2006. It is anticipated that the other delayed contract for $3.5 million,
will also commence later this year. We believe that in addition to the conversion of CFC inhalers to non-ozone depleting HFA
products, a second major area of potential growth in our manufacturing business is a result of our
proprietary hydrocarbon aerosol foam expertise. We expect our business strategy will also include the development and marketing of our own
proprietary products, including both drug delivery devices and pharmaceutical products that 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. In the future, we believe that once we have developed and marketed our own proprietary
pharmaceutical product lines, consisting of both drug delivery devices and pharmaceutical products
that are complementary to our manufacturing technologies, we can improve our revenue and
profitability opportunities as such products may 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, dermatological, topical and cardiovascular applications
for our current customers. 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. It is anticipated that our first
proprietary product may be ready for commercial marketing by late of 2005. We plan to distribute our proprietary products through our own customers distribution
channels or in collaboration with strategic marketing partners, although we do not, as of yet, have
any distribution agreements for our products finalized. Another 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 pharmaceutical aerosol development and manufacturing expertise. As such, on September 21,
2004, we completed what we believe is significant milestone in our development when we acquired a
patented, novel drug delivery technology from Phares Technology B.V. (Phares), a European drug
development company. The Phares technology is based on the utilization of a lipid-binding matrix for delivering
incompatible or unstable drug substances. We believe that this is an important development for our
Company as we expect this technology to enable us to more readily develop and manufacture
inhalation-therapy drugs in user-friendly pulmonary metered dose inhalers (MDIs), including
combinations of drugs which normally cannot be combined in one drug delivery device. For example,
in November 2004, we received positive results from a two-year Phares 48




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stability study utilizing the lipid-binding matrix that we acquired on an HFA-propelled
bronchodilator (Salbutamol) for use in an MDI. We intend to now test the Phares technology on
other types of respiratory drugs that we are currently developing or planning to develop. We also continually evaluate opportunities to make strategic acquisitions of complementary
pharmaceutical businesses including a U.S.-based, FDA-compliant pharmaceutical aerosol
manufacturing operation that will allow us to better serve the North American pharmaceutical
market. Subject to receiving all necessary U.S. government regulatory body approvals, we hope that we
can also soon commence our manufacturing consulting agreement under the United Nations Development
Programme (UNDP). On February 3, 2004, we had announced that our Company was selected by the UNDP
to assist a third-world country to meet the requirements of the Montreal Protocol to phase out the
consumption of ozone-depleting chorofluorocarbon (CFC) gases in metered dose inhalers used in the
treatment of asthma and other respiratory conditions. The Montreal Protocol is an international
agreement signed by 180 countries (both developed and undeveloped countries) designed to eliminate
the production and consumption of substances that deplete the stratospheric ozone layer including
the reduction of the use of CFCs within the pharmaceutical industry. With funding for this project
provided by the United Nations Multilateral Fund for the Implementation of the Montreal Protocol,
we expect to commence our initial consulting contract providing technology transition consulting
services to a third-world country upon receipt of all required U.S. Government approvals. These
services will include assistance with the installation of manufacturing facilities, equipment, and
systems to manufacture CFC-free (HFA) aerosol-based respiratory inhalers (MDIs) for the treatment
of asthma and chronic obstructive respiratory disease conditions. The Inyx Pharma Transaction Concurrent with the discontinuance of our thoroughbred horse racing operations in the first
half of 2003, we concluded a reverse acquisition of Inyx Pharma, an aerosol manufacturing company
incorporated under the laws of England and Wales and changed our name to Inyx. The acquisition of Inyx Pharma was consummated on April 28, 2003, by exchanging 16 million
shares of the Companys restricted common stock for 100% of the outstanding common stock of Inyx
Pharma. As a result of the exchange, the stockholders of Inyx Pharma became the Companys
controlling stockholders, in the aggregate, holding approximately 64% of Inyxs outstanding shares.
The transaction was accounted for as a recapitalization of Inyx using the reverse acquisition
method of accounting and therefore, the historical financial statements of Inyx Pharma are
presented herein as our own historical financial statements. As a result of the Inyx Pharma
transaction, we incurred costs of approximately $2.7 million consisting primarily of legal,
accounting, consulting and finders fees. All such costs were expensed as incurred. Prior to its reverse acquisition by Inyx, 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 equivalent of bankruptcy protection and reorganization) for
approximately $8.3 million, consisting of an approximately $7.1 million cash payment to the
Administrator for Miza UKs assets, plus approximately $1.2 million in direct transaction costs.
The assets acquired by Inyx Pharma consisted of one aerosol manufacturing site and a pharmaceutical
development operation. A third Miza UK operation, the Biopharma Division, was not acquired. As
such, Inyx Pharma received all of the property, plant, machinery and equipment, inventory, customer
base, employees, and know-how to continue to manage and run those acquired parts of the Miza UK
operation as a going concern. 49




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The Inyx Pharma acquisition of Miza UKs business assets was accounted for utilizing the
purchase method of accounting. Accordingly, the total purchase price of $8.3 million incurred by
Inyx Pharma was allocated to the identifiable net tangible and intangible assets acquired based on
their estimated fair values. Based on an independent third-party fair value valuation, the
tangible assets acquired by Inyx Pharma, consisting of fixed assets and inventory, were allocated a
fair value of approximately $5.1 million and $1.3 million, respectively, and the intangible assets,
consisting of a customer list and know-how, were allocated a fair value of approximately $1.3
million and approximately $600,000, respectively. As a consequence of these purchase price
allocations, no goodwill was recorded. 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. Consolidated Results The accompanying consolidated financial information includes the accounts of Inyx and its
wholly-owned subsidiaries, Inyx Pharma Limited, incorporated under the laws of England and Wales;
Inyx Canada, Inc., formed as a federally incorporated Canadian corporation; and Inyx Realty, Inc.
(Inyx Realty), a Florida corporation through April 14, 2004. All inter-company accounts and
transactions have been eliminated in consolidation. On April 14, 2004, Inyx Realty, a wholly-owned subsidiary that we established solely to
operate a corporate office lease in Miami Florida, was acquired by First Jemini Trust, a
discretionary family trust in which our Chairman/CEO and his spouse are beneficiaries. As a
result, as of April 14, 2004, Inyx Realty was no longer a subsidiary of our Company and all of
Inyxs obligations relating to Inyx Realty, primarily an office lease in Miami, have been
terminated. Prior to our reverse acquisition of Inyx Pharma, we were a public company with nominal
operations and assets, as we had divested all prior operations, namely our thoroughbred horse
business, conducted as Doblique, therefore designating our Company as a non-operating public shell. Combined Results for Comparative Purposes 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 the Companys 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. For comparative purposes, managements discussion and analysis of results of operation will
focus on combined results including the results of the Successor Company for the year ended
December 31, 2004 compared to the results for the period from March 7, 2003 through to December 31,
2003 combined with the results of operations of the Predecessor Company for the period from January
1, 2003 through March 6, 2003 (while Miza UK was in Administration). 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. 50




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Revenue Recognition The Company recognizes revenue when (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 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. 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 the Companys customers. Any shipping and handling costs
incurred by the 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 subsidiary, Inyx Pharma, 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,
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 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 accumulated as a cumulative translation adjustment
in stockholders deficit. Realized gains and losses from foreign currency transactions are included
in the results of operation for the period. Fluctuations arising from inter-company transactions
are of long term in nature and are accumulated as cumulative translation adjustments. As of December 31, 2004, we had not utilized any currency-hedging programs. However, as we
intend to continue to utilize US-based financing sources, and as the significant majority of our
revenues are in British pounds sterling, with some revenues in European Euros, we intend to begin
hedging activities in 2005. 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 which 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 the tests conducted by the Company it was concluded that there was no impairment as
at December 31, 2004. 51




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SELECTED FINANCIAL INFORMATION FOR THE ACQUISITION OF MIZA UK STATEMENT OF OPERATIONS SUMMARY: (Tabular amounts expressed in thousands of U.S. dollars, except per share amounts) Successor
    
    
    PredecessorFor the Year
    
    
    For the Period
    
    
    For the PeriodEnded
    
    
    from March 7,
    
    
    from JanuaryDecember 31,
    
    
    2003 through
    
    
    1, 20032004
    
    
    December 31,
    
    
    through2003
    
    
    March 6, 2003Net revenues
    
    $
    15,699
    
    
    $
    13,099
    
    
    $
    2,396Gross profit
    
    
    1,383
    
    
    
    2,465
    
    
    
    520Total operating expenses
    
    
    13,622
    
    
    
    12,839
    
    
    
    694Loss from operations before interest and
financing costs, income tax benefit
(expense) and discontinued operations
    
    
    (12,239
    )
    
    
    (10,374
    )
    
    
    (174
    )Interest & financing costs
    
    
    3,370
    
    
    
    4,312
    
    
    
    176Income tax benefit (expense)
    
    
    (1,333
    )
    
    
    1,294
    
    
    
    Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (558
    )Net loss
    
    $
    (16,942
    )
    
    $
    (13,392
    )
    
    $
    (350
    )Loss per share of common stock
outstanding and fully diluted:
    
    $
    (0.52
    )
    
    $
    (0.59
    )
    
    
    
 BALANCE SHEET SUMMARY: SuccessorDecember 31,2004
    
    
    2003Total assets
    
    $
    14,755
    
    
    $
    15,490Working capital (deficit)
    
    
    (14,383
    )
    
    
    (663
    )Total liabilities
    
    
    20,620
    
    
    
    13,649
 UNAUDITED PRO FORMA CONDENSED COMBINING SUMMARY FINANCIAL INFORMATION The following unaudited consolidated pro forma statement of operations presented herein for
the year ended December 31, 2003 gives effect to the acquisition of Miza UK Pharmaceuticals Ltd.
(Miza UK) by Inyx Pharma Limited (Inyx Pharma) as if the acquisition had taken place at the
beginning of the year. As Miza UK is the predecessor entity, the historical financial information presented is that
of Miza UK. The historical financial data is derived from the historical audited financial
statements of the predecessor entity to Inyx Pharma. On March 7, 2003, Inyx Pharma acquired the
majority of the operating assets of Miza UK from a court appointed Administrator. The acquisition
did not include the operations of Miza UKs Biopharma Division, and such operations have been
presented as discontinued operations in the underlying historical financial statements. The acquisition was accounted for using the purchase method of accounting. The unaudited pro
forma financial data is not necessarily indicative of the operations had the acquisition taken
place on January 1, 2003 and are not intended to project the Companys results of operations for
any future period. The unaudited pro forma adjustments and certain assumptions are described in the accompanying
notes. The unaudited pro forma financial statements should be read in conjunction with Inyx, Inc.s
consolidated financial statements and notes and the managements discussion and analysis included
within this filing. 52




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Pro Forma Financial Information (Expressed in thousands of U.S. dollars) For the Year Ended
    
    
    For the Year EndedDecember 31, 2004
    
    
    December 31, 2003Net Revenues
    
    $
    15,699
    
    
    $
    15,495Gross Profit
    
    
    1,383
    
    
    
    2,985Loss from continuing
operations
    
    
    (12,239
    )
    
    
    (10,548
    )
 INYX RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004 COMPARED THE COMBINED PERIOD FROM
JANUARY 1, 2003 THROUGH TO MARCH 6, 2003 OF THE PREDECESSOR COMPANY AND MARCH 7, 2003 THROUGH
DECEMBER 31, 2003 OF THE SUCCESSOR COMPANY 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. 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. Prior 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. 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 operation will also 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. For the Year Ended December 31, 2004 and for the Combined Year Ended December 31, 2003 NET REVENUES Our revenues are derived from pharmaceutical manufacturing and product formulation and
development outsourcing services, including product stability, commercial scale-up, and validation
and regulatory support for our clients products. Future contract revenues are dependant upon our
clients maintaining or obtaining regulatory approval for the sale of their products in their
designated markets. 53




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Although we do not currently derive any of our revenues from the sale of our own products, we
believe that we can increase our revenues and achieve greater margins through the addition of our
own product lines in selected pharmaceutical market sectors, with marketing to be conducted through
certain strategic customers. We expect that these types of revenues would include direct sales,
royalty payments and licensing fees of our planned products. At this time, we have not
commercialized any of our own proprietary products and we have no agreements for such fees or
distribution agreements finalized. Net revenues for the 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. 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 not in Inyxs control. One of
the delayed contracts valued at approximately $6.5 million
annually for an initial four-year term, is now scheduled to start production in the fourth
quarter of this year with full ramp-up in 2006. It is anticipated that the other delayed contract
for approximately $6.5 million over a two-year term, will also commence later this year. The loss of any one of our top three clients would have a material adverse affect on our
revenues and profitability opportunities. As part of our strategic growth objectives, we continue
to broaden our customer base and distribution channels to mitigate the risk of our economic
dependence on any one client. We have been actively marketing to our customer base and expect revenues from manufacturing
and development revenues to be restored to levels experienced by the business assets acquired by
Inyx Pharma prior to the Administration period. Excluding the CFC-metered dose inhaler (MDI)
manufacturing line, which is being phased out due to environmental requirements, our manufacturing
operations were operating at an average 27% of available capacity. Revenues and, therefore capacity
utilization, are expected to increase as new customer contracts and purchase orders are obtained.
Additionally, we expect to be able to increase our manufacturing activities as customers raw
material and component inventory requirements are restored to normal business operational levels. Also, we believe our expertise in converting from CFC to CFC-free aerosol pharmaceuticals,
particularly the production of hydrolfuoroalkane (HFA) non-ozone-depleting aerosol pharmaceutical
products, should generate increasing business as the Montreal Protocol continues to be implemented
around the world. COST OF GOODS SOLD Cost of goods sold is associated with manufacturing and development revenues and includes
materials, labor, factory overheads and technical affairs, which include quality control and
quality assurance regulatory support. 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. 54




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The cost of goods sold as a percentage of revenues is consistently high in the comparative
periods due to the following factors: (1) This reduced manufacturing capacity utilization has continued into 2004 as it has taken
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. We expect our cost of goods sold to be reduced as more of these projects
are ramped up to full production. With more volume throughput at our manufacturing facility, we can
absorb more overhead costs and therefore reduce our manufacturing costs. (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. Even though we have experienced moderate raw material and labor price increases since our
reverse acquisition of Inyx Pharma, due to inflation and new vendor relationships, we expect the
cost of goods sold percentage to be maintained or reduced as more customer contracts are initiated
or renewed, and our capacity utilization is enhanced. With improved fixed overhead cost absorption,
we expect to improve our profit margins. GROSS PROFIT Gross profit for the 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. 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 first proprietary product may be ready for commercial marketing by
2005. 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. 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. 55




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General and administrative expenses amounted to approximately $9.7 million or 62% of net
revenues of $15.7 million compared to combined general and administrative expenses of approximately
$12.7 million or approximately 82% of net revenues of $15.5 million on a combined basis. The
decline in general and administrative expenses was primarily due to: The significant decrease in the general and administrative expenses between the respective
comparative periods are 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 account for nearly $4.3 million, legal, audit and
outside consulting expense is approximately $1.8 million, travel, 1.7 million of communications and
corporate development cost, $0.8 million in insurance cost, $0.6 of investor relations and
associated expense and building and rent expense of $0.5 million. Of the total amount of $12.7 million we 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. We expect to be issuing
stock options to such persons on a recurring basis. 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, presently such activities are primarily focused on expanding our
pharmaceutical aerosol manufacturing business with existing or potential clients. Selling expenses were approximately $367,000 or approximately 2.3% of net revenues of $15.7
million for the year ended December 31, 2004 compared to $311,000 or approximately 2.0% of net
revenues of approximately $15.5 million for the combined periods through December 31, 2003. 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 periods. Since our reverse
acquisition of Inyx Pharma, our sales and marketing functions have been primarily focused on
expanding our pharmaceutical aerosol 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. 56




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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. We believe that once we commence marketing our own proprietary products, we may also need to
build or contract our own sales force. We expect to incur substantial additional selling expenses
once we undertake these types of commercial activities. Initially though, until we can adequately
afford the cost of building or contracting our own sales force, we will depend on our customers
distribution channels or strategic partners to market and sell the pharmaceutical products that we
are presently developing or planning to develop. Depreciation and Amortization The value of our property, plant and equipment is stated at cost. Depreciation is computed
using the straight-line method based on the estimated useful lives of the assets, which range from
25 years for buildings and 3-10 years for equipment. Depreciation and amortization expenses were approximately $619,000 or 3.9% of net revenues of
$15.7 million compared $422,000 or 2.7% of net revenues of approximately $15.5 million for the
combined periods. 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. 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 the Company
operates in. The amortization expenses for intangible assets for the year ended December 31, 2004 was
approximately $166,000 compared to $139,000 for the combined period. Our amortization expenses for intangible assets relate to 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 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 period. 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). 57




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For the year ended December 31, 2004, interest and financing costs totaled approximately $3.4
million or 21.7% of net revenues of $15.7 million compared to interest and financing costs of
approximately $4.5 million or 29.0% 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 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 the delayed regulatory approval
there were significant shortfalls from projected revenues in 2004 resulting in continued operating
losses, therefore, we have elected to reverse the tax benefit in 2004. For the period from March 7, 2003 through December 31, 2003, the tax benefit net of valuation
allowance is approximately $1.3 million. DISCONTINUED OPERATIONS The Biopharma Division was historically part of the Miza UK business but was an operation not
acquired by Inyx Pharma on March 7, 2003. Therefore, its results of operations are presented as
discontinued operations in the Companys financial statements. The Biopharma Division had net revenues of approximately $334,000 and costs of revenue of
approximately $393,000, resulting in a gross loss of approximately $558,000 for the period January
1, 2003 through March 6, 2003. All the assets and liabilities relating to the Biopharma division have been included in the
reorganization charge described above under Reorganization Items for the period ended December 31,
2003. 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 is the result of low manufacturing capacity utilization due
to delayed project implementation. We expect the utilization to improve as more of these projects
ramp up to full production and new projects are added. 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. 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 and develop the Inyx Pharma business
and establish ourselves as a specialty pharmaceutical company. 58




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We also expect profitability to be restored to levels experienced by the business assets
acquired by Inyx Pharma prior to the Administration period as more customer contracts and purchase
orders are initiated or renewed, through the increase of our manufacturing capacity utilization,
increased business derived from our expertise in non-CFC aerosol pharmaceuticals, and the marketing
of our proprietary pharmaceutical products, therefore improving gross margins. 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, credit facilities, stockholder loans and capital lease financing. As of December 31, 2004, we had approximately $20.7 million in contractual obligations that
are due through 2019. These financial obligations include both short-term and long-term debt
interest and principal repayments, and amounts owed for operating leases. As of December 31, 2004, our current assets, including cash and cash equivalents, accounts
receivable, inventory and other current assets amounted to approximately $9.0 million. Current
liabilities amounted to approximately $14.9 million and include approximately $5.6 in accounts
payable and other current liabilities, $7.1 million due under a revolving line of credit, and
approximately $2.1 million for the current portion of our long-term debt obligations. The Company
has the option of repaying the principal or interest on its borrowings in cash or by issuing common
stock. As an emerging specialty pharmaceutical company, we are involved in a number of business
development projects, including research and development activities, that require the use of
capital resources over extended periods of time. From time to time, these activities may also
include the use of external resources that require prepayment or cash deposits for supplies,
products or services that we require. As we intensify the development of our own proprietary
products, our capital requirements may increase accordingly. The profit margins on our proprietary
products and consulting services are expected to be higher than our contract manufacturing
services, although the time line for the commencement of revenues and earnings from these newly
evolving business activities may be longer than that of our established contract manufacturing
operations. We also continue to incur operating losses since our reverse acquisition of Inyx Pharma on
April 28, 2003. For the year ended December 31, 2004, such losses amounted to approximately $15.4
million. These losses are primarily as a result of low gross profit margins due to the
underutilization of our manufacturing capacity, research and development costs as we continue the
development of our own proprietary pharmaceutical products, interest expenses and financing costs,
and a number of business and corporate development costs including added payroll expenses, and
external consulting costs and fees associated with our efforts to grow our Company and evolve into
an integrated pharmaceutical company. In 2005, we believe that we can achieve profitability by continuing to intensify our sales and
marketing efforts to increase the number of customer purchase orders and contracts for our contract
development and manufacturing services. As noted above, we also believe that we can establish new
sources of revenue by providing pharmaceutical consulting services to the industry, and by
marketing our own proprietary pharmaceutical products. Based on pharmaceutical industry profit
margins for proprietary products, we expect that the successful development and manufacturing of
our own proprietary products will provide us with greater operating margins and improve our
performance and overall profitability opportunities. Until that time, we will continue to depend on our credit facilities, and placements of equity
and debt securities, to assist us with our working capital requirements and to continue
implementing our business development strategies, capital expenditure plans, and proprietary
product development and commercialization initiatives. 59




