**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**






**FORM
      10-Q**


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


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934




For
      the
      quarterly period ended September 30, 2006






Commission
      file number 333-83152




**INYX,
      INC.**




(Exact
      name of registrant as specified in its charter)




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







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




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


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




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




At
      November 30, 2006, the registrant had outstanding 53,106,650 shares of par
      value
      $0.001 common stock.







**PART
      I — FINANCIAL INFORMATION**







**Item
        1. FINANCIAL STATEMENTS**
  Condensed
                  Consolidated Balance Sheets as of September 30, 2006 and December
                  31,
                  2005;
              F-2Condensed
                  Consolidated Statements of Operations for the three and nine months
                  ended
                  September 30, 2006 and 2005;
              F-3Condensed
                  Consolidated Statements of Cash Flows for the nine months ended
                  September
                  30, 2006 and 2005;
              F-4Notes
                  to Condensed Consolidated Financial Statements
              F-5**Item
                2.
                MANAGEMENT'S DISCUSSION AND ANALYSIS**
              23**Item
                3.
                QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK**
              44**Item
                4.
                CONTROLS AND PROCEDURES**
              44**PART
                  II — OTHER
                  INFORMATION****Item
                1A.
                RISK FACTORS**
              45**Item
                4.
                SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
              49**Item
                6.
                EXHIBITS**
              50**SIGNATURES**
              50
 
  F-1




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




**Condensed
      Consolidated Balance Sheets**




**(in
      thousands)**




**September
                30, 2006**
            
            **December
                31, 2005****(Unaudited)****Assets**Current
                assets:Cash
                and cash equivalents
            
            **$**
            **1,518**
            
            $
            1,023Accounts
                receivable, net
            
            
            **22,790**
            
            
            19,782Inventories,
                net
            
            
            **12,117**
            
            
            11,331Prepaid
                expenses and other current assets
            
            
            **3,262**
            
            
            2,589Total
                current assets
            
            
            **39,687**
            
            
            34,725Property,
                plant and equipment, net
            
            
            **41,528**
            
            
            40,781Deferred
                financing costs, net
            
            
            **1,363**
            
            
            1,434Deferred
                costs and deposits
            
            
            **5,318**
            
            
            431Advances
                for investment
            
            
            **5,603**
            
            
            -Deposits
                for acquisition of office building
            
            
            **2,226**
            
            
            -Intangible
                assets, net
            
            
            **18,769**
            
            
            14,782**74,807**
            
            
            57,428Total
                assets
            
            **$**
            **114,494**
            
            $
            92,153**Liabilities
                and Stockholders’ Deficiency**Current
                liabilities:Borrowings
                under lines of credit
            
            **$**
            **58,778**
            
            $
            30,011Term
                loans - current portion
            
            
            **49,366**
            
            
            9,288Accounts
                payable
            
            
            **13,966**
            
            
            11,691Accrued
                expenses
            
            
            **12,218**
            
            
            9,557Deferred
                tax liability
            
            
            **1,948**
            
            
            1,858Deferred
                revenues
            
            
            **5,865**
            
            
            -Seller
                financing
            
            
            **11,216**
            
            
            14,014Total
                current liabilities
            
            
            **153,357**
            
            
            76,419Term
                loans, net of current portion
            
            
            -
            
            
            46,134Total
                liabilities
            
            
            **153,357**
            
            
            122,553Commitments
                and contingenciesStockholders’
                deficiency:Preferred
                stock - $0.001 par value, 10,000,000 shares authorized - none issued
                and
                outstanding
            
            
            **-**
            
            
            -Common
                stock - $0.001 par value, 150,000,000 shares authorized - 52,496,189
                shares issued and outstanding at September 30, 2006, net of 610,461
                shares
                of treasury stock; 43,389,922 shares issued and outstanding at December
                31, 2005, net of 209,732 shares of treasury stock
            
            
            **52**
            
            
            43Additional
                paid-in capital
            
            
            **43,479**
            
            
            33,315Accumulated
                deficit
            
            
            **(83,523**
            **)**
            
            (61,343
            )Subscriptions
                receivable
            
            
            **(293**
            **)**
            
            (293
            )Accumulated
                other comprehensive income (loss) - foreign currency translation
                adjustment
            
            
            **1,422**
            
            
            (2,122
            )Total
                stockholders’ deficiency
            
            
            **(38,863**
            **)**
            
            (30,400
            )Total
                liabilities and stockholders’ deficiency
            
            **$**
            **114,494**
            
            $
            92,153




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




F-2




**INYX,
      INC.**


**Condensed** **Consolidated
      Statements of Operations**


**(in
      thousands, except per share data)**





**For
                the Three Months Ended September 30,**
            
            **For
                the Nine Months**
              **Ended
                September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****(Unaudited)**
            
            **(Unaudited)**Net
                revenues
            
            **$**
            **18,006**
            
            $
            12,908
            
            **$**
            **59,560**
            
            $
            24,086Cost
                of sales
            
            
            **10,593**
            
            
            7,837
            
            
            **36,231**
            
            
            16,236Gross
                profit
            
            
            **7,413**
            
            
            5,071
            
            
            **23,329**
            
            
            7,850Operating
                expenses:Research
                and development
            
            
            **667**
            
            
            929
            
            
            **1,834**
            
            
            1,876General
                and administrative
            
            
            **10,420**
            
            
            5,813
            
            
            **25,681**
            
            
            12,239Selling
            
            
            **1,310**
            
            
            181
            
            
            **4,584**
            
            
            355Depreciation
            
            
            **1,603**
            
            
            903
            
            
            **4,655**
            
            
            1,619Amortization
                of intangible assets
            
            
            **448**
            
            
            436
            
            
            **1,327**
            
            
            845Total
                operating expenses
            
            
            **14,448**
            
            
            8,262
            
            
            **38,081**
            
            
            16,934Loss
                from operations before interest and financing costs, provision for
                income
                taxes and extraordinary gain
            