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Capital Resources On July 30, 2004, we agreed to a deferral, from Laurus Funds, on the first seven months of
principal payments due under the Laurus Note (originally $4.5 million and then amended to $5.0
million on May 27, 2004). Such payments are now due upon maturity of the Laurus Note in November,
2006. As consideration for this principal payment deferral, on August 30, 2004, we issued to
Laurus Funds five-year warrants to purchase 694,000 shares of our common stock at an exercise price
of $0.81 per share. During the three months ended September 30, 2004, we received approximately $695,000 in
combined net proceeds in the form of short-term stockholder loans provided by our Chairman, a
senior executive of the Company and an outside director. These stockholder loans are due upon
demand and bear interest at seven percent annually. As additional consideration for these loans,
we granted these individuals five-year warrants, to purchase an aggregate of 700,000 shares of our
common stock at an exercise price of $0.80 per share. Net proceeds from these loans were used for
working capital purposes. From August 3, 2004 through September 3, 2004, we completed two private placements in which we
sold an aggregate of 9,190,901 shares of our common stock to institutional and other accredited
investors, resulting in approximately $6.8 million in net proceeds to the Company. In the
aggregate, we also granted these investors, five year non-detachable warrants to purchase up to an
additional 9,190,901 shares of our common stock at exercise prices ranging from $1.00 to $1.11 per
share. At the time we felt that the funding provided by these two equity placements provided us with
the necessary capital to fund our operations, including raw material and component purchases,
research and development and business development activities, and capital expenditures and debt
servicing requirements. Over the longer term, we would require additional funding in the amount of
approximately $6.0 million annually over three years, to complete the development and
commercialization of additional planned proprietary products. We would also require an additional
$3.6 million in funding over three years for capital expenditures in order to improve our
pharmaceutical manufacturing technologies, production capabilities, and plant quality and safety
systems in order to pursue expanding commercial and product manufacturing opportunities with
existing and potential multinational pharmaceutical and biotechnology clients. Additionally, we believe that we can enhance our competitive position through the acquisition
of regulatory-approved pharmaceutical products and drug delivery devices for respiratory,
cardiovascular, and dermatological and topical applications or such products in development,
including those through the acquisition of other pharmaceutical companies, which we are actively
pursuing. In the event we make a significant acquisition or change our capital structure in the
future, we may be required to raise additional capital through a combination of additional
borrowings and the issuance of additional debt and equity securities to fund such activities. We are also actively pursuing acquisitions that may require substantial capital resources. In
the event that we make a significant future acquisition or change our capital structure, we may
also be required to raise additional funds through additional borrowings or the issuance of
additional debt or equity securities. Subsequent to year end, on March 31, 2005, we entered into a new non-dilutive, asset base
revolving credit, term loan and security agreement (Debt Agreement) totaling $46 million 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 Debt Agreement provides up to $10.0
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 the Inyx, Inc. and its 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 line 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 commencing on July 1, 2005 through
maturity. The mezzanine term loan bears interest at the rate of 15.0% with monthly principal
payments commencing on July 1, 2005 through maturity. 60




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The availability under the Debt Agreement 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. In connection with the Companys repayment of the $12.4 million Credit Facility with the
Laurus Funds, all of the liens and security interest in the assets of Inyx Pharma, Ltd held by
Laurus Funds were unconditionally released and transferred to Westernbank Puerto Rico pursuant to
the Release Agreement dated March 31, 2005. On March 31, 2005, the Company (acting through its wholly-owned subsidiary Inyx USA, Ltd.)
closed an Asset Purchase Agreement with Aventis Pharmaceuticals Puerto Rico, Inc. (APR) to
acquire the real estate, equipment, and certain contract rights comprising its Manati, Puerto Rico
pharmaceutical manufacturing facility. Such transaction is more particularly described in a
separate Current Report on Form 8-K filed April 6, 2005. Pursuant to the Asset Purchase Agreement with APR, the Company received a $3.5 million advance
from APR, 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 the Company
subsequent to its acquisition of the pharmaceutical manufacturing assets of APR. Such Promissory
Note carries a ten percent (10%) per annum interest rate and is to be repaid by the Company to APR
in two equal installments of one million seven hundred fifty thousand dollars ($1,750,000); the
first of these installments shall be made on July 29, 2005 and the second of these installments
shall be made on December 30, 2005. The entire unpaid balance of the Promissory Note shall
immediately become due and payable without demand or notice of any kind (a) if any installment is
not paid within a ten (10) day grace period its due date or if any other sum owed under the
Promissory Note or any other obligation to APR is not paid when due, or (b) if the Company shall
admit in writing its inability to pay its debts or makes an assignment for the benefit of
creditors, or if a receiver is appointed for any property of the Company, or if any petition is
filed by or against the Company under any provisions of any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or (c) upon the failure in business, dissolution or
termination of existence of the Company. We expect to meet our short term liquidity requirements through net cash provided by
operations and borrowings under the Debt Agreement with Westernbank and the advance under the
Promissory Note from sanofi-aventis. 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. Contractual Obligations as of December 31, 2004 Tabular Disclosure of
    
    
    Payments due by PeriodContractual Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    2007-(amounts in thousands of U.S. dollars)
    
    
    2005
    
    
    
    2006
    
    
    
    2008
    
    
    
    Thereafter
    
    
    
    TotalLong-Term Debt Obligations -
Principal(1)
    
    
    $
    16,103
    
    
    
    $
    107
    
    
    
    $
    6
    
    
    
    $
    
    
    
    
    $
    16,216Long Term Debt Obligations Interest
    
    
    
    1,038
    
    
    
    
    11
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    1,049Operating Lease Obligations (2)
    
    
    
    577
    
    
    
    
    428
    
    
    
    
    399
    
    
    
    
    1,397
    
    
    
    
    2,801Total
    
    
    $
    17,718
    
    
    
    $
    546
    
    
    
    $
    406
    
    
    
    $
    1,397
    
    
    
    $
    20,067
 (1) Long term debt as at December 31, 2004 is comprised of the following: (i) $5,000,000
7% convertible term note due to Laurus Funds, collateralized by accounts receivable and other
assets of the Company (which includes an advance of $4,500,000 on October 29, 2003 and an
additional $500,000 was advanced on May 27, 2004 when this Note was amended and restated). The
principal is due in monthly installments of $157,000 starting in April of 2004 through November of
2006, while interest on unpaid balances is payable monthly. We have received, from Laurus Funds, a
deferral on the first seven months of principal payments due under this Note. Such payments are now
due upon maturity of the Note in November, 2006. As consideration for this principal payment
deferral, we have issued to Laurus Funds five-year warrants to purchase 694,000 shares of our
common stock at an exercise price of $0.81 per share. The Company has the option to issue common
stock in lieu of debt service payments at the then-market price of the stock. In addition, at
Laurus Funds option, the debt may be converted into common stock at a fixed conversion price of
$0.80 per share. (ii) $4,013,000 uncollateralized 6% convertible promissory note due to
Stiefel,principal is due in Great Britain pounds, on March 6, 2007, while interest is
payable annually commencing on March 7, 2004. Stiefel has the option to convert this note and any
accrued interest into 4 million shares of our common stock at any time before March 6, 2007.
Additionally, Stiefel has the first right of refusal, for a period of four years, on any
additional 61




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debt financing that may be required by the Company. To date, Stiefel has not exercised that
right. We have received, from Stiefel, a waiver of the first annual interest payment amounting to
approximately $240,000 in consideration of future product development services. (iii)
Uncollateralized 18% demand notes due to stockholders, principal and interest due on demand
amounting to $100,000. In the third quarter, one of the two notes amounting to $50,000 has been
offset against a subscription receivable from the same party, and (iv) Capital lease obligations,
due to financial institutions, collateralized by software and equipment, due in monthly
installments of $14,000 including interest of 10% to 27%, through 2006, amounting to $275,000. (2) 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. Analysis of Cash Flows For the Year Ended December 31, 2004 and for the Combined Period Ended December 31,
2003 At December 31, 2004, we had cash of approximately $336,000 as compared to cash of $796,000 at
December 31, 2003. The decrease in our cash position was due mainly to increased working capital
requirements due to a change in the mix in the business in 2004. Cash Flows from Operating Activities for the Year Ended December 31, 2004 The net cash used in operating activities for the year ended December 31, 2004 was $8.9
compared to $4.5 million for the combined periods of 2003. For the period ending December 31, 2004, the net cash used in operating activities included a
net loss of $16.9 million adjusted for non-cash charges totaling $6.2 million consisting primarily
of $1.8 million of amortization of financing cost and debt discounts, $1.3 million due to the
issuance of equity securities as compensation of services and $1.3 million related to a write down
of the deferred tax asset, $0.6 million of depreciation and amortization and an additional $0.5
million provision for inventory obsolescence and $0.6 of all other changes. Working Capital
changes generated a net $0.3 million with uses generated by reductions to prepaids and increased
inventories offset by an increase in accounts payable and a decrease in accounts receivable. For the combined period through December 31, 2003, the net cash used in operating activities
included a net loss of approximately $14.3 million adjusted for non-cash charges totaling
approximately $8.3 million primarily due to the issuance of equity securities as compensation of
services and financing costs, which we have expensed. These non-cash charges have been offset by a
deferred income tax asset of approximately $1.3 million, consisting of a net operating loss carried
forward. Working capital changes reducing cash flow from operations were due primarily to increases
in inventory, accounts receivable and prepaid deposits, resulting from increasing sales and
business activities during 2003. Working capital changes increasing cash flow from operations were
due primarily to increases in accounts payable and accrued liabilities as we ramped up business
after our reverse acquisition of Inyx Pharma. Cash Flows from Investing Activities for the Year Ended December 31, 2004 The net cash used in investing activities for the year ended December 31, 2004 amounted to
approximately $1.7 million compared to approximately $412,000 for the combined periods of 2003. For the year ended December 31, 2004, we spent approximately $1.6 million on equipment to be
refurbished for a new HFA manufacturing line, $105,000 on capital expenditures related to computer
hardware and software and approximately $95,000 on a technology patent. For the combined period through December 31, 2003, we spent approximately $412,000 related to
the purchase of computer hardware and software (including deposits required for a new business
information system), and office furniture and fixtures. 62




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Cash Flows from Financing Activities for the Period Ended December 31, 2004 For the year ended December 31, 2004, the net cash provided by financing activities
approximated $10.4 million compared to approximately $6.3 million for the combined period through
December 31, 2003. The proceeds for the year ended December 31, 2004 included net proceeds from the issuance of
debt and equity of approximately $12.7 million compared to $14.1 million for the combined period
through December 31, 2003. The borrowings were offset by repayment of short-term and long-term
debt repayments and financing fees totaling approximately $2.3 million for the year ended December
31, 2004 and $7.8 million for the combined period through December 31, 2003. External Sources of Liquidity Financing Activities Our Companys operating subsidiary, Inyx Pharma, financed its acquisition of the business
assets of Miza UK through stockholder equity and term debt in the form of a secured asset-based
loan from Venture Finance PLC (Venture Finance), a United Kingdom asset-based lender that is part
of the IFN Group owned by ABN-AMRO Bank. Inyx Pharma obtained this loan from Venture Finance on
March 7, 2003. On that date, Venture Finance also provided Inyx Pharma with a working capital loan
in the form of a confidential invoice discounting credit facility. In 2003, Inyx Pharma received a term loan credit facility from Venture Finance which consisted
of a $4.8 million plant and machinery credit facility with available room of $3.2 million and a
real property term loan with available room of $1.6 million. Inyx Pharma pledged its real estate
properties, and manufacturing equipment and facilities as collateral for these loans. The plant and
machinery credit facility and the real property loan were repayable in 34 equal monthly payments of
$67,000 and $45,000 respectively. This included interest on outstanding balances calculated at
2.25% above the base rate from time to time set by Venture Finance subject to a minimum of 4%.
Payments commenced one month after the commencement of the credit facilities with a final bullet
payment 36 months after commencement of the facilities. This facility was subsequently repaid in
October 2003, when the Company received financing from Laurus Funds. On October 29, 2003, we issued a secured 7% Convertible Term Note due October 29, 2006 to
Laurus Funds in the principal amount of $4.5 million in exchange for cash. This convertible term
note is secured by all of our real and personal properties in the United States and the United
Kingdom, and the common stock of Inyx Pharma consisting of one million ordinary shares. We also
issued to Laurus Funds a five-year Common Stock Purchase Warrant to purchase a total of 1,350,000
shares based on the following prices: 450,000 shares at $1.25 per share; 450,000 shares at $1.50
per share; and 450,000 shares at $1.75 per share. Excluding related financing fees and costs of
$700,000, the net proceeds of the three-year convertible note financing with Laurus Funds amounted
to $3.8 million. Approximately $3 million of the net proceeds were used to repay the outstanding
balance of the original Venture Finance plant and machinery credit facility and terminate that
credit facility, with the balance of approximately $800,000 utilized for working capital purposes. On December 30, 2003, we also closed a financing transaction with Laurus Funds to obtain an
additional $3.5 million credit facility. In addition to being collateralized by our eligible
accounts receivable, this Laurus Funds credit facility is also secured by all other assets of our
Company. Based on eligible accounts receivable at the time, the net proceeds of this financing
amounted to approximately $3.1 million of which approximately $2.6 million of the proceeds were
utilized to repay and terminate the confidential invoice discounting credit facility originally
obtained by Inyx Pharma from Venture Finance. Exclusive of financing fees of approximately
$180,000, the balance of the net proceeds was utilized for working capital purposes. The Laurus Funds $3.5 million credit facility consists of two promissory notes, a $1.0 million
Secured Convertible Minimum Borrowing Note, and a $2.5 million Secured Revolving Note. Both Notes
bear interest at the greater of prime plus 3% or a 7% rate and at the time of closing on December
30, 2003 were convertible into our common stock at a fixed conversion price of $1.47 per share. We
subsequently amended this fixed conversion price, on August 31, 2004, to $0.80 per share. In
addition, subject to certain limitations, the Secured Convertible Minimum Borrowing Note permits
payments to be made in our common stock, and we have filed a registration statement that is not yet
effective to register 3,150,000 shares issued upon conversion of the Notes or in lieu of Note
payments. As 63




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additional consideration for the loan, we also issued to Laurus Funds a five-year Common Stock
Purchase Warrant to purchase a total of 660,000 shares based on the following prices: 220,000
shares at $1.84 per share; 220,000 shares at $2.20 per share; and 220,000 shares at $2.57 per
share. Therefore by December 31, 2003, we had utilized proceeds from the Laurus Funds financings to
repay and extinguish all previous financings obtained through Venture Finance. As of December 31,
2003, the outstanding amounts on the Laurus Funds credit facilities were $4.5 million on the
secured 7% Convertible Term Note due October 29, 2006, and a total of $3.1 million owing on the
$3.5 working capital credit facility, (consisting of the $1.0 million Secured Convertible Minimum
Borrowing Note and $2.5 million Secured Revolving Note) which we obtained on December 30, 2003. In addition to the proceeds from our equity placement financings, in 2003, the Laurus Funds
credit facilities were sufficient to fund our requirements for the year ended December 31, 2003. Then on February 27, 2004, we closed another transaction with Laurus Funds to obtain an
additional financing of $2.0 million as an amendment to the $3.5 million credit facility that we
previously entered with them on December 30, 2003. That Laurus Funds $3.5 million credit facility
consists of two promissory notes, a $1.0 million Secured Convertible Minimum Borrowing Note, and a
$2.5 million Secured Revolving Note. As a result of the additional Laurus Funds financing, the $1.0
million Secured Convertible Minimum Borrowing was increased by $1.0 million and the $2.5 million
principal amount Secured Revolving Note of the credit facility was increased by $1.0 million. Both
Notes were further amended to decrease the applicable conversion rate to$0.80. As additional
consideration for the loan, we issued to Laurus Funds a five-year Common Stock Purchase Warrant to
purchase 330,000 shares of common stock at exercise prices of $1.25 for 110,000 shares, $1.50 for
110,000 shares and $1.75 for 110,000 shares. On March 30, 2004, we obtained an additional $1.0 million advance from Laurus Funds under the
Secured Revolving Credit Note, and issued additional warrants to purchase 165,000 shares of common
stock at exercise prices of $1.25 for 55,000 shares, $1.50 for 55,000 shares and $1.75 for 55,000
shares. On May 27, 2004, we obtained an additional $500,000 advance from Laurus Funds under the
October 29, 2003 Laurus Note, convertible into common stock at $0.80 per share, and issued
additional five-year warrants to Laurus Funds to purchase 82,500 shares at exercise prices of $1.00
per share for 27,500 shares, $1.20 per share for 27,500 shares, and $1.40 per share for 27,500
shares. On July 30, 2004, we received from Laurus Funds a deferral on the first seven months of
principal payments due under the Laurus Note (originally $4.5 million and then amended to $5.0
million on May 27, 2004). Such payments are now due upon maturity of the Laurus Note in November,
2006. As consideration for this principal payment deferral, we have issued to Laurus Funds
five-year warrants to purchase 694,000 shares of our common stock at an exercise price of $0.81 per
share. On September 8, 2004, we announced that we had completed two private placements in which we
sold from August 3, 2004 through September 3, 2004 an aggregate of 9,190,901 shares of our common
stock to institutional and other accredited investors, resulting in gross proceeds of approximately
$7.4 million with approximately $6.6 million in net proceeds to the Company. In the aggregate, the
Company also granted all of the investors, in these two private placements, five-year
non-detachable warrants, to purchase up to an additional 9,190,901 shares of our common stock at
exercise prices ranging from $1.00 to $1.11 per share. During the term of such warrants, the
exercise price shall be increased by 2% (but not more than 20% cumulatively) for every $2 million
of revenues that the Company receives above $35 million in net revenues for the twelve months ended
December 31, 2005, and $55 million for the twelve months ended December 31, 2006; and, conversely,
the exercise price shall be decreased by 5% (but not more than 50% cumulatively) for every $2
million that the Companys net revenues are below $35 million and $55 million, respectively, for
the years ended December 31, 2005 and 2006. Subsequent to year end, on March 31, 2005, we entered into a new non-dilutive, asset based
revolving credit, term loan and security agreement (Debt Agreement) totaling $46 million 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 Debt Agreement provides up to $10.0
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 the Inyx, Inc. and its subsidiary Inyx USA. The Term Loans consist of 64




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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 line 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 commencing on July 1, 2005 through
maturity. The mezzanine term loan bears interest at the rate of 15.0% with monthly principal
payments commencing on July 1, 2005 through maturity. In connection with the Companys repayment of the $12.4 million Credit Facility with the
Laurus Funds, all of the liens and security interest in the assets of Inyx Pharma, Ltd held by
Laurus Funds were unconditionally released and transferred to Westernbank Puerto Rico pursuant to
the Release Agreement dated March 31, 2005. Pursuant to the Asset Purchase Agreement with APR, the Company received a $3.5 million advance
from APR, 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 the Company
subsequent to its acquisition of the pharmaceutical manufacturing assets of APR. Such Promissory
Note carries a ten percent (10%) per annum interest rate and is to be repaid by the Company to APR
in two equal installments of one million seven hundred fifty thousand dollars ($1,750,000); the
first of these installments shall be made on July 29, 2005 and the second of these installments
shall be made on December 30, 2005. The entire unpaid balance of the Promissory Note shall
immediately become due and payable without demand or notice of any kind (a) if any installment is
not paid within a ten (10) day grace period its due date or if any other sum owed under the
Promissory Note or any other obligation to APR is not paid when due, or (b) if the Company shall
admit in writing its inability to pay its debts or makes an assignment for the benefit of
creditors, or if a receiver is appointed for any property of the Company, or if any petition is
filed by or against the Company under any provisions of any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or (c) upon the failure in business, dissolution or
termination of existence of the Company. Certain Indebtedness and Other Matters In addition to the original credit facilities provided by Venture Finance, on March 6, 2003,
Inyx Pharma also received a working capital credit facility in the form of an unsecured convertible
debt instrument (the Stiefel Loan) from one of its clients, Stiefel Laboratories, Inc.
(Stiefel). Headquartered in Coral Gables, Florida, Stiefel is a privately held pharmaceutical
company which has a number of domestic and international operations. Stiefel provided the loan in order to ensure that Inyx Pharma had sufficient working capital
to support its inventory and insurance requirements, once Stiefel agreed to exclusive development,
and manufacturing and supply agreements with Inyx Pharma. Stiefel and Inyx Pharma signed such
agreements, which also included a quality agreement, on March 6, 2003. Under these agreements, Inyx
Pharma is to manufacture and assist in the commercialization of specific hydrocarbon aerosol
dermatological products for Stiefels worldwide customer base. The principal amount of the Stiefel Loan is approximately $4 million, and is due on March 6,
2007. Interest is payable annually at a rate of 6%, beginning March 7, 2004. Stiefel may, from time
to time, agree to postpone any accrued interest payments. Under the Stiefel Loan, Stiefel also has
the first right of first refusal, for a period of four years, on any additional debt financing that
may be required by the Company from time to time. To date, they have not exercised this right of
first refusal. Due to our reverse acquisition of Inyx Pharma, the Stiefel Loan and any accrued interest may
be converted into 4 million shares of our common stock at anytime before March 6, 2007. When we
concluded our reverse acquisition of Inyx Pharma on April 28, 2003, the transaction consisted of an
exchange of 100% of the outstanding common stock of Inyx Pharma (or 1 million ordinary shares of
Inyx Pharma) in exchange for 16 million shares of our common stock, as a result of which Inyx
Pharmas shareholders became the majority shareholders of our Company and Inyx Pharma became our
wholly owned subsidiary. As a result of the reverse acquisition and under the terms of its option
agreement with Inyx Pharma, Stiefel is now entitled to 4 million common shares of our stock, if it
exercises its option to convert its debt into equity of our Company. 65




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As of December 31, 2004, the outstanding amount we owed under the Stiefel Loan totaled
approximately $4.2 million in principal and interest. Accrued interest amounting to approximately
$240,000 (£150,000) for the period March 6, 2003 to March 5, 2004, which was due on March 5, 2004,
was waived by Stiefel in consideration of future contract product development services that they
require from us. Subsequently, on April 6, 2005, Inyx Pharma and Stiefel Laboratories, Inc. entered into a
renewal of a Promissory Note originally dated March 6, 2003 payable to Stiefel Laboratories, Inc.
in the principal amount of 2,500,000 Great Britain Pounds. In connection with such refinancing,
Stiefel agreed to terminate its Option to convert such debt into 4 million shares of common stock
of the Company. The new Note is payable quarterly in three equal installments starting June 30,
2005. Furthermore, once the note is paid off, the cross default condition on the Manufacturing and
Supply Agreement dated March 6, 2003, will be removed and a cancellation letter will be reissued on
December 31, 2005. In addition to our credit facilities, as noted above, our Companys stockholders have
periodically advanced and received repayment of funds loaned to the Company. We have utilized such
stockholder loans to support operations, settle outstanding trade accounts payable, and for general
working capital purposes. Such loans are usually advanced on a short-term basis. As of December 31, 2004, we have capital lease obligations amounting to approximately $227,000
for two capital leases. These leases include computer equipment and copier. The major component of
these capital lease costs is our new business information technology system, the Sage 500
Management Information System (Sage 500 MIS), which has now become operational. The lease for the
Sage 500 MIS will expire by 2006 and is guaranteed by our Chairman/CEO. For the year ended December 31, 2004, the total amount of interest expensed on all of our
Companys borrowings amounted to approximately $1.5 million. This amount of interest consisted of
approximately $795,000 due to Laurus Funds, of which $468,000 was paid, with the balance of
interest owed to Laurus Funds accrued. The balance of interest expensed during the period is
primarily due to Stiefel. For the year ended December 31, 2004, the weighted average interest rate
on outstanding loans during the period amounted to approximately 7.2%. In comparison, for the year ended December 31, 2003, the total amount of interest expensed on
all of our Companys borrowings amounted to approximately $822,000. This amount of interest
consisted of approximately $215,000 of interest paid and $606,000 of interest accrued. For the year
ended December 31, 2003, the weighted average interest rate paid on outstanding loans during the
year amounted to approximately 6.6%. Capital Expenditures For the year ending December 31, 2004, we spent approximately $1.8 million in capital
expenditures for the purchase of equipment to be refurbished for a new HFA manufacturing line
amounting to $1.6 million, computer hardware and software totaling $107,000 and $95,000 for a
technology patent. In comparison, for the combined period ended December 31, 2003, we spent
approximately $412,000 in capital expenditures for the purchase of computer hardware and software,
and office furniture and fixtures. On a short-term basis, recent equity financings and customer funding have provided us with
sufficient capital to fund our immediate capital expenditure plans. Commencing in the second half of 2005, we will require an additional $3.6 million in funding
over three years for capital expenditures, in order to improve our pharmaceutical manufacturing
technologies, production capabilities, and plant quality and safety systems so that we are able to
pursue expanding commercial and product manufacturing opportunities with existing and potential
multinational pharmaceutical and biotechnology clients. Our new credit facility with Westernbank
provides for up to $5.0 million in funding new capital equipment purchases These planned capital expenditures include $975,000 for a new hydrocarbon aerosol
manufacturing and product blending area, which will provide appropriate segregation to manufacture
anti-fungal aerosol products and to grow existing product opportunities; $550,000 for a new mixing
vessel and associated ancillary equipment to enable us to manufacture newly formulated hydrocarbon
aerosol products; $450,000 to expand our CFC-free (HFA) metered dose inhaler production facility in
order to allow us to pursue a number of our own and new customer 66




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product development opportunities in the HFA respiratory area; $375,000 to introduce
additional needle valve and under-cup gassing technology to produce our own proprietary products
that incorporate new product-propellant barrier systems; and $650,000 in facility maintenance
expenditures, including modification to the existing sprinkler systems to meet enhanced insurance
standards, and the relocation of a propellant storage area to meet health and safety requirements. In addition to the costs we have already incurred in connection with the implementation of the
Sage 500 MIS, in 2004, over the next three years, we will have to spend approximately $500,000 in
related capital expenditures for additional business modules to this MIS system, plus ongoing
annual maintenance costs of approximately $65,000. This MIS system supports our business functions
at Inyx Pharma including manufacturing, warehousing, distribution, logistics, sales reporting,
accounting, inventory, quality control, budgeting and financial reporting, and other company
functions. On a longer term basis, in order to continue to strengthen our position in the pharmaceutical
aerosol sector, we will require further capital expenditures to enhance our aerosol manufacturing
and quality control systems. These include expenditures for new filling and packaging equipment and
production facility enhancements to improve our capabilities to introduce new pharmaceutical
aerosol products for increasing market opportunities in the respiratory and dermatological sectors.
Planned investments will also be to support the maintenance of our facilities to meet ongoing
regulatory compliance requirements, including adherence to good manufacturing practice, and the
health, safety and environmental aspects of our pharmaceutical operations. Future Commitments As of December 31, 2004, we have commitments under various long-term lease agreements for
premises including those for our office and development and production facilities. These property
leases range from one to fifteen years depending on the specific property. We also have a number
of operating and capital leases for office equipment, fork lifts and staff automobiles in the
United Kingdom. As of December 31, 2004, we had operating lease contractual obligations totaling approximately
$2.8 million due to various vendors over the next ten years. With regard to our vendor and suppliers, due to the purchase of the business assets of Miza UK
out of Administration, we continue to be on pre-payments and cash on delivery (COD) payment terms
with a number of our suppliers in Europe. These include all of our key component suppliers,
including Cebal, which provides us with cans; Perfect Valois, which provides valves for aerosol
pharmaceutical products; Lablabo, which provides actuators for steroidal foam products; Bespak,
which provides valves for pharmaceutical respiratory inhaler devices; Precision Valve which
provides us with aerosol valves; and Nussbaum & Guhl, which also provides us with cans. We have
been in discussions with these vendors regarding our terms of payment and expect that, by the end
of 2004, we can commence 30-60 day payment terms with such vendors. As a specialty pharmaceutical company, we are also involved in a number of business
development projects including research and development activities that require the use of capital
resources over extended periods of time. From time to time, these activities may also include the
use of external resources that require prepayment or cash deposits for supplies, products or

services that we require. As we intensify the development of our own proprietary products, our
capital requirements and/or future commitments may increase accordingly. The profit margins on our
proprietary products and consulting services are expected to be higher than our contract
manufacturing services, although the time line for the commencement of revenues and earnings from
these newly evolving business activities may be longer than that of our established contract
manufacturing operations. Subsequent Events Subsequent to year end, on March 31, 2005, we entered into a new non-dilutive, asset base
revolving credit, term loan and security agreement (Debt Agreement) totaling $46 million 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 Debt Agreement provides up to $10.0
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 the Inyx, Inc. and its subsidiary Inyx USA. The Term Loans consist of 67




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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 line 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 commencing on July 1, 2005 through
maturity. The mezzanine term loan bears interest at the rate of 15.0% with monthly principal
payments commencing on July 1, 2005 through maturity. The availability under the Debt Agreement 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. In connection with the Companys repayment of the $12.4 million Credit Facility with the
Laurus Funds, all of the liens and security interest in the assets of Inyx Pharma, Ltd held by
Laurus Funds were unconditionally released and transferred to Westernbank Puerto Rico pursuant to
the Release Agreement dated March 31, 2005. On December 15, 2004, the Company (acting through its wholly-owned subsidiary Inyx USA, Ltd.)
signed an Asset Purchase Agreement with Aventis Pharmaceuticals Puerto Rico, Inc. (APR) to
acquire the real estate, equipment, and certain contract rights comprising its Manati, Puerto Rico
pharmaceutical manufacturing facility. We expect the Manati, Puerto Rico site acquisition to be
materially additive to our revenues and earnings potential. Such transaction is more particularly
described in a separate Current Report on Form 8-K filed April 6, 2005. Pursuant to the Asset Purchase Agreement with APR, the Company received a $3.5 million advance
from APR, 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 the Company
subsequent to its acquisition of the pharmaceutical manufacturing assets of APR. Such Promissory
Note carries a ten percent (10%) per annum interest rate and is to be repaid by the Company to APR
in two equal installments of one million seven hundred fifty thousand dollars ($1,750,000); the
first of these installments shall be made on July 29, 2005 and the second of these installments
shall be made on December 30, 2005. On April 6, 2005, our subsidiary, Inyx Pharma and Stiefel Laboratories, Inc. entered into a
renewal of a Promissory Note originally dated March 6, 2003 payable to Stiefel Laboratories, Inc.
in the principal amount of 2,500,000 Great Britain Pounds. In connection with such refinancing,
Stiefel agreed to terminate its Option to convert such debt into 4 million shares of common stock
of the Company. The new Note is payable quarterly in three equal installments starting June 30,
2005. Furthermore, once the note is paid off, the cross default condition on the Manufacturing and
Supply Agreement dated March 6, 2003, will be removed and a cancellation letter will be reissued on
December 31, 2005. Expectations In addition to focusing on the integration of our acquisition of Aventis PR, in 2005, we hope
that we will receive all of the necessary U.S. government regulatory body approvals in order to
commence to implement our manufacturing consulting agreement with a third-world country, under the
United Nations Development Programme  Montreal Protocol. We 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 agreed to or signed. 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. 
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ITEM 8.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 
 ITEM 8A.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. During the fiscal quarter ended December 31, 2004, there were no changes in our Internal
Control Over Financial Reporting that has materially affected, or is reasonably likely to
materially affect, our Internal Control Over Financial Reporting. 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, including an experienced chief financial officer,
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. 69




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As disclosed in Note 3 to our financial statements, we restated our financial statements on
two occasions during 2004 in order to correct the accounting for the acquisition if Miza UK and the
accounting for convertible debt with beneficial conversion features and warrants. These material
changes to our financial statements resulted from our on-going evaluation of the financial effects
of these events. We believe that all proper corrections have now been made and that our financial
reporting will be consistent and accurate during 2005 and beyond. Evaluation of Disclosure Controls and Procedures. 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 are effective in timely alerting them to material information
relating to the Company (including it consolidated subsidiaries) required to be included in our
Exchange Act filings. 
 ITEM 8B.OTHER INFORMATION None. 
 PART III 
 ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS Section 16(a) Beneficial Ownership Reporting Compliance The Companys officers, directors and 10% stockholders are not subject to Section 16
reporting. Directors and Executive Officers Name
    
    Age
    
    Position with Company
    
    Start Date with CompanyJack Kachkar
    
    
    42
    
    
    Chairman, Chief Executive Officer, and
Director
    
    April 1, 2003Steven Handley
    
    
    42
    
    
    President and Director
    
    May 1, 2003Colin Hunter
    
    
    48
    
    
    Executive Vice President, Chief
Scientific Officer and Director
    
    May 1, 2003Douglas Brown
    
    
    52
    
    
    Director and Compensation Committee Chair
    
    July 17, 2003Joseph Rotmil
    
    
    54
    
    
    Director and Audit Committee Chair
    
    May 5, 2004Jay M. Green
    
    
    56
    
    
    Executive Vice President and Director of
Corporate Development
    
    December 1, 2003John Hamerski
    
    
    53
    
    
    Vice President and Chief Financial Officer
    
    April 1, 2005Rima Goldshmidt
    
    
    42
    
    
    Vice President-Finance and Treasurer
Corporate Secretary
    
    April 1, 2003Ulrich Bartke
    
    
    49
    
    
    Vice President, Global Sales and Marketing
    
    June 1, 2004
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Jack
Kachkar  Chairman, Secretary and Director.Dr. Kachkar is a medical doctor with
experience as an executive within the pharmaceutical industry. From 1996 until December 2002, he
was President and CEO of Miza Pharmaceuticals, Inc., a Canadian corporation in Toronto, Ontario.
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. Dr. Kachkar earned his medical degree from the English Language
Medical Program at Semmelweis Medical University in Budapest, Hungary. Miza Pharmaceuticals, Inc.
(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; 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 May 2003,
after it had been sold to its management in October 2002. Miza UK was placed in Administration in
2001 and sold its assets out of Administration in March 2003 to Inyx Pharma. Miza USA was placed
with Chapter 11 bankruptcy proceedings by its new owners in May 2003 under the name Carr
Pharmaceuticals, Inc. Miza is currently inactive. 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.Since
1993, Mr. Rotmil has been President and CEO of Mixon Corporation, a manufacturer of public safety
equipment. He is also currently President and CEO of Weston Capital Quest Corporation, a private
consulting firm. Mr. Rotmil began his career in 1972 as an auditor with Coopers & Lybrand (now
part of Price Waterhouse Coopers) and has held various financial and executive positions in the
food services and telecommunications industry. His prior 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. 71




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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). John Hamerski (Jack)  Vice President and Chief Financial Officer. Mr. Hamerski is an
experienced executive with a broad range of financial and operational experience. He joined Inyx on
April 1, 2005 as Chief Financial Officer of Inyx, Inc. and Chief Operating Officer of Inyx USA.
From August 2000 until June 2004, he was the Executive Vice President & Chief Financial Officer of
Access Worldwide Communications, Inc., a pharmaceutical marketing firm. From November 1997 until
his promotion to CFO he was the Vice President of Financial Planning and Analysis for Access
Worldwide. Previously, form 1994 until November 1997, he was Vice President & Chief Financial
Officer for Cadmus Interactive and Cadmus Catalogs, two divisions of Cadmus Communications
Corporation, a marketing services firm and from 1992 thru 1994 as Director of Financial Planning
and Analysis also with Cadmus Communications. Earlier in his career, he held several positions at
the General Electric Company, including Manager of Internal Auditing and Manager of Programs &
Productivity for GE Appliances. Rima
Goldshmidt - Vice President-Finance, Treasurer and Corporate Secretary.Ms. Goldshmidt is responsible for
financial reporting and consolidation. She 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. Ulrich
Bartke - Vice President, Global Sales and Marketing.Mr. Bartke joined Inyx in June
2004. From November 2003 until joining Inyx, Mr. Bartke was a self-employed consultant to
pharmaceutical companies. Prior to that, Mr. Bartke served as Vice President Global Sales &
Marketing of PowderJect Pharmaceuticals Plc, where he directed sales growth from approximately $40
million to in excess of $290 million during his two-year tenure from 2001 to August 2003, at which
time PowderJect was acquired and Mr. Bartke became a pharmaceutical industry consultant focusing on
U.S. and European markets. Mr. Bartke began his professional career and served for 17 years, from
1984 to 2001, with GlaxoSmithKline (GSK) in a number of different executive capacities. He
started out in manufacturing management positions before moving into several marketing
directorships at SmithKline Beecham Pharmaceuticals. In his last position with GSK, he served as
Therapy Area Director, Vaccines, for GSK Pharmaceuticals Europe. Mr. Bartke holds a BSc in
Pharmacy and a Ph.D. in Pharmaceutical Chemistry from the University of Berlin. Director Compensation Directors serve for a term of one year or until their successors are elected and qualified.
Non-management directors receive annual compensation of $30,000 for serving on the Board and all
committees. 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. 72




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##### Table of Contents



Other Key Employees Name
    
    Position
    
    CompanyDolores Fernandez
    
    Vice President, Global Supply Chain
    
    Inyx, Inc.Nancy Hernandez
    
    Vice President, Regulatory Compliance and
Quality Operations
    
    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, Operations and Site Director
    
    Inyx USA, Inc.Norma Rosa
    
    Head of Finance
    
    Inyx USA, Inc.Ged Dittman
    
    Vice President, Operations

    
    Inyx Pharma. LtdPhil Jenkinson
    
    Vice President, Quality
    
    Inyx Pharma. LtdJoseph Rose
    
    Head of Finance
    
    Inyx Pharma. LtdPatricia Gilmore
    
    Human Resource Manager
    
    Inyx Pharma. LtdAnastasia Loftus
    
    Regulatory Affairs Manager
    
    Inyx Pharma. LtdMalcolm Fox
    
    Engineering Manager
    
    Inyx Pharma. LtdCarole Richardson
    
    Corporate Administration Manager
    
    Inyx Pharma. 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. Director Compensation Directors receive annual compensation of $30,000 for serving on the Board and all committees.
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 73




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##### Table of Contents



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 filed
a listing application with the American Stock Exchange in 2003, and structured our governance to
comply fully with all requirements of that Exchange as required by SOX. We will continue to pursue
a listing of our common stock on that exchange and will continue to comply with the rules of the
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. 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 10.EXECUTIVE COMPENSATION Executive Compensation For the fiscal years ended December 31, 2004, 2003 and 2002, 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. Long-Term Incentive Plans Annual Compensation
    
    
    
    
    
    
    Long-TermName/Principal
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Annual
    
    
    
    
    
    
    All OtherPosition
    
    Year
    
    
    Salary
    
    
    Bonus
    
    
    Compensation
    
    
    Compensation
    
    
    CompensationJack Kachkar(1) (3)
    
    
    2004
    
    
    $
    345,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    75,000Chief Executive
    
    
    2003
    
    
    $
    245,000
    
    
    
    
    
    
    $
    100,000
    (4)
    
    
    
    
    
    $
    65,000Officer
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Steven Handley(1)
    
    
    2004
    
    
    $
    183,000
    
    
    
    
    
    
    $
    27,885
    (6)

    
    
    
    
    
    $
    57,329President
    
    
    2003
    
    
    $
    163,300
    
    
    $
    12,250
    (5)

    
    
    
    
    
    
    
    
    
    $
    16,1202002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Colin Hunter(1)
    
    
    2004
    
    
    $
    172,300
    
    
    
    
    
    
    $
    29,501
    (6)

    
    
    
    
    
    $
    61,568Executive
Vice-President
    
    
    2003
    
    
    $
    155,135
    
    
    $
    11,635
    (5)

    
    
    
    
    
    
    
    
    
    $
    16,120CSO
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jay Green(1)(2)
    
    
    2004
    
    
    $
    150,000
    
    
    $
    75,000
    (5)
    
    $
    5,000
    (7)
    
    
    
    
    
    $
    10,000Executive Vice-President,
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corp. Dev.
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rima Goldshmidt(1)

    
    
    2004
    
    
    $
    100,000
    
    
    $
    35,000
    (5)

    
    
    
    
    
    
    
    
    
    $
    15,000Vice President, Finance
    
    
    2003
    
    
    $
    92,000
    
    
    $
    5,000
    
    
    
    
    
    
    
    
    
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ulrich Bartke(1)(2)
    
    
    2004
    
    
    $
    96,000
    
    
    
    
    
    
    $
    11,254
    (6)
    
    
    
    
    
    $
    20,361Vice President, Sales &
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Marketing
    
    
    2002
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
   (1)
    
    No compensation was paid in 2002.(2)
    
    No compensation was paid in 2003.(3)           During 2003 and 2004, Dr. Kachkar provided his services to Inyx and its subsidiaries through
JK Services, a partnership of corporations owned by him and members of his immediate family. See
Related Party Transactions. 74




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##### Table of Contents



(4) Represents a discretionary expense allowance. Effective January 1, 2004, such amount was
combined with the salary amount. (5) Accrued but not paid. (6) Represents vehicle, travel and professional fee allowances. (7) Represents a one-time discretionary expense allowance. Stock Options Number of Securities
    
    
    Value of Unexercised In-the-Underlying Unexercised
    
    
    Money OptionsOptions at Fiscal Year End
    
    
    at Fiscal Year EndNumber ofSharesAcquired or
    
    
    ValueName
    
    Exercised
    
    
    Realized
    
    
    Exercisable
    
    
    Un-exercisable
    
    
    Exercisable
    
    
    Un-exercisableJack Kachkar
    
    
    
    
    
    
    
    
    
    
    750,000
    
    
    
    
    
    
    $
    233,500
    
    
    
    Steven Handley
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Colin Hunter
    
    
    
    
    
    
    
    
    
    
    233,333
    
    
    
    166,667
    
    
    $
    58,333
    
    
    $
    41,667Jay Green
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    $
    125,000
    
    
    
    Rima Goldshmidt
    
    
    
    
    
    
    
    
    
    
    215,000
    
    
    
    
    
    
    $
    55,250
    
    
    
    Ulrich Bartke
    
    
    
    
    
    
    
    
    
    
    110,000
    
    
    
    100,000
    
    
    $
    19,800
    
    
    
    
 Long-Term Incentive Plans Estimated Future Payments underNon-Stock Price-Based PlansNumber of
    
    
    Performance orShares,
    
    
    Other period UntilUnder or
    
    
    Maturation or
    
    
    Threshold
    
    
    Target
    
    
    MaximumName
    
    Other Rights
    
    
    Payout
    
    
    ($ or #)
    
    
    ($ or #)
    
    
    ($ or #)Jack Kachkar
    
    None
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Steven Handley
    
    None
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Colin Hunter
    
    None
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jay Green
    
    None
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rima Goldshmidt
    
    None
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ulrich Bartke
    
    None
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 75




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##### Table of Contents



Employment Agreements The Company has signed Employment Agreements with its six executive officers. Such agreements
have the following principal terms: Term of
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    SeveranceStart Date
    
    
    Years
    
    
    Base Salary
    
    
    Stock Options
    
    
    Vacation
    
    
    amountJack 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 baseJohn Hamerski
    
    
    April 1, 2005
    
    
    
    2
    
    
    
    $
    200,000
    
    
    
    
    300,000
    
    
    
    
    4
    
    
    
    6 months baseRima Goldshmidt
    
    
    April 1, 2003
    
    
    
    4
    
    
    
    $
    92,000
    
    
    
    
    100,000
    
    
    
    
    4
    
    
    
    6 months baseJay Green
    
    
    December 1, 2003
    
    
    
    5
    
    
    
    $
    150,000
    
    
    
    
    500,000
    
    
    
    
    4
    
    
    
    24 month baseUlrich Bartke
    
    
    June 1, 2004
    
    
    
    1.5
    
    
    
    £
    90,000
    
    
    
    
    210,000
    
    
    
    
    5
    
    
    
    9 months 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 were: Kachkar - 500,000, Handley - nil, Hunter - 400,000,
Goldshmidt - 200,000 and Green - 500,000 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. Stock Option Plan The Companys Stock Option Plan (the Option Plan) provides for the grant to eligible
employees and directors of options for the purchase of common stock. The 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
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 Board of Directors administers and interprets the Option Plan and is authorized to grant
options thereunder to all eligible employees of the Company, including officers. The Board of
Directors designates the optionees, the number of shares subject to the options and the terms and
conditions of each option. Each option granted under the Option 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. An optionee may not transfer or assign any option granted
and may not exercise any options after a specified period subsequent to the termination of the
optionees employment with the Company. 76




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##### Table of Contents



ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Name and Address
    
    Number of Shares
    
    
    PercentageJordan Slatt
    
    
    2,201,500
    (1)
    
    
    5.65
    %124 Sandringham DriveNorth York, OntarioM3H 1E3Viktoria Benkovitch
    
    
    3,030,000
    (2)
    
    
    7.77
    %Unit #1210, 445 Grand Bay DriveKey Biscayne, Florida 33149Jack Kachkar
    
    
    890,000
    (3)
    
    
    2.28
    %Unit #1210, 445 Grand Bay DriveKey Biscayne, Florida 33149Steven Handley
    
    
    2,000,000
    (4)
    
    
    5.13
    %37 Parkland DriveElton, ChesterCheshire, England CH2 4PGRima Goldshmidt
    
    
    215,000
    (5)
    
    
    0.55
    %103 Overbrook PlaceToronto, Ontario, CanadaM3H 4P5Colin Hunter
    
    
    1,000,000
    (6)
    
    
    2.57
    %11 HumbercloseWidnes, Cheshire, EnglandLarry Stockhamer, Trustee
    
    
    9,100,000
    (7)
    
    
    23.34
    %76 Sanibel CrescentThornhill, Ontario , CanadaL4J 8K7Seward Trading
    
    
    2,300,000
    
    
    
    5.90
    %voting and dispositive power is held byAlex BenkovitchDes Bergues 11, CP, Geneva 11Switzerland, CH-1211Perceptive Life Sciences Master Fund Ltd.,
    
    
    2,500,000
    
    
    
    6.41
    %voting and dispositve power is held byJoseph EdelmanSuite 100, 5347 Connecticut Ave,
N.W.Douglas Brown
    
    
    1,200,000
    (8)
    
    
    3.08
    %Sturdys, TastonOxon, UK 0OX735LJoseph A. Rotmil
    
    
    200,000
    (9)
    
    
    0.51
    %812 HamptonWeston, Florida 33326Jay M. Green
    
    
    850,000
    (10)
    
    
    2.18
    %104 West Shore DrivePutnam Valley, New York, 10579Ulrich Bartke
    
    
    210,000
    (11)
    
    
    0.54
    %Doernter Weg 26Wallenhorst, Germany D-49134John Hamerski
    
    
    300,000
    (12)
    
    
    0.77
    %3101 South Ocean Blvd,Highland Beach, FL 33487All officers and directors
as a group (9 persons)
    
    
    6,865,000
    (13)
    
    
    17.61
    %




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##### Table of Contents



(1)
    
    Consists of 1,301,500 shares owned of record and beneficially, 700,000
owned in his capacity as trustee of 715821 Ontario Limited, and warrants to purchase
200,000 shares.(2)
    
    Consists of 2,250,000 shares owned of record and beneficially and warrants to
purchase 780,000 shares. Ms. Benkovitch is the spouse of Dr. Jack Kachkar. Dr.
Kachkar disclaims any beneficial ownership of her shares.(3)
    
    Consists of 40,000 shares owned of record and beneficially, options to
purchase 750,000 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.(4)
    
    Shares owned of record and beneficially.(5)
    
    Options to purchase 215,000 shares.(6)
    
    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.(7)
    
    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.(8)
    
    Consists of 100,000 shares owned of record and beneficially, options to
purchase 250,000 shares, vesting over two years, and warrants to purchase 850,000
shares.(9)
    
    Options to purchase 200,000 shares, vesting over two years.(10)
    
    Options to purchase 500,000 shares and warrants to purchase 350,000 shares.(11)
    
    Options to purchase 210,000 shares, vesting over 1.5 years. Currently only 110,000 options have vested.(12)
    
    Options to purchase 300,000 shares, vesting over 3 years.(13)
    
    Includes 2,740,000 shares, options to purchase 2,825,000 shares, and
warrants to purchase 1,300,000 shares.(14)
    
    Consists of 2,640,000 shares, options to purchase 2,825,000 shares and
warrants to purchase 1,200,000 shares once 100,000 shares are sold directly and another
100,000 shares sold through the exercise of warrants. The Company is not aware of any arrangement which might result in a change in control in the future. 
 ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Organization of the Company Dr. Jack Kachkar, Mr. Steven Handley, and Mr. Colin Hunter may be considered to be the
promoters who organized the Company. 78




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##### Table of Contents



On March 26, 2003, the prior controlling shareholders of the Company sold 2,250,000 shares of
common stock, representing 45% of shares outstanding, to Medira Investments LLC, which subsequently
transferred such shares to Viktoria Benkovitch, the wife of Dr. Kachkar On April 28, 2003, the Company acquired all outstanding stock of Inyx Pharma, Ltd. in exchange
for 16,000,000 shares of common stock of Inyx, Inc., including 7,600,000 shares issued to Larry
Stockhamer as Trustee of the JEM Family Trust, of which Dr. Kachkars children and other family
members are the beneficiaries, 2,000,000 shares to Mr. Handley and 600,000 shares to Mr. Hunter.
Dr. Kachkar disclaims any beneficial ownership of the shares owned by Ms. Benkovitch or Mr.
Stockhamer. See the discussion below in Related Party Transactions. Dr. Kachkar has been issued stock options for a total of 500,000 shares at an exercise price
of $1.10 per share and has entered into the Employment Agreement described above. On August 22,
2003, he also participated in a private placement of restricted common stock which was made to
existing stockholders. He acquired 100,000 shares at $1.00 per share in exchange for debt owed to
him, and received two-year warrants, to purchase one share for each share purchased in the offering
for $1.50 per share. On July 2, 2004, Dr. Kachkar was issued additional stock options for 50,000
shares at an exercise price of $0.90 per share. On November 22, 2004, Dr. Kachkar was issued
additional stock options for 200,000 shares at an exercise price of $0.92 per share. Mr. Handley has entered into the Employment Agreement described above. Mr. Hunter has been granted stock options for a total of 400,000 shares at a price of $1.10
per share and the Employment Agreement described above. Related Party Transactions Mr. Green has been granted stock options for a total of 500,000 shares at a price of $1.10 per
share and the Employment Agreement described above. Prior to joining the Company, Mr. Green was
previously a managing director at Duncan Capital LLC (Duncan). Duncan had been the Companys
investment banker during the second half of 2003. That relationship with Duncan has been
terminated. On May 7, 2004, the Company terminated its investment banking relationship with
Duncan. As a termination fee, the Company agreed to pay Duncan $120,000. Mr. Green and Dr. Kachkars spouse, Viktoria Benkovitch are co-owners of Karver Capital
Holding, Ltd., (Karver), a private investment holding company incorporated in the British Virgin
Islands. Karver is an affiliate of Medeorex, Inc. a New York
Corporation (Medeorex), and a publicly-held health services
company that subleases office space from the Company. On July 1, 2004, the Company granted a total of 100,000 five year stock purchase warrants to
Mr. Green as additional consideration for the issuance of a promissory note. These warrants allow
the holder to purchase the Companys common stock at a price of $0.80 per share. On July 1, 2004, the Company subleased 25% of its New York offices to Medeorex. Medeorex is
required to pay to the Company approximately $30,000 in annual rent. Dr. Kachkar and Mr. Green are
officers and directors of Medeorex. On July 2, 2004, the Company granted a total of 1,500,000 warrants to First Jemini Trust, a
discretionary family trust in which Dr. Kachkar and his spouse, are non-voting beneficiaries.
These five-year warrants were granted pursuant to various business development services provided to
the Company and allow the holder to purchase the Companys common stock at a price of $0.90 per
share. 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. All of these stockholder loans are 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. Additionally, in November
2004, Dr. Kachkar and his spouse, Mr. Brown and Mr. Green agreed to each renew their loans to the
Company. As 79




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additional consideration for such loans and for additional services provided to the Company in
connection with the Companys corporate developments, 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 loans were renewed subsequent to year end and the net proceeds from
these loans were utilized for working capital purposes. All such loans from Dr. Kachkar and his family have either been repaid, are periodically
repaid, or are currently outstanding and therefore included in the Companys liabilities. As of
December 31, 2004, the Companys liabilities to Dr. Kachkar and his family amounted to $0.
Subsequent to December 31, 2004, Dr. Kachkar provides funding on an ongoing basis for the Companys
working capital requirements. On May 1, 2001, Miza UK, a subsidiary of Miza Pharmaceuticals, Inc., a Canadian corporation,
acquired the pharmaceutical development and manufacturing business of CCL Pharmaceuticals, a
division of CCL Industries (UK), Limited unrelated to the Company or any affiliate, for $20 million
in a combination of stock, and vendor debt and convertible debt notes. At that time, Miza
Pharmaceuticals, Inc. (Miza Inc.) was majority owned by Dr. Jack Kachkar and his family members.
Dr. Kachkar resigned as an executive officer of Miza Inc. on December 31, 2002, and as a Director
of that company on May 15, 2003. Miza Inc. 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 Inc.
in December 2002, and as a director in May 2003; 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 May
2003, after it had been sold to its management in October 2002. Miza UK was placed in
Administration in 2001 and sold its assets out of Administration in March 2003 to Inyx Pharma.
Miza Irelands assets were sold to an unrelated third party through an Irish court liquidation
proceeding. Miza USA was placed with Chapter 11 bankruptcy proceedings by its new owners in May
2003 under the name Carr Pharmaceuticals, Inc. Miza Inc. is currently inactive. On September 3, 2002, Miza UK was placed into court-appointed Administration. On February 2,
2003, Inyx Pharma was organized by Steven Handley and Colin Hunter, who acquired 12.5% and 3.75% of
the company, respectively, for nominal value. On March 3, 2003, 75821 Ontario Limited (Ontario),
a Canadian entity owned by Jordon Slatt, acquired 8.75% of Inyx Pharma for services and 65% of Inyx
Pharma as trustee for the JEM Family trust (JEM), whose beneficiaries are Dr. Kachkar and his
family. Such trust is irrevocable and grants to independent trustees the right to vote and dispose
of any stock owned by the trust. Therefore, Dr. Kachkar and Ms. Benkovitch (Dr. Kachkars wife)
disclaim beneficial ownership of the shares owned by the trust. JEM paid approximately £550,000 to
acquire such shares, which were distributed from Ontario to JEM in May 2003. The final investor in
Inyx Pharma was Coral Beach Ventures, Inc., a Liechtenstein based fund, which acquired 10% of Inyx
Pharma for £750,000 on March 7, 2003. Other than Dr. Kachkar, Mr. Handley and Mr. Hunter being
previous directors or management of Miza companies, none of the Inyx Pharma shareholders were
related. On March 7, 2003, two divisions of Miza UK, Miza Aerosols and Miza Development, were sold
from the Administrator to Inyx Pharma for a total purchase price, inclusive of working capital, of
$7.1 million, plus acquisition costs of $1.2 million. The acquisition price was obtained from the
foregoing capital contributions and a loan from Venture Finance PLC. Prior to September 3, 2002, Dr. Jack Kachkar, the Companys Chairman and CEO, was a director
and indirect shareholder of Miza UK but as a result of this administration process, at the time of
its acquisition of Miza UKs assets, Inyx Pharma and its shareholders did not directly or
indirectly own or control any of Miza UKs assets. Then, on April 28, 2003, the Inyx Pharma
stockholders unanimously agreed to exchange their shares for an aggregate of 64% of the outstanding
common stock of Doblique. At the time of the transfer, Dr. Kachkar was the sole director and
officer of Inyx (f/k/a Doblique), and his wife, Ms. Benkovitch, was the owner of 45% of the
outstanding common stock of Inyx (f/k/a Doblique) following the transfer to her from Medira
Investments, LLC, a wholly-owned investment company. In his capacity as the Companys director, Dr. Kachkar acted for Doblique in connection with
the Inyx Pharma acquisition. In addition, Inyx Pharma was represented by its own Board of
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legal counsel. Dr. Kachkar concluded that the Inyx Pharma transaction was fair to the
unaffiliated stockholders of Doblique and all other parties. Such conclusion was based upon the
following factors:  
    Doblique received an opinion that the acquisition was fair to the Doblique stockholders
from a financial point of view from Jeffrey Katz, C.A. Mr. Katz is an independent
chartered accountant in Canada and is experienced in the analysis of public companies and
rendering of fairness opinions.
    Doblique shares were trading sporadically at prices as low as $.21 per share before the
acquisition of the control bloc by Medira was announced, and the net book value per share
as of December 31, 2002, was a negative $0.03. Following announcement of the change of
control and closing of the acquisition, the trading price of the Doblique stock increased
to $1.55.
    Doblique has moved from a small company with limited assets and continuing losses from
operations to a potentially growing specialty pharmaceutical company with an international
client base. The Company and Inyx Pharma previously had been without cash resources, and Dr. Kachkars
family made numerous cash advances in anticipation of the acquisition of Inyx Pharma. In August
2003, $100,000 of such loans was converted into common stock at $1.00 per share, and all other
amounts have been satisfied. Inyx Canada provides management services to Inyx and its subsidiary, Inyx Pharma. JK
Services, a partnership of companies owned by Dr. Kachkar and his immediate family members,
provides Dr. Kachkars services to the Company, from time to time. Total payments to JK Services
in 2003 were $980,939, consisting of $228,125 for recurring salary and $752,814 based on the
following: In March 2003, Dr. Kachkar 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 payment to JK Services. Dr. Kachkar holds 40,000 shares of Company stock owned of record and beneficially, options to
purchase 750,000 shares of Company stock, and warrants to purchase an additional 100,000 shares of
Company stock. In 2003, Dr. Kachkar previously held 100,000 shares in Company stock which he
acquired in August 2003 when he converted an outstanding shareholder loan of approximately $100,000
due to him by the Company into common stock at $1.00 per share. In January 2004 Dr. Kachkar
transferred 60,000 shares of his Company stock to Bennett Jones, a Canadian law firm which provides
legal and commercial advice and services to Dr. Kachkars family. Such transfer was in lieu of
fees payable to Bennett Jones by Dr. Kachkars family. On April 14, 2004, the Company transferred all shares of its subsidiary, Inyx Realty, Inc. to
First Jemini Trust, a discretionary family trust for the benefit of Dr. Kachkars Family. Inyx
Realty was formed to be the lessee of an office facility in Miami. The Company instead determined
to lease office space in New York, New York, and had no need for the Miami space or its associated
liability. The transfer of Inyx Realty to First Jemini Trust effectively removed the long-term
lease commitment liability from the Company. The Company believes that all of the foregoing transactions were made on terms as favorable as
could have been obtained from unrelated third parties. 
 ITEM 13.EXHIBITS (a) The following documents are filed as part of this Annual Report on Form 10-KSB:  1.
    Financial Statements: The financial statements filed as part of
this report are listed in the Index to Financial Statements on Page F-1
hereof.2.
    Exhibits required to be filed by Item 601 of Regulation S-B: 81




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2.1
    
    Stock Exchange Agreement dated April 25, 2003, among Inyx Pharma, Doblique and the Inyx
Stockholder. (1)2.2.1
    
    Asset Purchase Agreement dated as of December 15, 2004, by and between Inyx USA, Ltd. and Aventis
Pharmaceuticals Puerto Rico, Inc. (20)(10)2.2.2.
    
    General Assignment dated as of April 1, 2005, by and between Aventis Pharmaceuticals Puerto Rico
Inc. and Inyx USA, Ltd. (21)3.1.1
    
    Restated Articles of Incorporation of Inyx, Inc. (1)3.2
    
    Bylaws of Inyx, Inc. (1)4
    
    Specimen stock certificate for common shares. (1)10.1
    
    2003 Stock Option Plan. (1)10.2
    
    Indemnity Agreement dated April 25, 2003, among the Company, Steve Handley, Colin Hunter and Jack
Kachkar. (1)10.3
    
    Registration Rights Schedule to Stock Exchange Agreement dated April 25, 2003. (1)10.4.1
    
    Employment Agreement dated April 1, 2003, with Jack Kachkar. (1)10.4.2
    
    Employment Agreement dated May 1, 2003, with Steven Handley. (1)10.4.3
    
    Employment Agreement dated May 1, 2003, with Colin Hunter. (1)10.4.4
    
    Employment Agreement dated April 1, 2003, with Rima Goldshmidt. (1)10.4.5
    
    Employment Agreement dated June 1, 2004, with Ulrich Bartke. (11)10.4.6
    
    Employment Agreement dated December 1, 2004, with Jay Green. (16)10.4.7
    
    Amendment dated May 15, 2003, to Employment Agreement of Rima Goldshmidt. (7)10.4.8
    
    Management Services Agreement dated May 15, 2003, with JK Services. (8)10.4.9
    
    Employment Agreement dated January 1, 2004, with Jack Kachkar. (8)10.4.10
    
    Employment Agreement dated
April 1, 2005, with John Hamerski (22)10.5
    
    Opinion of Jeffrey Katz, C.A. (1)10.6.1
    
    Lease dated July 22, 1994, with the Council of the Borough of Halton for facilities at 6 Seymour
Court, Manor Park, Runcorn, Cheshire, England. (1)10.6.2
    
    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. (1)10.6.3
    
    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. (1)10.7
    
    Business Advisory and Financial Consulting Services Agreement with Jordan Slatt. (1)10.8
    
    Agreement dated March 7, 2003, between Miza Pharmaceuticals (UK) Limited (in administration) and
Inyx Pharma. (1)10.9.1.
    
    Option Agreement dated March 6, 2003, between Inyx Pharma and Stiefel Laboratories, Inc. (1)10.9.2
    
    6% Convertible Promissory Note dated March 6, 2003, in the principal amount of £2,500,000 to
Stiefel Laboratories, Inc. (1)10.9.3
    
    Renewal 6% Promissory Note due December 31, 2005 to Stiefel Laboratories, Inc. (24)10.9.4
    
    Termination of Stiefel Option Agreement (24)10.9.5
    
    Manufacturing and Supply Agreement between Registrant and Stiefel Laboratories, Inc. dated
March 6, 2003. (9)(15)10.9.6
    
    Quality Agreement between Registrant and Stiefel Laboratories, Inc. dated March 6, 2003. (9)10.9.7
    
    Development Agreement between Registrant and Stiefel Laboratories, Inc. dated March 6, 2003.
(9)(15)10.9.8
    
    Amendment to Development Agreement with Stiefel Laboratories, Inc. (18)10.10
    
    Finders Fee Agreement with Saintsbury Management Corp., GrosvenorTrust Company, Ltd. and Liberty
Management LLC (1)10.11
    
    Finders Fee Agreement with TriFinity Venture Corporation and BPL Corp. (1)10.15
    
    Stock Purchase Warrant dated June 26, 2003, with National Financial Communications Corp. (3)10.16
    
    Stock Purchase Warrant dated June 26, 2003, with Gary Geraci. (3)10.17
    
    Business Consulting Services Agreement dated July 1, 2003, with Marc Couturier. (3)10.18.1
    
    Securities Purchase Agreement dated October 29, 2003, with Luarus Master Fund, Ltd. (4)10.18.2
    
    Convertible Term Note dated October 29, 2003. (4)10.18.3
    
    Common Stock Purchase Warrant. (4)10.18.4
    
    Registration Rights Agreement. (4)10.18.5
    
    Debenture (security agreement). (4)10.18.6
    
    Charge Over Shares (pledge agreement). (4)
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10.19
    
    Form of Subscription Agreement for common stock placement. (4)10.20.1
    
    Security Agreement with Laurus Master Fund, Ltd. (5)10.20.2
    
    Secured Revolving Note to Laurus Master Fund, Ltd. (5)10.20.3
    
    Secured Convertible Minimum Borrowing Note with Laurus Master Fund, Ltd. (5)10.20.4
    
    Common Stock Purchase Warrant to Laurus Master Fund, Ltd. (5)10.23.1
    
    Stock Purchase Warrant for 200,000 shares of the Companys common stock with Patrick
W.H. Garrard/dab/The Garrard Group of West Redding, CT, dated July 1, 2003. (6)10.23.2
    
    Stock Purchase Warrant for 100,000 shares of the Companys common stock with Capital Financial
Media, Inc., dated August 15, 2003. (6)10.23.4
    
    Stock Purchase Warrant for 100,000 shares of the Companys common stock with Dr. Jack Kachkar,
dated August 22, 2003. (6)10.23.5
    
    Stock Purchase Warrant for 200,000 shares of the Companys common stock with Mr. Jordan Slatt,
dated August 22, 2003. (6)10.23.6
    
    Stock Purchase Warrant for 50,000 shares of the Companys common stock with Saintsbury Management
Corp., dated August 22, 2003. (6)10.23.7
    
    Stock Purchase Warrant for 50,000 shares of the Companys common stock with Liberty Management,
LLC, dated August 22, 2003. (6)10.23.8
    
    Stock Purchase Warrant for 300,000 shares of the Companys common stock with Duncan Capital LLC,
dated August 25, 2003. (6)10.23.9
    
    Stock Purchase Warrant for 20,000 shares of the Companys common stock with Mr. Rick Iler, dated
September 12, 2003. (6)10.23.10
    
    Warrant Agreement dated May 10, 2004, with Orestes Lugo. (7)10.23.11
    
    Stock Purchase Warrant for 82,500 shares of the Companys common stock with Luarus Master Fund
Ltd. dated May 27, 2004. (12)10.23.12
    
    Stock Purchase Warrant for 330,000 shares of the Companys common stock with Laurus Master Fund,
Ltd. dated February 27, 2004. (7)10.23.13
    
    Stock Purchase Warrant for 165,000 shares of the Companys common stock with Laurus Master Fund,
Ltd. dated March 30, 2004. (7)10.23.14
    
    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. (7)10.23.15
    
    Stock Purchase Warrant Agreement for 300,000 shares of the Companys common stock with Douglas
Brown dated July 19, 2004. (7)10.23.16
    
    Stock Purchase Warrant Agreement for 300,000 shares of the Companys common stock with Viktoria
Benkovitch dated July 19, 2004. (7)10.23.17
    
    Stock Purchase Warrant Agreement for 100,000 shares of the Companys common stock with Jay
Green., dated July 1, 2004. (7)10.23.18
    
    Stock Purchase Warrant Agreement for 694,000 shares of the Companys common stock with Laurus
Master Fund, Ltd. dated August 31, 2004. (7)10.23.19
    
    Stock Purchase Warrant for 75,000 shares of the Company issued to Gusrae, Kaplan & Bruno PLLC.
(17)10.23.20
    
    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. (7)10.23.21
    
    Stock Purchase Warrant Agreement for 300,000 shares of the Companys common stock with Douglas
Brown dated November 19, 2004. (25)10.23.22
    
    Stock Purchase Warrant Agreement for 150,000 shares of the Companys common stock with Douglas
Brown dated November 19, 2004. (25)10.23.23
    
    Stock Purchase Warrant Agreement for 300,000 shares of the Companys common stock with Viktoria
Benkovitch dated November 19, 2004. (25)10.23.24
    
    Stock Purchase Warrant Agreement for 150,000 shares of the Companys common stock with Viktoria
Benkovitch dated November 19, 2004. (25)10.23.25
    
    Stock Purchase Warrant Agreement for 100,000 shares of the Companys common stock with Jay
Green., dated November 19, 2004. (25)10.23.26
    
    Stock Purchase Warrant Agreement for 150,000 shares of the Companys common stock with Jay
Green., dated November 19, 2004. (25)10.23.27
    
    Stock Purchase Warrant Agreement for 150,000 shares of the Companys common stock with Stephan
Spitz., dated November 26, 2004. (25)
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10.23.28
    
    Stock Purchase Warrant Agreement for 150,000 shares of the Companys common stock with Spitz
Business Solutions., dated November 26, 2004. (25)10.23.29
    
    Stock Purchase Warrant Agreement for 25,000 shares of the Companys common stock with Sharon
Brown dated December 22, 2004. (25)10.23.30
    
    Stock Purchase Warrant Agreement for 150,000 shares of the Companys common stock with Enzo
Barichello, dated December 16, 2004. (25)10.23.31
    
    Stock Purchase Warrant Agreement for 25,000 shares of the Companys common stock with Robert
Carrigan Jr. dated December 22, 2004. (25)10.24
    
    Supply Agreement dated June 11, 2004, with AstraZeneca. (11)10.25.1
    
    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). (13)10.25.2
    
    Securities Purchase Agreement, dated as of August 2, 2004 among the Company and the purchasers
of the Companys securities in the Bridge. (13)10.25.3
    
    Registration Rights Agreement dated as of August 2, 2004 among the Company and the purchasers
of the of the Companys securities in the Bridge. (13)10.25.4
    
    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). (14)10.25.5
    
    Form of Subscription Agreement for the August/September 2004 private placement. (14)10.25.6
    
    Form of Registration Rights Agreement for the August/September 2004 private placement. (14)10.26.1
    
    Amendment Number One to Secured Convertible Minimum Borrowing Note with Laurus Master Fund, Ltd.
dated February 27, 2004. (7)10.26.2
    
    Amendment Number One to Secured Revolving Note with Laurus Master Fund, Ltd. dated February
27, 2004. (7)10.26.3
    
    Amendment Number One to Laurus Master Fund, Ltd. Registration Rights Agreement dated February
27, 2004. (7)10.26.4
    
    Amendment Number One to Laurus Master Fund, Ltd. Security Agreement dated February 27, 2004. (7)10.26.5
    
    Stock Purchase Warrant for 330,000 shares of the Companys common stock with Laurus Master Fund,
Ltd. dated February 27, 2004. (7)10.27.1
    
    Amendment Number Two to Secured Convertible Minimum Borrowing Note with Laurus Master Fund, Ltd.
dated March 30, 2004. (7)10.27.2
    
    Amendment Number Two to Secured Revolving Note with Laurus Master Fund, Ltd. dated March 30,
2004. (7)10.27.3
    
    Amendment Number Two to Laurus Master Fund, Ltd. Registration Rights Agreement dated March 30,
2004. (7)10.27.4
    
    Amendment Number Two to Laurus Master Fund, Ltd. Security Agreement dated March 30, 2004. (7)10.27.5
    
    Stock Purchase Warrant for 165,000 shares of the Companys common stock with Laurus Master Fund,
Ltd. dated March 30, 2004. (7)10.28
    
    Amendment and Restated Convertible Term Note with Laurus Master Fund, Ltd. dated May 27, 2004. (7)10.29.1
    
    Amendment Number Three to Secured Convertible Minimum Borrowing Note and Amendment Number Two to
Convertible Term Note with Laurus Master Fund, Ltd. dated August 31, 2004. (7)10.29.2
    
    Stock Purchase Warrant Agreement for 694,000 shares of the Companys common stock with Laurus
Master Fund, Ltd. dated August 31, 2004. (7)10.29.3
    
    Deed of Release dated as of March 31, 2005, by and among Laurus Master Fund, Ltd., the Registrant
and Inyx Pharma, Ltd. (23)10.29.4
    
    Release Agreement dated as of March 31 2005, by and among Laurus Master Fund, Ltd., the
Registrant, Inyx USA, Ltd., Inyx Pharma, Ltd. and Westernbank Puerto Rico. (23)10.31
    
    Strategic Alliance Agreement with UTEK Corporation dated July 1, 2004. (7)10.32
    
    Patent Purchase Agreement with Phares Technology BV dated September 31, 2004. (7)10.33
    
    Manufacturing Supply Agreement with Novadel dated December 2, 2004. (19)10.34.3
    
    Manufacturing and Supply Agreement with Aventis Pharmaceuticals Puerto Rico, Inc. dated March 5,
2004 (25)10.35.1
    
    Loan and Security Agreement dated as of March 31, 2005, by and between Westernbank Puerto Rico,
the Registrant and Inyx USA, Ltd. (23)
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10.35.2
    
    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. (23)10.35.3
    
    $3.5 million Promissory Note with Aventis Pharmaceuticals Puerto Rico, Inc. dated March 31, 2005
(25)21.1
    
    Subsidiaries of Registrant. (7)23.1
    
    Consent of Berkovits, Lago & Company, LLP (25)31.1
    
    Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (25)31.2
    
    Certification of the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 (25)32.1
    
    Certification of Chief Executive Officer under 18 U.S.C. § 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (25)32.2
    
    Certification of Chief Financial Officer under 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (25)
   (1)
    
    Filed as an exhibit to the Form 8K filed May 13, 2003, and incorporated herein by reference.(2)
    
    Filed as an exhibit to Form 8K/A filed June 24, 2003, and incorporated herein by reference.(3)
    
    Filed as an exhibit to Form 10-QSB filed August 19, 2003, and incorporated herein by
reference.(4)
    
    Filed as an exhibit to Form 8-K filed November 3, 2003, and incorporated herein by reference.(5)
    
    Filed as an exhibit to Form 8-K filed January 6, 2004 ,and incorporated herein by reference.(6)
    
    Filed as an exhibit to Form 10-QSB filed November 14, 2003, and incorporated herein by
reference.(7)
    
    Filed as an exhibit to Form SB-2 Registration Statement (SEC File No. 333-112902) filed
February 17, 2004, and the Amendments thereto and incorporated herein by reference.(8)
    
    Filed as an exhibit to Form 10-KSB filed April 14, 2004, and incorporated herein by
reference.(9)
    
    Filed as an exhibit Form 8-K/A filed March 15, 2004, and incorporated herein by reference.(10)
    
    Filed as an exhibit Form 8-K/A filed February 15, 2005, and incorporated herein by reference(11)
    
    Filed as an exhibit to Form 8-K filed June 29, 2004, and incorporated herein by reference,
filed herewith.(12)
    
    Filed as an exhibit to the Form 10Q-SB filed August 16, 2004, and incorporated herein by
reference.(13)
    
    Filed as an exhibit to the Form 8-K filed August 6, 2004, and incorporated herein by
reference.(14)
    
    Filed as an exhibit to the Form 8-K filed August 30, 2004, and incorporated herein by
reference.(15)
    
    Filed as an exhibit Form 8-K/A filed February 16, 2005, and incorporated herein by reference(16)
    
    Filed as an exhibit to the Form 10Q-SB filed May 20, 2004, and incorporated by reference
herein.(17)
    
    Filed as an Exhibit to the Form 10Q-SB filed on November 22, 2004, and incorporated by
reference herein.(18)
    
    Filed as an Exhibit to the Form 8-K filed on November 30, 2004, and incorporated by reference
herein.(19)
    
    Filed as an Exhibit to the Form 8-K filed on December 2, 2004, and incorporated by reference
herein.(20)
    
    Filed as an Exhibit to the Form 8-K filed on December 20, 2004, and incorporated by reference
herein.(21)
    
    Filed as an Exhibit to the Form 8-K filed on April 6, 2005, and incorporated by reference
herein.(22)
    
    Filed as an Exhibit to the Form 8-K filed on April 6, 2005, and incorporated by reference
herein.(23)
    
    Filed as an Exhibit to the Form 8-K filed on April 6, 2005, and incorporated by reference
herein.(24)
    
    Filed as an Exhibit to the Form 8-K filed on April 12, 2005, and incorporated herein by
reference.(25)
    
    Filed herewith. 
 ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES The Audit Committee has appointed Berkovits, Lago & Company, LLP as the Companys independent
auditors for 2004. For 2004, Berkovits, Lago & Company, LLP has billed the Company for the services described
below: Audit Fees. Berkovits, Lago & Companys fees for the review of interim financial
statements for the quarters ended March 31, 2004, June 30, 2004, and September 30, 2004, were
$22,500. Berkovits, Lago & Company also billed $25,000 as a retainer in connection with the
Companys audit for the year ended 2004. Audit-Related Fees. Approximately $113,000 was paid in addition to the above audit
fees.. Tax Fees. Approximately $8,000 was accrued for tax services. 85




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##### Table of Contents



All Other Fees. The Audit Committee is required to pre-approve the audit and non-audit services to be
performed by the independent auditor in order to assure that the provisions of such services does
not impair the auditors independence. This review and approval will take place on an annual basis
and periodically during the year. 86




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##### Table of Contents



INYX, INC. Item 7: FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firm
    
    
    F-2, F-3Consolidated Balance Sheets as of December 31, 2004, December 31, 2003
    
    
    F-4Consolidated Statements of Operations for the Year Ended December 31, 2004; for the period
from March 7, 2003 through December 31, 2003 and for the period from January 1, 2003 through
March 6, 2003;
    
    
    F-5Consolidated Statements of Stockholders Equity (Deficit) and Other Comprehensive Loss for
the Year Ended December 31, 2004; for the period from March 7, 2003 through December 31,
2003; and for the period from January 1, 2003 through March 6, 2003
    
    
    F-6Consolidated Statements of Cash Flows for Year Ended December 31, 2004; for the period from
March 7, 2003 through December 31, 2003 and for the period from January 1, 2003 through March
6, 2003;
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
 F - 1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors
Inyx, Inc. (formerly known as Doblique, Inc.) We have audited the consolidated balance sheets of Inyx, Inc. (formerly known as Doblique, Inc.)
(the Company) as of December 31, 2004 and 2003, and the related consolidated statements of
operations, changes in stockholders equity (deficit) and cash flows for the year ended December
31, 2004 and for the period from March 7, 2003 through December 31, 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. (formerly known as Doblique,
Inc.) as of December 31, 2004 and 2003, and the results of operations and cash flows for the year
ended December 31, 2004 and for the period from March 7, 2003 through December 31, 2003, in
conformity with accounting principles generally accepted in the United States. /s/Berkovits, Lago & Company, LLP
Fort Lauderdale, Florida
April 12, 2005 F - 2




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of
Miza Pharmaceuticals (UK) Ltd. (the predecessor to Inyx, Inc.) We have 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 financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. 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 audit provides a reasonable basis for our opinion In our opinion, the financial statements referred to above present fairly, in all material
respects, the results of operations and cash flows of Miza Pharmaceuticals (UK) Ltd. (the
predecessor to Inyx, Inc.) for the period then ended in conformity with accounting principles
generally accepted in the United States of America. As discussed more fully in Note 1 to the financial statements, Miza Pharmaceuticals (UK) Ltd. was
placed under supervision of an Administrator in accordance with the United Kingdom Insolvency Act
of 1986. On March 7, 2003, while under the supervision of the Administrator, Miza Pharmaceuticals
(UK) Ltd. sold the majority of its property, plant and equipment, inventory, customer base and
intellectual property to INYX Pharma, Ltd., a subsidiary of Inyx, Inc., and the designated
successor of Miza Pharmaceuticals (UK) Ltd. /s/ Berkovits, Lago & Company, LLP
Ft. Lauderdale, Florida
December 28, 2004 F - 3




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##### Table of Contents



INYX, INC. 
 Consolidated Balance Sheets
 (Expressed in thousands of U.S. dollars except for share amounts)
 SuccessorDecember 31,2004
    
    
    2003AssetsCurrent assets:Cash
    
    $
    336
    
    
    $
    796Accounts receivable, net
    
    
    1,697
    
    
    
    3,395Inventory, net
    
    
    1,520
    
    
    
    1,089Prepaid expenses and other current assets
    
    
    2,571
    
    
    
    1,089Total current assets
    
    
    6,124
    
    
    
    6,369Property, plant and equipment, net
    
    
    6,230
    
    
    
    5,183Deferred financing costs, net
    
    
    651
    
    
    
    860Other assets
    
    
    45
    
    
    
    45Deferred tax asset
    
    
    
    
    
    
    1,294Purchased intangible assets, net
    
    
    1,705
    
    
    
    1,7398,631
    
    
    
    9,121Total assets
    
    $
    14,755
    
    
    $
    15,490Liabilities and Stockholders Equity (Deficit)Current liabilities:Accounts payable
    
    $
    4,091
    
    
    $
    2,178Accrued expenses and other current
liabilities
    
    
    1,744
    
    
    
    996Debt
refinanced, net of debt discount
    
    
    10,395Current
portion of debt
    
    
    4,277
    
    
    
    3,858Total current liabilities
    
    
    20,507
    
    
    
    7,032Debt, net of current portion
    
    
    113
    
    
    
    6,617Total liabilities
    
    
    20,620
    
    
    
    13,649Commitments and contingenciesStockholders equity (deficit):Preferred
stock - $0.001 par value,
10,000,000 shares
authorized -0- shares issued and outstanding
    
    
    
    
    
    
    Common stock
- $0.001 par value,
150,000,000 shares
authorized, 38,012,479 shares issued and
outstanding
at December 31, 2004, 28,525,000 shares
issued and
and outstanding at December 31, 2003
    
    
    38
    
    
    
    29Additional paid-in capital
    
    
    25,275
    
    
    
    15,599Accumulated deficit
    
    
    (30,334
    )
    
    
    (13,392
    )Subscriptions receivable
    
    
    (343
    )
    
    
    (100
    )Accumulated other comprehensive loss -
foreign currency translation adjustment
    
    
    (501
    )
    
    
    (295
    )Total stockholders equity (deficit)
    
    
    (5,865
    )
    
    
    1,841Total liabilities and stockholders equity
(deficit)
    
    $
    14,755
    
    
    $
    15,490
 The accompanying notes are an integral part of these consolidated financial statements. F - 4




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INYX, INC. 
 Consolidated Statements of Operations
 (Expressed in thousands of U.S. dollars, except for share amounts)
 Successor
    
    
    PredecessorFor the Periodfrom March 7,
    
    
    For the PeriodFor the Year
    
    
    2003 through
    
    
    from January 1,Ended December
    
    
    December 31,
    
    
    2003 through31, 2004
    
    
    2003
    
    
    March 6, 2003Net revenues
    
    $
    15,699
    
    
    $
    13,099
    
    
    $
    2,396Cost of sales
    
    
    14,316
    
    
    
    10,634
    
    
    
    1,876Gross profit
    
    
    1,383
    
    
    
    2,465
    
    
    
    520Operating expenses:Research and development
    
    
    2,745
    
    
    
    
    
    
    
    General and administrative
    
    
    9,725
    
    
    
    12,093
    
    
    
    568Selling
    
    
    367
    
    
    
    260
    
    
    
    51Depreciation and amortization
    
    
    619
    
    
    
    347
    
    
    
    75Amortization of intangible assets
    
    
    166
    
    
    
    139
    
    
    
    Total operating expenses
    
    
    13,622
    
    
    
    12,839
    
    
    
    694Loss from continuing operations
before interest and
financing costs, income tax (provision) benefit and discontinued operations
    
    
    (12,239
    )
    
    
    (10,374
    )
    
    
    (174
    )Interest and
financing costs (includes $670,000 amortization of debt discount)
    
    
    3,370
    
    
    
    4,312
    
    
    
    176Loss before
income tax (provision) benefit
and discontinued operations
    
    
    (15,609
    )
    
    
    (14,686
    )
    
    
    (350
    )Income tax
(provision) benefit
    
    
    (1,333
    )
    
    
    1,294
    
    
    
    Loss before discontinued operations
    
    
    (16,942
    )
    
    
    (13,392
    )
    
    
    (350
    )Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    558Net loss
    
    $
    (16,942
    )
    
    $
    (13,392
    )
    
    $
    (908
    )Basic and fully diluted loss per shareLoss before discontinued operations
    
    $
    (0.52
    )
    
    $
    (0.59
    )
    
    
    Loss from discontinued operations, net of income taxes
    
    
    
    
    
    
    
    
    
    
    $
    (0.52
    )
    
    $
    (0.59
    )
    
    
    Weighted-average number of shares used in
computing per share amounts
    
    
    32,598,358
    
    
    $
    22,857,260
    
    
    
    
 The accompanying notes are an integral part of these consolidated financial statements. F - 5




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##### Table of Contents



INYX, INC. 
 Consolidated Statement of Changes in Stockholders Equity (Deficit) and Other Comprehensive Loss
 (Expressed in thousands of U.S. dollars)
 Accumu-latedOtherCommon Stock
    
    
    Additional
    
    
    Stock
    
    
    Compre-
    
    
    Accumu-Number of
    
    
    
    
    
    
    Paid-in
    
    
    Subscription
    
    
    hensive
    
    
    latedShares
    
    
    Par Value
    
    
    Capital
    
    
    Receivable
    
    
    loss
    
    
    Deficit
    
    
    TotalPredecessorBalances at January 1, 2002
    
    
    5,000
    
    
    $
    8,022
    
    
    $
    
    
    
    $
    
    
    
    $
    (771
    )
    
    $
    524
    
    
    $
    7,775Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,988
    )
    
    
    (30,988
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (732
    )
    
    
    
    
    
    
    (732
    )Balances 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
    )SuccessorBalances 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
fees (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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,361Subscriptions receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100
    )
    
    
    
    
    
    
    
    
    
    
    (100
    )Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (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 & 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
    )
 The accompanying notes are an integral part of these consolidated financial statements F - 6




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##### Table of Contents



INYX, INC. 
 Consolidated Statements of Cash Flows
 (Expressed in thousands of U.S. dollars)
 Successor
    
    
    PredecessorFor the Period fromFor the Period from
    
    
    January 1, 2003For the Year Ended
    
    
    March 7, 2003 through
    
    
    through March 6,December 31, 2004
    
    
    December 31, 2003
    
    
    2003Cash flows from operating activities:Net loss for the period
    
    $
    (16,942
    )
    
    $
    (13,392
    )
    
    $
    (908
    )Add: loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    558Loss from continuing operations
    
    
    (16,942
    )
    
    
    (13,392
    )
    
    
    (350
    )Adjustments to reconcile net loss to net
cashprovided by (used in) operating
activities:Depreciation and amortization
    
    
    619
    
    
    
    347
    
    
    
    75Interest and amortization of
financing costs and debt discount
    
    
    1,778
    
    
    
    3,821
    
    
    
    Amortization of intangible assets
    
    
    166
    
    
    
    139
    
    
    
    Deferred tax asset
    
    
    1,333
    
    
    
    (1,294
    )
    
    
    Issuance of stock for services
    
    
    30
    
    
    
    2,105
    
    
    
    Reserve for inventory obsolescence
    
    
    269
    
    
    
    207
    
    
    
    Provision for bad debts
    
    
    (39
    )
    
    
    191
    
    
    
    Stock option compensation
    
    
    291
    
    
    
    1,513
    
    
    
    Warrants
issued for financing &
consulting fees
    
    
    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:Decrease (Increase) in accounts
receivables
    
    
    1,737
    
    
    
    (3,586
    )
    
    
    (215
    )(Increase) decrease in inventory
    
    
    (700
    )
    
    
    23
    
    
    
    385(Increase)
decrease in prepaid and
other current assets
    
    
    (1,482
    )
    
    
    230
    
    
    
    267(Increase)
decrease in deferred financing
costs
    
    
    (127
    )
    
    
    (900
    )
    
    
    (Increase) in other assets
    
    
    
    
    
    
    (45
    )Increase in accounts payable and
accrued liabilities
    
    
    2,904
    
    
    
    2,380
    
    
    
    640Increase (decrease) in deferred
revenues
    
    
    (243
    )
    
    
    351
    
    
    
    Increase in liabilities subject to
compromise
    
    
    
    
    
    
    
    
    
    
    353Net cash (used in) provided by
continuing operations
    
    
    (9,019
    )
    
    
    (6,626
    )
    
    
    1,155Net cash provided by (used in)
discontinued operations
    
    
    
    
    
    
    50
    
    
    
    (617
    )Net cash (used in) provided by
operating activities
    
    
    (9,019
    )
    
    
    (6,576
    )
    
    
    538Cash flows from investing activities:Purchase of intangible assets
    
    
    (95
    )
    
    
    
    
    
    
    Purchase of property, plant and equipment
    
    
    (1,641
    )
    
    
    (394
    )
    
    
    (18
    )Net cash
used in investing activities
    
    
    (1,736
    )
    
    
    (394
    )
    
    
    (18
    )Cash flows from financing activities:Borrowings under revolving line of
credit, net
    
    
    3,869
    
    
    
    5,735
    
    
    
    (522
    )Repayment on revolving line of credit
    
    
    
    
    
    
    (2,655
    )
    
    
    Advances by stockholder
    
    
    
    
    
    
    450
    
    
    
    Repayment to stockholder
    
    
    
    
    
    
    (450
    )
    
    
    Proceeds from issuance of long term debt
    
    
    500
    
    
    
    4,500
    
    
    
    Repayment of long term debt
    
    
    (281
    )
    
    
    (2,771
    )
    
    
    104Payment of financing fees related to debt
    
    
    (19
    )
    
    
    (573
    )
    
    
    Proceeds from issuance of promissory
demand notes
    
    
    700
    
    
    
    100
    
    
    
    Repayment of promissory demand notes
    
    
    (600
    )
    
    
    
    
    
    
    Gross proceeds from issuance of stock
    
    
    7,450
    
    
    
    3,500
    
    
    
    Costs related to issuance of stock
    
    
    (819
    )

    
    
    (323
    )Cost of registering stock (SB2
registration)

    
    
    (192
    )

    
    
    Proceeds from exercise of stock options
    
    
    
    
    
    
    90
    
    
    
    Repayment of capital lease obligation
    
    
    (107
    )
    
    
    
    
    
    
    Net cash provided by (used in)
financing activities
    
    
    10,501
    
    
    
    7,603
    
    
    
    (418
    )Effect of foreign exchange rate changes
on cash and cash equivalents
    
    
    (206
    )
    
    
    (295
    )
    
    
    (102
    )Change in cash
    
    
    (460
    )
    
    
    338
    
    
    
    Cash at beginning of period
    
    
    796
    
    
    
    458
    
    
    
    Cash at end of period
    
    $
    336
    
    
    $
    796
    
    
    $
    
 The accompanying notes are an integral part of these consolidated financial statements F - 7




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tabular amounts are expressed in thousands of U.S. dollars)
 NOTE 1: BUSINESS DESCRIPTION AND PRESENTATION Inyx, Inc. (Inyx or the Company) through its wholly-owned subsidiaries, Inyx Pharma
Limited and Inyx Canada Inc., is a specialty pharmaceutical company which focuses on the
development and manufacturing of prescription and over-the-counter aerosol pharmaceutical products
and drug delivery technologies for the treatment of respiratory, allergy, dermatological and
topical conditions. Inyxs client base primarily consists of large ethical pharmaceutical
corporations, branded generic pharmaceutical distributors, and biotechnology companies. The Company was incorporated on March 28, 2000, in the State of Nevada, under the name
Doblique, Inc. (Doblique). As Doblique, the Company 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 decided to discontinue the Companys thoroughbred horse operation by
selling the assets of that operation to a third party; such assets and operations were nominal.
Subsequent to the discontinuance of its horse racing operations, the Company concluded a reverse
acquisition of Inyx Pharma Limited (Inyx Pharma); an aerosol pharmaceutical manufacturing company
incorporated under the laws of England and Wales, and changed its name to Inyx, Inc. (Inyx). The acquisition of Inyx Pharma was consummated on April 28, 2003, by exchanging 16 million
shares of the Companys restricted common stock for 100% of the outstanding common stock of Inyx
Pharma. As a result of the exchange, the stockholders of Inyx Pharma became the Companys
controlling stockholders, in the aggregate, holding approximately 64% of the Companys outstanding
shares. The transaction was accounted for as a recapitalization of Inyx using the reverse
acquisition method of accounting and therefore, the historical financial statements of Inyx Pharma
are presented herein as the Companys historical financial statements. As a result of the Inyx
Pharma transaction, the Company incurred costs of approximately $2.7 million consisting primarily
of legal, accounting, consulting and finders fees. All such costs were expensed as incurred. Prior to its reverse acquisition by the Company, 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 equivalent of Chapter 11 bankruptcy protection and
reorganization) for approximately $8.3 million, consisting of an approximately $7.1 million cash
payment to the Administrator for Miza UKs assets and approximately $1.2 million in direct
transaction costs. The Inyx Pharma acquisition of Miza UKs business assets was accounted for
utilizing the purchase method of accounting. Accordingly, the total purchase price was allocated
to the tangible and identifiable intangible assets acquired based on their estimated fair values.
The intangible assets acquired consisted of customer list and know-how which were allocated a fair
value of approximately $1,280,000 and $598,000, respectively, based on an independent third party
valuation. 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 the Companys 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 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. Inyx currently manages and operates its business as one operating segment. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a) Consolidated Financial Statements The accompanying consolidated financial statements include the accounts of Inyx and its wholly
owned subsidiaries: Inyx Pharma Limited and its predecessor Miza UK, an operating company formed F - 8




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##### Table of Contents



under the laws of England and Wales; Inyx Canada Inc., a federally incorporated Canadian
corporation and Inyx Realty, Inc., a Florida corporation through the date of 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. All inter-company accounts and transactions have been eliminated in consolidation b) 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 value of its deferred tax asset, the allowances for doubtful accounts and
inventory reserves. Actual results could differ from those estimates. c) 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. d) 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. e) 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 3-10 years for
equipment, and up to 25 years for buildings. Leasehold improvements and equipment capital leases
are amortized over the life of the related lease. Expenditures that extend the useful life of the respective assets are capitalized and
depreciated over the lives of the respective assets. Maintenance, repairs and other expenses that
do not extend their useful life are expensed as incurred. f) Purchased Intangible assets The Companys purchased intangible assets consist of a customer list, know-how and a
technology patent. 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 list is
amortized over a period of 12 years, know-how is amortized over 10 years and the patent will be
amortized over a 7 year period. g) Deferred Financing Costs Costs directly associated with obtaining financing are capitalized and amortized on a
straight-line basis over the estimated life of the financing arrangement. These costs will be
written off in March 2005 due to the refinancing of this facility. Refer to Subsequent Events,
Note 12. F - 9




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##### Table of Contents



h) 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. i) 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. j) Financial Instruments Financial instruments consist of cash, accounts receivable, accounts payable, accrued
liabilities, borrowings under the revolving line of credit and loans payable. The carrying values
of cash, 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, 2004, and 2003. k) 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 and 2003, deferred revenues amounted to $108,000 and $351,000
respectively and are included in accrued expenses and other liabilities. 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 goods sold in the accompanying consolidated statements of
operations. l) 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 F - 10




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##### Table of Contents



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 statement 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. Notes 10 and 16 provide additional information on the valuation of the warrants and the
beneficial conversion feature. m) Net Loss per Share The Company follows the guidelines of Statement of Financial Accounting Standards No. 128,
Earnings Per Share (SFAS No.128) in calculating its loss per share. SFAS No.128 states basic
and diluted earnings per share are based on the weighted average number of shares of common stock
and potential common stock outstanding during the period. Potential common stock equivalents for
purposes of determining diluted earnings per share include the effects of dilutive stock options,
warrants and convertible securities. The effect on the number of shares of such potential common
stock equivalents is computed using the treasury stock method or the if-converted method, as
applicable. The Company has excluded all outstanding options and warrants as well as shares issued
upon conversion of convertible debt from the calculation of diluted net loss per share because
these securities are anti-dilutive. Refer to Subsequent Events, Note 12. Accordingly, as of
December 31, 2004 and 2003, the Company had common stock equivalents of approximately 25,155,687
and 10,345,000 shares respectively, related to options and warrants; and approximately 18,375,000
and 10,880,952 shares respectively related to shares to be issued upon the conversion of the
convertible debt. n) Stock Based Compensation On May 1, 2003, the Company adopted a Stock Option Plan that provides for the granting of
incentive stock options and non qualified stock options 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 5,000,000.
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 fair value of all vested options granted has been charged to salaries,
wages, and benefits in accordance with SFAS No. 123. o) 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, 2004 and for the period from March 7, 2003 through December
31, 2003, the Companys three largest customers accounted for approximately 46% and 43% of net
revenues, respectively. As of December 31, 2004 and 2003, the Companys three largest customers
accounted for 56% and 57% of net receivables, respectively. The loss of any of these customers
could have a material adverse effect on the operations of the Company. p) Income Taxes F - 11




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##### Table of Contents



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 income 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. q) Translation of Foreign Currency The functional currency of the Companys United Kingdom subsidiary 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 date. Results of operations are
translated using the 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
accumulated as a cumulative translation adjustment which is included as a separate component in the
stockholders equity (deficit). Realized gains and losses from foreign currency transactions are
included in the results of operations for the period. r) 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. s) 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 January 2003, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities(SFAS No.
146).This standard requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred rather than when a commitment to an exit plan
is made. The adoption of SFAS No. 146 did not have a material impact on the Companys consolidated
financial statements. 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
in the processes of F - 12




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##### Table of Contents



setting up an arrangement with a financial institution to participate in currency forward
contracts for the purpose of mitigating foreign exchange fluctuations. In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and Equity(SFAS No.
150).SFAS No. 150 provides guidance with respect to the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. This statement requires
that an issuer classify a financial instrument that is within its scope as a liability rather than,
under previous guidance, as equity. SFAS No. 150 is effective for financial instruments entered
into or modified after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. The adoption of SFAS No. 150 did not have a material
effect on the Companys consolidated 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 has not yet determined the
impact of applying the provisions of SFAS No. 151. 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 estimates that the adoption of SFAS No. 123R will not have a material effect on
the Companys consolidated financial statements. t) Reclassifications Certain amounts from prior consolidated financial statements and related notes have been
reclassified to conform to the current period presentation. NOTE 3: ACQUISITION AND RECAPITALIZATION TRANSACTION Acquisition On March 7, 2003, Inyx Pharma acquired the business assets of Miza UK from a court-appointed
Administrator in the United Kingdom. The acquisition was accounted for in accordance with the
purchase method of accounting. Miza UK is considered to be a predecessor business and accordingly
results of operations included in these consolidated financial statements prior to the acquisition
of Miza UK are those of Miza UK. Effective as of the purchase date the Company established a new
basis in the acquired assets based on the purchase consideration and transaction costs totalling
approximately $8.3 million. The results of the operations of the acquired business have been
included in the consolidated financial statements since the acquisition date. In connection with
this acquisition, Inyx Pharma paid cash of approximately $7.1 million and incurred approximately
$1.2 million in direct transaction costs. The purchase price was allocated to the identifiable net assets purchased based on their
estimated fair market value at the date of acquisition as follows: Property, plant and equipment
    
    $
    5,136Inventory
    
    
    1,319Intangible assets subject to amortization:Customer list
    
    
    1,280Know-how
    
    
    598$
    8,333
 F - 13




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##### Table of Contents



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 the Company
operates in. Recapitalization Transaction On April 28, 2003, the Company acquired all of the outstanding common shares of Inyx Pharma by
issuing 16 million of the Companys shares for all the outstanding and issued shares of Inyx
Pharma. As a result of the transaction, the stockholders of Inyx Pharma received 64% of the
Companys outstanding shares, after the issuance of shares for finders fees and consulting
services. The transaction was accounted for as a recapitalization of Inyx using the reverse
acquisition method of accounting. Consequently, the assets transferred were recorded at historical
value. NOTE 4: ACCOUNTS RECEIVABLE, NET Accounts receivable consist of the following: December 31,
    
    
    December 31,2004
    
    
    2003Trade receivables
    
    $
    1,849
    
    
    $
    3,586Less allowance for doubtful accounts
    
    
    (152
    )
    
    
    (191
    )$
    1,697
    
    
    $
    3,395
 There were no
write-offs during the year ended December 31, 2004 and during the period from March 7,
2003 through December 31, 2003 and January 1, 2003 through March 6, 2003.
There was a bad debt recovery
for the year ended December 31, 2004 for a net amount of $33,000 and a bad debt expense of $191,000
for the period from March 7, 2003 through December 31, 2003. NOTE 5: INVENTORY, NET Inventory is comprised of the following: December 31,
    
    
    December 31,2004
    
    
    2003Finished goods
    
    $
    107
    
    
    $
    15Work in process
    
    
    551
    
    
    
    266Raw materials
    
    
    1,338
    
    
    
    1,0151,996
    
    
    
    1,296Less provision for obsolescence
    
    
    (476
    )
    
    
    (207
    )$
    1,520
    
    
    $
    1,089
 NOTE 6: PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consist of the following: December 31,
    
    
    December 31,2004
    
    
    2003Deferred acquisition costs (a)
    
    $
    1,975
    
    
    $
    Prepaid vendor invoices
    
    
    352
    
    
    
    347Deferred legal and consulting fees
    
    
    
    
    
    
    152Prepaid rent, property and sales tax
    
    
    83
    
    
    
    258Prepaid insurance
    
    
    125
    
    
    
    128Other prepaid expenses
    
    
    36
    
    
    
    204$
    2,571
    
    
    $
    1,089
 F - 14




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##### Table of Contents



(a) On March 31,2005, the Company acquired a pharmaceutical manufacturing operation in Puerto
Rico. Costs incurred in relation to this transaction include consulting fees, due diligence costs
and manufacturing equipment costs. These costs are part of the purchase price related to the
acquisition. See Subsequent Events, Note 12. NOTE 7: PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment consist of the following: December 31,
    
    
    December 31,2004
    
    
    2003Land
    
    $
    546
    
    
    $
    546Buildings
    
    
    1,059
    
    
    
    1,059Machinery, equipment and office furniture
    
    
    3,541
    
    
    
    3,524Computer hardware and software
    
    
    102
    
    
    
    195,248
    
    
    
    5,148Less accumulated depreciation
    
    
    (898
    )
    
    
    (340
    )4,350
    
    
    
    4,808Computer hardware and software under
capital lease
    
    
    407
    
    
    
    382Less accumulated amortization
    
    
    (68
    )
    
    
    (7
    )339
    
    
    
    375Equipment
held for future use
    
    
    1,541
    
    
    
    $
    6,230
    
    
    $
    5,183
 For the year ended December 31, 2004 and for the period from March 7, 2003 through December
31, 2003, depreciation of property, plant and equipment was approximately $558,000 and $340,000,
respectively. Amortization for equipment under capital leases was approximately $61,000 for the
year ended December 31, 2004 and $7,000 for the period from March 7, 2003 through December 31,
2003. For the period from January 1, 2003 through March 6, 2003 depreciation of property, plant and
equipment was approximately $75,000. There was no amortization of equipment under capital lease
during the latter period. The
equipment held for future use consists of a manufacturing line which the Company is in the
process of developing. Managements expects to incur additional costs to equip this manufacturing
line for the production of the filling and gassing of non-CFC aerosol pharmaceutical products. NOTE 8: DEFERRED FINANCING COSTS, NET Deferred financing costs, net are comprised of fees related to the issuance of convertible
debt issued to Laurus Master Funds, Ltd (Laurus Funds).
(See Note 10) These amounts are
amortized over the term of the loan. Deferred financing costs, net consist of the following: December 31,
    
    
    December 31,2004
    
    
    2003Deferred financing costs
    
    $
    1,027
    
    
    $
    900Less accumulated amortization
    
    
    (376
    )
    
    
    (40
    )$
    651
    
    
    $
    860
 F - 15




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##### Table of Contents



For the year ended December 31, 2004, the amortization of deferred financing costs
approximated $336,000 and for the period from March 7, 2003 through December 31, 2003, amortization
of deferred financing costs approximated $40,000. For the period from January 1, 2003 through March 6, 2003, there were no deferred financing
costs and no respective amortization. NOTE 9: PURCHASED INTANGIBLE ASSETS, NET Purchased intangible assets consist of the following: December 31,

    
    
    December 31,2004
    
    
    2003Customer list (12 year life)
    
    $
    1,280
    
    
    $
    1,280Know-how (10 year life)
    
    
    598
    
    
    
    598Patent (7 year life)
    
    
    132
    
    
    
    2,010
    
    
    
    1,878Less accumulated amortization
    
    
    (305
    )
    
    
    (139
    )$
    1,705
    
    
    $
    1,739
 Purchased intangible assets are carried at cost less accumulated amortization. For the year
ended December 31, 2004 and for the period from March 7, 2003 through December 31, 2003,
amortization expense related to intangible assets totaled approximately $166,000 and $139,000,
respectively. The aggregate estimated amortization expense for intangible assets as of December 31,
2004 for each of the following five years and thereafter is as follows: 2005
    
    $
    1852006
    
    
    1852007
    
    
    1852008
    
    
    1852009
    
    
    185Thereafter
    
    
    780Total
    
    $
    1,705
 NOTE 10: DEBT, NET OF CURRENT PORTION AND DEBT DISCOUNT Debt, net of current portion consists of the following: December 31,
    
    
    December 31,2004
    
    
    2003Revolving line of credit due to
Laurus Funds, net of debt
discount of $740,000 at December
31, 2004 and $758,000 at December
31, 2003(a-i)
    
    $
    6,368
    
    
    $
    2,3757% 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 and $822,000 at
December 31, 2003
(a-ii)
    
    
    4,027
    
    
    
    3,678Uncollateralized 6% convertible
promissory note due to
customer,(b)
    
    
    4,013
    
    
    
    4,013Uncollateralized 7% to 18% demand
notes due to a stockholder and an
executive of the Company,
principal and interest due on
demand
    
    
    150
    
    
    
    100Capital lease obligations, due to
financial institutions,
collateralized by software and
equipment, due in monthly
installments of $14,000 including
interest of 10% to 27%, through
2006 (c)
    
    
    227
    
    
    
    30914,785
    
    
    
    10,475Less debt
refinanced, net of debt discount
    
    
    (10,395
    )Less current portion
    
    
    (4,277
    )
    
    
    (3,858
    )Debt, net of
current portion
    
    $
    113
    
    
    $
    6,617
 F - 16




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On March 31, 2005, the Company refinanced its borrowings from
Laurus Funds carried at approximately $10.4 million
($11.8 million less related debt discount of $1.4 million) as of December 31,
2004, through a credit facility. This facility consists of a new non-dilutive, asset base revolving credit, term loan and
security agreement (Debt Agreement) totaling $46 million 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 Debt Agreement provides up to $10.0 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) collateralized by the assets of
Inyx, Inc. and its subsidiary Inyx USA, Inc. 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, $11.8 million, 15 year term loan on real property and a $5.0 million
mezzanine term line carries interest of 15% and collateralized by all other assets of the Company.
The interest rate for these facilities excluding the mezzanine ranges from Prime plus 1% to Prime
+ 2% (at a minimum of 6.5%) not to exceed 15%. (a-i) On December 30, 2003, the Company issued to Laurus Funds (i) Secured Revolving
Convertible Note in the maximum principle amount of up to $2.5 million and (ii) Secured Convertible
Minimum Borrowing Note in the original principal amount of $1.0 million. In connection with the
issuance of the Revolving Note and the Minimum Borrowing Note, the company issued 660,000 warrants
to purchase up to 660,000 shares of the Companys common stock having exercise prices ranging from
$1.84 to $2.57 per share. The warrants expire on December 30, 2008 and have a cashless exercise
provision. The relative fair value of these warrants was estimated at approximately $758,000 based
on the Black-Scholes option pricing model with the following assumptions; a risk free interest rate
of 3.14%, an expected life of four years, a volatility factor of 66%, and a dividend yield of 0%.
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 conversion feature was charged to interest
and financing costs amounting to approximately $568,000 in the accompanying consolidated statement
of operations. The Company can elect to pay the outstanding balance in shares of common stock at a fixed
conversion price of $1.47 which was amended to $1.00 per share on February 27, 2004 and amended
again to $0.80 on August 31, 2004, retroactively to the date of the original agreement. If the
closing price of the Companys stock for any of the 10 trading days preceding the repayment date is
less than 110% of the fixed conversion price, the Company shall pay cash instead. On February 27, 2004 the Company issued Amendment #1 and increased the principle borrowing
amount under the Secured Revolving Convertible Note and the Minimum Borrowing Note by $1.0 million,
respectively. In addition, the Company issued Laurus Funds 330,000 warrants to purchase 330,000
shares of the Companys common stock at prices ranging between $1.25 and $1.75 per share. The fair
value assigned to these warrants was approximately $219,000 using the Black-Scholes option pricing
model with the following assumptions; a risk free interest rate of 3.14%, an expected life of four
years, a volatility factor of 57%, and a dividend yield of 0%. In accordance with EITF 00-27, the
Company recorded the relative fair value of the warrants as a discount against the debt, and is
amortizing the discount 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 conversion feature was charged to interest and financing costs amounting to approximately
$380,000 in the accompanying consolidated statement of operations. On March 30, 2004, the aggregate principle amount available for borrowing under these two
notes was increased to $6.5 million by issuing Amendment #2 to the Secured Revolving Convertible
Note whereby the maximum principle amount was increased by $1.0 million to $4.5 million. The
Company issued Laurus Funds 165,000 warrants to purchase 165,000 of the Companys shares of common
stock at prices ranging between $1.25 and $1.75 per share. The additional beneficial conversion
feature recorded on this amendment was $209,000 and the fair value allocated to the warrants was
approximately $109,000 using the Black-Scholes option pricing model with the following assumptions;
a risk free interest rate of 3.14%, an expected life of four years, a volatility factor of 57%, and
a dividend yield of 0%. In accordance with EITF 00-27, the Company recorded the relative fair
value of the warrants as a discount against the debt, and is amortizing the discount over the term
of the debt and the embedded beneficial conversion feature was charged to interest and financing
costs in the accompanying consolidated statement of operations. As of December 31, 2004, advances under this facility, amounted to approximately $7.1 million
.. These advances are collateralized by accounts receivables based on an agreed upon formula and
all other assets of the Company. The Company has the option of paying interest on these borrowings
in cash or by F - 17




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issuing common stock. Interest on these borrowings is payable monthly at prime plus 3%
with a minimum of 7% on the outstanding balance. The initial advance under this facility on
December 30, 2003 amounted to approximately $3.1 million of which approximately $2.6 million was
used to repay the Companys factoring arrangement with another lender. (a-ii) On October 29, 2003, the Company issued to Laurus Funds a Convertible Term Note in the
maximum principle amount of $4.5 million. In connection with the issuance of the Convertible Term
Note, the Company issued 1,350,000 warrants to purchase up to 1,350,000 shares of the Companys
common stock having exercise prices ranging from $1.25 to $1.75 per share. The warrants expire on
October 29, 2008 and have a cashless exercise provision. The fair value of these warrants was
estimated at approximately $870,000 based on the Black-Scholes option pricing model with the
following assumptions; a risk free interest rate of 3.14%, an expected life of four years, a
volatility factor of 66%, and a dividend yield of 0%. The relative fair value allocated to the
warrants was recognized as debt discount and amortized over the term of the note. In addition, since this debt is convertible into equity at the option of the note holder at
beneficial conversion rates, an embedded beneficial conversion feature amounting to approximately
$3.2 million was recorded. The value of the beneficial conversion feature has been recorded to
interest and financing costs in accordance with EITF No. 00-27. In April 2004, the Company received a thirty day waiver from the holder on the first principal
payment due which was subsequently further extended through to maturity. In addition, the Company
received a deferral on certain interest payments which have subsequently been paid to Laurus Funds.
As consideration for the deferrals, the Company issued five year Common Stock Purchase Warrants to
Laurus Funds to purchase 694,000 shares of common stock at an exercise price of $0.81 per share.
The fair value of these warrants was $153,000 based on the Black-Scholes option pricing model with
the following assumptions; a risk free interest rate of 3.14%, an estimated life of four years, a
volatility factor of 57%, and a dividend yield of 0% and will be amortized over the remaining term
of the loan. The Company also lowered the fixed conversion price of the convertible debt to $0.80
retroactively to the date of the agreement and stipulated an automatic reset of the fixed
conversion price under certain circumstances. The principal amount of this collateralized 7% convertible term note was increased by another
$500,000 on May 27, 2004. As additional consideration for the increase the Company issued a five
year Common Stock Purchase Warrant to Laurus Funds to purchase 82,500 shares of the Companys
common stock at exercise prices ranging from $1.00 to $1.40 per share. The principal is due in
monthly installments of approximately $17,000 commencing in November 2004 through November 2006.
The Company recorded a beneficial conversion feature of $184,000 and the relative fair value
allocated to the warrants was approximately $40,000 based on the Black-Scholes option pricing model
with the following assumptions; a risk free interest rate of 3.14%, an estimated life of four
years, a volatility factor of 57%, and a dividend yield of 0%. The fair value allocated to the
warrants was recorded as debt discount and is being amortized over the term of the loan and the
beneficial conversion feature was charged to the statement of operations as interest and financing
costs. Laurus Funds shall not be entitled to be issued shares of common stock in repayment of any
portion of the notes or upon exercise of either of the warrants if and to the extent such issuance
would result in Laurus Funds and its affiliates beneficially owning more than 4.99% of the issued
and outstanding common stock upon issuance, unless Laurus Funds shall have provided at least 75
days prior written notice to the Company of its revocation of such restriction. To date, the
Company has not received any such notice. For the year ended December 31, 2004, interest expense on the amortization of debt discount
was approximately $670,000. The amortization for the period from March 7, 2003 through December
31, 2003 was approximately $50,000. The principal is due in monthly installments of approximately $141,000 starting in April 2004
through November 2006, while interest on unpaid balances is payable monthly. The Company has the
option to issue common stock in lieu of debt service payments at the then-market price of the
stock. In F - 18




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##### Table of Contents



addition, at the option of the holder, the debt may be converted into common stock at a fixed
conversion price of $0.80 per share based on an agreed upon conversion formula. Pursuant to the Registration Rights Agreement with Laurus Funds, the Company is liable for
certain penalties as a result of not registering the securities within a specified time frame.
However, to date Laurus Funds has waived all penalties. Laurus Funds shall not be entitled to be issued shares of common stock in repayment of any
portion of the notes or upon exercise of either of the warrants if and to the extent such issuance
would result in Laurus Funds and its affiliates beneficially owning more than 4.99% of the issued
and outstanding common stock upon issuance, unless Laurus Funds shall have provided at least 75
days prior written notice to the Company of its revocation of such restriction. To date, the
Company has not received any such notice. (b) Principal
is due in Great Britain Pounds, on March 6, 2007 to Stiefel
Laboratories, Inc. (Stiefel), a customer and lender, while interest is payable
annually commencing on March 7, 2004. The holder has the option to convert this note and any
accrued interest into 4 million shares of the Companys common stock at any time before March 6,
2007. Additionally, the holder has the first right of refusal, for a period of four years on any
additional debt financing that may be required by the Company. In March of 2004, the Company
received, from the holder, a waiver of the first annual interest payment amounting to approximately
$240,000 in consideration of future product development services. On April 6, 2004, the Company
renegotiated this note. The new terms include the repayment of this note by December 31, 2005 and
the cancellation of the option agreement to convert the note into 4 million common shares of the
Company. Refer to Subsequent Events, Note 12. (c) The Company leases computers and furniture under capital leases that expire at various
dates through 2006. Interest rates range from 10% to 27%. As
of December 31, 2004 the principal installments payable on debt are as follows: 2005
    
    $
    4,2772006
    
    
    1072007
    
    
    6Total
    
    $
    4,390
 NOTE 11: COMMITMENTS AND CONTINGENCIES Leases: The Company has commitments under various long-term operating lease agreements for various
premises. For the year ended December 31, 2004, total rent of
office space was approximately $180,000 (2003 -
$103,000). In addition to rent, the Company and its subsidiaries are responsible for operating
costs, real estate taxes and insurance. As of December 31, 2004, future minimum annual rental
commitments under operating leases are as follows: 2005
    
    $
    5772006
    
    
    4282007
    
    
    3992008
    
    
    1912009
    
    
    100Thereafter
    
    
    1,106Total
    
    $
    2,801
 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 supplier. The loss of any one of the suppliers would have a
material affect on the Companys operations. Other: Based
on an agreement with a customer, the Company intends to spend
approximately 365,000 on gassing equipment to automate a manufacturing
Line related to that customers contract. F - 19




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NOTE 12: SUBSEQUENT EVENTS During January 2005, Laurus Funds, the holders of the Convertible Notes due through 2006
converted $304,000 of the principal due on the Convertible Notes into 380,000 shares of the
Companys restricted common stock at a conversion price of $0.80 per share. Subsequent to December 31, 2004, the Company renewed three Promissory Notes to two executives
and an outside director for an aggregate amount of $700,000 at an
interest rate of 10% per
annum. On March 31, 2005, the Company entered into a new non-dilutive, asset base revolving credit,
term loan and security agreement (Debt Agreement) totaling $46 million 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 Debt Agreement provides up to $10.0 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) collateralized by the assets of
Inyx, Inc. and its subsidiary Inyx USA, Inc. 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, $11.8 million, 15 year term loan on real property and a $5.0 million
mezzanine term line carries interest of 15% and collateralized by all
other assets of the Company. The interest rate for these facilities,
excluding the mezzanine ranges from prime plus 1% to prime plus 2%
(at a minimum of 6.5%) not to exceed 15%. The availability under the Debt Agreement allowed the Company to complete the acquisition of
certain assets and business of Aventis Pharmaceuticals Puerto Rico
Inc. (Aventis PR) from Aventis
Pharmaceuticals, Inc., a member of the sanofi-aventis Group, to repay all amounts due to Laurus
Funds and to provide funding for working capital requirements. In connection with the Companys repayment of amounts due to Laurus Funds, all of the
property, rights, title, interests and other assets pledged to Laurus Funds by Inyx Pharma, Ltd.
and the Registrant pursuant to that certain Debenture dated as of October 30, 2003, by and between
Inyx Pharma, Ltd. and Laurus Funds, as supplemented by a Supplemental Deed of Security dated as of
December 29, 2003, and pursuant to that certain Share Charge dated as of October 29, 2003, by and
between the Registrant and Laurus Funds, respectively, were irrevocably and unconditionally
released by Laurus Funds pursuant to that certain Deed of Release dated as of March 31, 2005, by
and between the Registrant, Inyx Pharma, Ltd and Laurus Funds. Further, all of Laurus Funds right,
title and interest in and to the assets secured in connection with that certain Secured Revolving
Note dated as of December 30, 2003, that certain Minimum Borrowing Note dated as of December 30,
2003 and that certain Convertible Term Note dated as of October 20, 2003, each by and between the
Registrant and Laurus Funds (together, the Instruments), were terminated, cancelled and
transferred, along with all of Laurus Funds right, title and interest in and to the Instruments,
by Laurus Funds to Westernbank Puerto Rico pursuant to that certain Release Agreement dated as of
March 31, 2005, by and among the Inyx, Inc., Inyx Pharma, Ltd., Inyx USA, Ltd., Laurus Funds and
Westernbank Puerto Rico. In addition to the repayment of the convertible notes, the Company issued
to Laurus Funds 1.5 million restricted common shares in lieu of early termination fees. On March 31, 2005, we entered into a long-term manufacturing and supply agreement with Aventis
to manufacture and supply dermatological creams, lotions and ointments to Aventis from the Manati,
Puerto Rico manufacturing facility that we acquired from Aventis PR (the Aventis Supply
Agreement). Pursuant
to the completion of the acquisition of the business assets of
Aventis PR, the Company received a $3.5 million advance
from Aventis PR, 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 the Company
subsequent to its acquisition of the pharmaceutical manufacturing assets of Aventis PR. Such Promissory
Note carries a ten percent (10%) per annum interest rate and is to be repaid by the Company to Aventis PR
in two equal installments of one million seven hundred fifty thousand dollars ($1,750,000); the
first of these installments shall be made on July 29, 2005 and the second of these installments
shall be made on December 30, 2005. On April 6, 2005, our subsidiary, Inyx Pharma and Stiefel entered into a
renewal of a Promissory Note originally dated March 6, 2003 payable to Stiefel in the principal amount of 2,500,000 Great Britain Pounds. In connection with such refinancing,
Stiefel agreed to terminate its Option to convert such debt into 4 million shares of common stock
of the Company. The new Note is payable quarterly in three equal installments starting June 30,
2005. Furthermore, once the note is paid off, the cross default condition on the Manufacturing and
Supply Agreement dated March 6, 2003, will be removed and a cancellation letter will be reissued on
December 31, 2005. Subsequent to year end, following the cancellation of 550,000 stock options granted to employees
and consultants under the 2003 Stock Option Plan, the Company granted 550,000 stock options to
employees and consultants as per the 2003 Stock Option Plan with prices ranging from $0.90 to
$1.10. NOTE 13: STOCKHOLDERS EQUITY (DEFICIT) The stockholders equity (deficit) information presented in these consolidated financial
statements reflects the recognition of the effect of the reverse acquisition transaction with Inyx
Pharma (See Note 1). On April 17, 2003 the Company issued 2,450,000 shares of restricted common stock as a fee to
five entities as finders fees for their role in facilitating the transaction with Inyx Pharma. The
value of the common stock was approximately $1.3 million. On April 21, 2003 the Company issued 1,500,000 shares of restricted common stock to an
individual as consideration for business advisory and financial consulting services. The value of
the common stock was approximately $800,000. F - 20




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On April 28, 2003 the Company issued 16,000,000 shares of restricted common stock for 100% of
the issued and outstanding shares of Inyx Pharma in a reverse merger acquisition. On August 22, 2003 the Company completed a private placement financing under which the Company
sold 500,000 shares of its common stock at a price of $1.00 per share, and the investors also
received a common stock purchase warrant, with an exercise price of $1.50 per share, along with
each common share purchased. Neither the common shares nor the warrants are registered for trading
at this time. As announced by the Company on September 9, 2003 the proceeds of the offering were to
be used to increase the Companys working capital. The investors in this private placement included
the Companys Chairman and an Outside Director of the Company. On October 30, 2003, the Company closed the private placement of $3 million in common stock.
The common stock private placement has resulted in the issuance of 3 million shares, par value
$0.01 to a group of institutions and other accredited investors. Proceeds net of offering costs of
approximately $310,000 amounted to approximately $2.7 million. In addition to the common shares,
the purchasers received a five-year Stock Purchase Warrant to buy one share of common stock for
each two shares acquired in the placement, at a price of $1.00 per share for half of such warrants
and $1.35 for the remaining half. The Company can call these warrants for redemption if the
Companys stock price has closed above 200% of the strike price for 20 consecutive days. On November 17, 2003, pursuant to an exercise of 75,000 options the Company issued 75,000
shares of common stock for net proceeds of $90,000. During the period March 7, 2003 through December 31, 2003, the Company recorded approximately
$1.5 million of additional paid-in capital resulting from stock options which vested during the
period. The fair value was calculated using the Black-Scholes option pricing model with the
following assumptions; a risk free interest rate of 3.14%, an expected life of four years, a
volatility factor of 66%, and a dividend yield of 0%. This amount is included in general and
administrative expenses in the consolidated statement of operations. During the period March 7, 2003 through December 31, 2003, the Company recorded approximately
$1.3 million resulting from the issuance of 1,475,000 stock purchase warrants as consideration for
services to consultants and stock options to employees. The fair value was calculated using the
Black-Scholes option pricing model with the following assumptions; a risk free interest rate of
3.14%, an expected life of four years, a volatility factor of 66%, and a dividend yield of 0%.
These amounts are included in general and administrative expenses in the consolidated statement of
operations. On October 29, 2003 and December 30, 2003, the Company issued Laurus Funds a Convertible Term
Note and a Secured Revolving Convertible Note with attached warrants. The beneficial conversion
feature and the fair value of the warrants were recorded to additional paid-in capital. The value
of the beneficial conversion feature was approximately $3.7 million and the fair value assigned to
the warrants was approximately $1.6 million. The fair value was calculated using the Black-Scholes
option pricing model with the following assumptions; a risk free interest rate of 3.14%, an
expected life of four years, a volatility factor of 66%, and a dividend yield of 0% In January 2004, pursuant to an exercise of 265,000 options, the Company issued 200,000 shares
of common stock at approximately $1.10 per share, and 65,000 shares of common stock at
approximately $1.20 per share. On July 1, 2004, the Company issued 31,579 restricted shares of common stock for services
under a strategic collaboration agreement amounting to approximately $30,000. This amount is
included in the general and administrative expenses in the consolidated statement of operations. On August 3, 2004 through September 3, 2004 the Company completed two private placements and
issued an aggregate of 9,190,901 shares of common stock at exercise prices ranging from $1.00 to
$1.11 per share. The private placement resulted in proceeds of approximately $7.5 million net of
offering related costs amounting to approximately $819,000. All of the investors were granted
five-year non-detachable warrants to purchase up to an additional 9,190,901 shares of our common
stock in aggregate at exercise prices ranging from $1.00 to $1.11 per share. During the term of
such warrants, the exercise F - 21




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price shall be adjusted based on an agreed upon formula. The warrants also contain certain
redemption and anti-dilution provisions. The Company also issued
783,286 warrants as a fee in connection with this private placement. During the year ended December 31, 2004, the Company recorded approximately $291,000 of
additional paid-in capital resulting from stock options which vested during the period. The fair
value was calculated using the Black-Scholes option pricing model with the following assumptions; a
risk free interest rate of 3.14%, an expected life of four years, a volatility factor of 66%, and a
dividend yield of 0%. This amount is included in general and administrative expenses in the
consolidated statement of operations. During the year ended December 31, 2004, the Company recorded approximately $521,000 as the
fair value of warrants granted to Laurus Funds as consideration for its collateralized 7%
convertible term note and certain amendments to the loan agreement thereafter. The relative fair
value was calculated using the Black-Scholes option pricing model with the following assumptions; a
risk free interest rate of 3.14%, an expected life of four years, a volatility factor of 57%, and a
dividend yield of 0% and was recorded as debt discount and is amortized over the remaining term of
the loan. In addition, the Company also recorded $773,000 in the beneficial conversion feature on
the convertible term note and secured revolver note. This amount was recorded as a charge to
interest and financing costs in the accompanying statement of operations In addition, during the year ended December 31, 2004, the Company recorded approximately
$178,000 of additional paid-in capital resulting from the issuance of 700,000 stock purchase
warrants as additional consideration for promissory notes issued to two of its executives and one
independent director. Additionally, on November 19, 2004, the Company granted an additional
1,150,000 five-year warrants to two of the Companys executives and an outside director to purchase
an aggregate of 1,150,000 shares of the Companys common stock at a price of $0.95 per share.
450,000 of these warrants related to services provided in connection with corporate development and
acquisition activities. The remaining 700,000 warrants were granted as additional consideration for
extending loans to the Company, the aggregate amount of the loans amounts to $700,000 bearing
interest of 10% per annum and due to be repaid no later than March 31, 2005. Net proceeds from
these loans, were used for working capital purposes. The fair value assigned to these warrants
based on the Black-Scholes pricing model was approximately $404,000 with the following
weighted-average risk assumptions: a risk free interest rate of 3.14%, an estimated life of four
years, a volatility factor of 66% (2003) and 57% (2004), and a dividend yield of 0%. These amounts
are included in interest expense in the consolidated statement of operations During the year ended December 31, 2004, the Company recorded approximately $580,000 of
additional paid-in capital resulting from the issuance of stock purchase warrants, which included;
(i) 100,000 stock purchase warrants granted to a resigning director as an exchange for cancellation
of 350,000 stock options. These Common Stock Purchase Warrants have an exercise price of $1.20 per
share. (ii) 1,500,000 warrants granted to an entity related to the Companys Chairman, and his
spouse. These five-year warrants were granted pursuant to various business development services
provided to the Company and allow the holder to purchase our common stock at a price of $0.90 per
share. These amounts are included in general and administrative expenses in the consolidated
statement of operations. On November 26, 2004, the Company granted 300,000 five-year stock purchase warrants to
purchase 300,000 shares of the Companys common stock at a price of $0.98 per share, to a
consultant for due diligence services in relation to the asset acquisition in Puerto Rico. The
fair value assigned to these warrants was approximately $109,000 and was charged to deferred
acquisition costs on the Companys balance sheet. Between December 16, 2004 and December 30, 2004, the Company granted 150,000 stock purchase warrants
for services in connection with signing a definitive agreement for the asset acquisition in Puerto
Rico. These five year warrants allow various consultants to purchase the Companys common stock at
a prices ranging between of $1.11 and $1.35 per share. The fair value assigned to these warrants
was approximately $66,000 based on the Black-Scholes option pricing model and was charged to
deferred acquisition costs on the Companys balance sheet. NOTE 14: ACCUMULATED COMPREHENSIVE LOSS F - 22




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The accumulated comprehensive loss reflected in the consolidated statement of changes in
Stockholders Equity (deficit) and other comprehensive loss represents accumulated foreign currency
translation adjustments associated with the conversion of the Companys United Kingdom and Canadian
subsidiarys accounts to US dollars. These amounts are not adjusted for income taxes as they relate
to an indefinite investment in a foreign subsidiary. NOTE 15: STOCK OPTION PLAN On May 1, 2003, the Companys Board of Directors adopted the 2003 Stock Option Plan, which
provides for the granting of incentive stock options and non-qualified stock options for the
benefit of employees, officers, directors and those 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 is 5,000,000. The exercise price per share must be at least equal to the fair market price at
the time of grant. The term of each option is 10 years from the date of grant. The predecessor
Company had no stock option plan. The weighted average fair value, at the date of the grant of the individual options granted
during 2004 and 2003 was estimated at $1.18 and $1.12 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, 2004 and for the period from March 7, 2003 through December 31, 2003,
volatility rate of 57% and 66% respectively, risk free interest rate of 3.14%, an expected life of
four years and no dividend yield for all periods. Total net compensation expense relating to options granted to employees, officers, directors,
and other persons approximated $292,000 for the year ended December 31, 2004 and $1.5 million
during the period March 7, 2003 through December 31, 2003. 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. There was no similar expense for
options in the other periods presented. A summary of stock option activity under the plan is shown below: Successor
    
    
    
    PredecessorFor the PeriodFor the Year
    
    
    from March 7,
    
    
    
    For the PeriodEnded
    
    
    2003 through
    
    
    
    from January 1,December
    
    
    December 31,
    
    
    
    2003 through31, 2004
    
    
    2003
    
    
    
    March 6, 2003(000s)
    
    
    (000s)
    
    
    
    (000s)Beginning Balance
    
    
    4,860
    
    
    
    0
    
    
    
    
    Granted
    
    
    773
    
    
    
    6,185
    
    
    
    
    Exercised
    
    
    (325
    )
    
    
    (75
    )
    
    
    
    Forfeited
    
    
    (410
    )
    
    
    (250
    )
    
    
    
    Cancelled
    
    
    (448
    )
    
    
    (1,000
    )
    
    
    
    Ending Balance
    
    
    4,450
    
    
    
    4,860
    
    
    
    
    Exercisable
    
    
    3,627
    
    
    
    3,212
    
    
    
    
    
 The following table summarizes information concerning outstanding and exercisable options at
December 31, 2004 and at December 31, 2003; the predecessor Company had no stock option plan. F - 23




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##### Table of Contents



Options outstanding

    Options exercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    WeightedRemaining
    
    
    Average
    
    
    
    
    
    
    AverageRange of
    
    
    Shares
    
    
    Contractual
    
    
    Exercise
    
    
    Shares
    
    
    ExerciseExercise Price
    
    
    Outstanding
    
    
    Life (Years)
    
    
    Price
    
    
    Exercisable
    
    
    PriceDecember 31, 2004
    
    $
    0.90 -$1.75
    
    
    
    4,450
    
    
    
    9
    
    
    $
    1.18
    
    
    
    3,627
    
    
    $
    1.18December 31, 2003
    
    $
    1.10 -$1.75
    
    
    
    4,860
    
    
    
    9
    
    
    $
    1.12
    
    
    
    3,212
    
    
    $
    1.12
 NOTE 16: WARRANTS For the period from March 7, 2003 through December 31, 2003, the Company granted 3,475,000
warrants to purchase a maximum of 3,475,000 whole shares of common stock. Of the warrants granted,
2,000,000 warrants were issued pursuant to issuance of debt that are non-detachable and 1,475,000
detachable warrants were issued pursuant to consulting and investment banking agreements. These
warrants allow the holders to buy the Companys common stock at prices ranging from $1.00 to $3.10
per share and expire at various dates between July 1, 2006 and December 30, 2008. The fair value
assigned to the warrants issued for consulting and investment banking fees was approximately $1.3
million based on the Black-Scholes option pricing model with the following weighted average
assumption: a risk free interest rate of 3.14%, an estimated life of four years, a volatility
factor of 66%, and a dividend yield of 0%. This amount was included in the general and
administrative expenses on the Companys consolidated statement of operations for the period March
7, 2003 through December 31, 2003. The Company issued to Laurus Funds 2,010,000 stock purchase warrants in conjunction with the
issuance of debt over the period March 7, 2003 through December 31, 2003. The value assigned to
these warrants was approximately $1.6 million and was recorded to debt discount and is being
amortized over the period the debt is outstanding. In addition, the Company issued 1,271,500
warrants to Laurus Funds in consideration for increases to their convertible note and borrowing
facility during the year ended December 31, 2004. The value assigned to these warrants was
approximately $521,000 and was recorded to debt discount and is being amortized over the period the
debt is outstanding. The total amortization for the year ended December 31, 2004 was approximately
$670,000 and for the period March 7, 2003 through December 31, 2003 was approximately $48,000. 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, 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, 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. NOTE 17: SUPPLEMENTAL CASH FLOW INFORMATION F - 24




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##### Table of Contents



Successor

    PredecessorFor thePeriod
    
    
    
    For thefrom
    
    
    
    Period fromFor the
    
    
    March 7,
    
    
    
    January 1,Year
    
    
    2003
    
    
    
    2003Ended
    
    
    through
    
    
    
    throughDecember
    
    
    December
    
    
    
    March 6,31, 2004
    
    
    31, 2003
    
    
    
    2003Supplemental Disclosure of Cash
Flow Information:Cash paid during the period for
interest
    
    $
    341
    
    
    $
    216
    
    
    
    $
    Supplemental Disclosure of
Non-Cash Financing Activities:Conversion of shareholder debt of
$100,000 into shares of stock
    
    
    
    
    
    
    100
    
    
    
    
    Issuance of stock for services
    
    
    323
    
    
    
    799
    
    
    
    
    Issuance of stock for finders fees
    
    
    
    
    
    
    1,302
    
    
    
    
    Issuance of stock options
    
    
    291
    
    
    
    1,513
    
    
    
    
    Warrants issued for consulting
and financing fees
    
    
    1,337
    
    
    
    1,261
    
    
    
    
    Debt discount
    
    
    522
    
    
    
    1,628
    
    
    
    
    Supplemental Disclosure of
Non-Cash Investing Activities:Capital leases
    
    
    25
    
    
    
    309
    
    
    
    
    Acquisition
of Patent
    
    
    37
    
    
    
    
    
    
    
    
    
 NOTE 18: INCOME TAXES The (provision) benefit for income taxes by taxing jurisdictions was as follows: Successor
    
    
    
    PredecessorFor the
    
    
    
    For thePeriod from
    
    
    
    Period fromMarch 7,
    
    
    
    January 1,For the Year
    
    
    2003
    
    
    
    2003Ended
    
    
    through
    
    
    
    throughDecember
    
    
    December
    
    
    
    March 6,31, 2004
    
    
    31, 2003
    
    
    
    2003Deferred tax (provision) benefit:US Federal
    
    $
    
    
    
    $
    
    
    
    
    $
    Non-US
    
    
    (1,333
    )
    
    
    1,294
    
    
    
    
    Income tax (provision) benefit
    
    $
    (1,333
    )
    
    $
    1,294
    
    
    
    $
    
 The federal statutory tax rate reconciled to the effective tax rate during 2004 and 2003,
respectively is as follows: Successor
    
    
    
    PredecessorFor the
    
    
    
    For the PeriodPeriod from
    
    
    
    from JanuaryFor the Year
    
    
    March 7,
    
    
    
    1, 2003Ended
    
    
    2003 through
    
    
    
    throughDecember
    
    
    December
    
    
    
    March 6,31, 2004
    
    
    31, 2003
    
    
    
    2003Tax at US statutory rate
    
    
    35
    %
    
    
    35
    %
    
    
    
    35
    %Change in valuation allowance
    
    
    (43.5
    %)
    
    
    (23.3
    %)
    
    
    
    Effective tax rate
    
    
    (8.5
    %)
    
    
    11.7
    %
    
    
    
    
 Deferred income taxes reflect the net tax effect 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, 2004 and 2003 are
as follows: December 31,
    
    
    December 31,2004
    
    
    2003Deferred tax assets:Net
operating loss carryforwardUS
    
    $
    3,144
    
    
    $
    3,393Non-US
    
    
    2,463
    
    
    
    1,2945,607
    
    
    
    4,687Less: valuation allowance
    
    $
    (5,607
    )
    
    
    (3,393
    )Total net deferred tax assets
    
    $
    
    
    
    $
    1,294
 At December 31, 2004, the Company has approximately $9.0 million of U.S. operating loss
carry-forwards expiring from 2005 through 2019; and approximately $8.2 million of foreign loss
carry forwards expiring from 2005 through 2011. The Company has not made any provisions for United
States federal or foreign taxes that may result from future remittances of undistributed earnings
of foreign subsidiaries because it is expected that such earnings will be permanently reinvested in
these foreign operations. It is not practical to estimate the amount of taxes that might be
payable on the eventual remittance of these earnings. F - 25




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##### Table of Contents



NOTE 19: DISCONTINUED OPERATIONS On March 7, 2003, Inyx Pharma acquired the majority of the pharmaceutical business assets of
Miza UK out of Administration. The business assets of Miza UKs Biopharma division were not
purchased and therefore have been presented as discontinued operations in the period from January
1, 2003 through March 6, 2003. The Biopharma Division generated net revenues of approximately
$335,000, costs of sales of approximately $395,000 and a net loss of approximately $558,000. NOTE 20: RELATED PARTY TRANSACTIONS F - 26




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##### Table of Contents



During the period from March 7, 2003 through December 31, 2003, an affiliated partnership
controlled by the chairman and his immediate family charged the Company for the chairmans
services. Total payments to this affiliate approximated $980,000. The amount consisting of a
one-time consulting charge of $753,000 and the balance of $227,000 for recurring salary were
charged to general and administrative expenses in the consolidated statement of operations. During the period from March 7, 2003 through December 31, 2003, the Chairman and his spouse
provided working capital advances to the Company. At December 31, 2003, all such advances have been
repaid. During the period from March 7, 2003 through December 31, 2003, the Company paid rent to an
affiliate for a furnished office space amounting to $66,000. This amount is included in general
and administrative expenses. On April 14, 2004, Inyx Realty, Inc., which the Company established solely to operate a
corporate office lease in Miami Florida, was acquired by a related party. As consideration for the
transfer, this related party assumed $100,000 of Inyx Realtys liabilities. The acquirer is a
family trust in which the Companys Chairman/CEO and his spouse are beneficiaries. The acquirer
unconditionally assumed all liabilities, thus terminating all of the Companys obligations under
that lease. During the year ended December 31, 2004 and the period from March 7, 2003 through December 31,
2003 the Company paid to an affiliate approximately $12,000 and $0, respectively for sublease of
office furniture and equipment. 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.
The parties were issued warrants with a fair value of $178,000 for the issuance of the notes. This amount was charged as interest expense. During 2004, the
Company repaid $600,000 of the notes. Subsequent to December 31, 2004 the Company renewed the notes which
carry interest of 10% per annum. As additional
consideration, 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 and was charged to interest and financing charges. F - 27




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##### Table of Contents



UNAUDITED PRO FORMA FINANCIAL STATEMENT INFORMATION  MIZA UK The following unaudited consolidated pro forma statement of operations presented herein for
the year ended December 31, 2003 gives effect to the acquisition of Miza UK Pharmaceuticals Ltd.
(Miza UK) by Inyx Pharma Limited (Inyx Pharma) as if the acquisition had taken place as of
January 1, 2003. As Miza UK is the predecessor entity, the historical financial information presented is that
of Miza UK. The historical financial data is derived from the historical audited financial
statements of the predecessor entity to Inyx Pharma. On March 7, 2003, Inyx Pharma acquired the
majority of the operating assets of Miza UK from a court appointed Administrator. The acquisition
did not include the operations of Miza UKs Biopharma Division, and such operations have been
presented as discontinued operations in the underlying historical financial statements. The acquisition was accounted for using the purchase method of accounting. The unaudited pro
forma financial data is not necessarily indicative of the operations had the acquisition taken
place on January 1, 2003 and are not intended to project the Companys results of operations for
any future period. The unaudited pro forma adjustments and certain assumptions are described in the accompanying
notes. The unaudited pro forma financial statements should be read in conjunction with Inyx,
Inc.s consolidated financial statements and notes and the managements discussion and analysis
included within this filing. Unaudited Consolidated Pro Forma Combining Statement of Operations
For the Year Ended December 31, 2003
(Expressed in thousands of U.S. dollars) Pro formaMiza UK
    
    
    Inyx, Inc.
    
    
    Adjustment
    
    
    Pro formaNet Revenues
    
    $
    2,396
    
    
    $
    13,099
    
    
    $
    
    
    
    $
    15,495Cost of sales
    
    
    1,876
    
    
    
    10,634
    
    
    
    
    
    
    
    12,510520
    
    
    
    2,465
    
    
    
    
    
    
    
    2,985Operating expenses:Research and development
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    General and administrative expenses
    
    
    568
    
    
    
    12,093
    
    
    
    
    
    
    
    12,661Selling expenses
    
    
    51
    
    
    
    260
    
    
    
    
    
    
    
    311Depreciation and amortization
    
    
    75
    
    
    
    347
    
    
    
    (7
    )(3)
    
    
    415Amortization of intangibles
    
    
    
    
    
    
    139
    
    
    
    27
    (4)
    
    
    166Total operating expenses
    
    
    694
    
    
    
    12,839
    
    
    
    20
    
    
    
    13,553Loss from continuing operations before interest
expense, reorganization items and income tax benefit
    
    
    (174
    )
    
    
    (10,374
    )
    
    
    (20
    )
    
    
    (10,568
    )Interest expense
    
    
    176
    
    
    
    707
    
    
    
    (1,037
    )(1),(2)
    
    
    (154
    )Loss from continuing operations before
reorganization items and income tax benefit
    
    
    (350
    )
    
    
    (11,081
    )
    
    
    1,017
    
    
    
    (10,414
    )Reorganization items
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss from continuing operations before income tax benefit
    
    
    (350
    )
    
    
    (11,081
    )
    
    
    1,017
    
    
    
    (10,414
    )Income tax benefit
    
    
    
    
    
    
    1,294
    
    
    
    
    
    
    
    1,294Loss from continuing operations
    
    $
    (350
    )
    
    $
    (9,787
    )
    
    $
    
    
    
    $
    (9,120
    )
 NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS  1)
    Interest expense was reduced by approximately $1,217,000 to reflect a reduction
in interest expense assuming the repayment of Miza UKs debt. Upon completion of the
acquisition, approximately $6.5 million of the cash paid to the Administrator was used
to repay Miza UKs secured debt.2)
    Interest expense was increased by approximately $180,000 to reflect the
interest on the debt issued by the Company in connection with the acquisition.3)
    Depreciation expense was adjusted to reflect the charges related to changes in
fixed assets as of the closing of the acquisition.4)
    Amortization of intangible assets was recorded to reflect the amortization of
purchased intangible assets subject to amortization including customer list and
know-how. F - 28




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##### Table of Contents



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 April 15, 2005. 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
Jack Kachkar
    
    Chairman, Chief Executive
Officer and Director
(Principal Executive Officer)
    
    April 15, 2005/s/ John Hamerski
John Hamerski
    
    Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
    
    April 15, 2005/s/ Steven Handley
Steven Handley
    
    President and Director
    
    April 15, 2005/s/ Douglas Brown
Douglas Brown
    
    Director
    
    April 15, 2005/s/ Joseph Rotmil
Joseph Rotmil
    
    Director
    
    April 15, 2005/s/ Colin Hunter
Colin Hunter
    
    Vice President and Director
    
    April 15, 2005
 87