            
            **(7,035**
            **)**
            
            (3,191
            )
            
            **(14,752**
            **)**
            
            (9,084
            )Interest
                and financing costs
            
            
            **2,708**
            
            
            1,750
            
            
            **7,428**
            
            
            7,896Net
                loss before provision for income taxes and extraordinary
                gain
            
            
            **(9,743**
            **)**
            
            (4,941
            )
            
            **(22,180**
            **)**
            
            (16,980
            )Provision
                for income taxes
            
            
            **-**
            
            
            -
            
            
            **-**
            
            
            -Net
                loss before extraordinary gain
            
            
            **(9,743**
            **)**
            
            (4,941
            )
            
            **(22,180**
            **)**
            
            (16,980
            )Extraordinary
                gain, net of taxes
            
            
            **-**
            
            
            -
            
            
            **-**
            
            
            917Net
                loss
            
            **$**
            **(9,743**
            **)**
            $
            (4,941
            )
            **$**
            **(22,180**
            **)**
            $
            (16,063
            )Basic
                and fully diluted loss per share before extraordinary gain
            
            **$**
            **(0.19**
            **)**
            $
            (0.12
            )
            **$**
            **(0.45**
            **)**
            $
            (0.43
            )Basic
                and fully diluted income from extraordinary gain
            
            
            **-**
            
            
            -
            
            
            **-**
            
            
            0.02Basic
                and fully diluted loss per share
            
            **$**
            **(0.19**
            **)**
            $
            (0.12
            )
            **$**
            **(0.45**
            **)**
            $
            (0.41
            )Weighted-average
                number of shares used in computing basic and fully diluted loss per
                share
            
            
            **51,985,114**
            
            
            39,985,613
            
            
            **49,127,327**
            
            
            39,428,431








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





F-3




**INYX,
      INC.**


**Condensed
      Consolidated Statements of Cash Flows**


**** **(in
      thousands)**


**For
                the Nine Months Ended**
              **September
                30,****2006**
            
            **2005**CASH
              FLOWS FROM OPERATING ACTIVITIES:
            
            **(Unaudited)**Net
                loss before extraordinary gain
            
            **$**
            **(22,180**
            **)**
            $
            (16,980
            )Income
                from extraordinary gain
            
            
            **-**
            
            
            917Net
                loss for the nine months ended September 30, 2006
            
            
            **(22,180**
            **)**
            
            (16,063
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
            
            
            **4,655**
            
            
            1,619Amortization
                of financing costs and debt discount
            
            
            **526**
            
            
            2,558Amortization
                of intangible assets
            
            
            **1,327**
            
            
            845Deferred
                income tax
            
            
            **90**
            
            
            -Provision
                for bad debts
            
            
            **1,560**
            
            
            (63
            )Provision
                for inventory obsolescence
            
            
            **437**
            
            
            116Compensation
                expense on stock options issued to employees
            
            
            **752**
            
            
            196Warrants
                issued for financing and consulting fees
            
            
            **-**
            
            
            162Issuance
                of stock for termination fees and conversion of debt
            
            
            **-**
            
            
            1,578Stock
                issuance costs
            
            
            **-**
            
            
            (165
            )Total
                adjustments
            
            
            **9,347**
            
            
            6,846Changes
                in assets and liabilities:Accounts
                receivable
            
            
            **(8,648**
            **)**
            
            (4,860
            )Inventories
            
            
            **(2,087**
            **)**
            
            (1,037
            )Prepaid
                and other current assets
            
            
            **(801**
            **)**
            
            (1,860
            )Deferred
                revenue
            
            
            **5,865**
            
            
            3,723Customer
                advances
            
            
            **-**
            
            
            1,126Accounts
                payable
            
            
            **3,022**
            
            
            2,463Accrued
                expenses
            
            
            **3,366**
            
            
            2,614Net
                cash used in operating activities
            
            
            **(12,116**
            **)**
            
            (7,048
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchase
                of property, plant and equipment
            
            
            **(3,073**
            **)**
            
            (980
            )Deferred
                acquisition costs
            
            
            **(4,846**
            **)**
            
            -Deposits
                for acquisition of office building
            
            
            **(2,226**
            **)**
            
            -Acquisition
                of Aventis Pharmaceuticals, Puerto Rico
            
            
            **-**
            
            
            (23,035
            )Acquisition
                of Celltech Manufacturing Services Limited
            
            
            **-**
            
            
            (28,024
            )Advances
                for investment
            
            
            **(5,603**
            **)**
            
            -Purchase
                of intangible assets
            
            
            **(4,621**
            **)**
            
            -Net
                cash used in investing activities
            
            
            **(20,369**
            **)**
            
            (52,039
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Borrowings
                under revolving line of credit, net of fees
            
            
            **28,312**
            
            
            20,831Proceeds
                from issuance of long term debt
            
            
            **843**
            
            
            56,744Repayment
                of term loans and related fees
            
            
            **(6,890**
            **)**
            
            (4,013
            )Repayment
                of borrowings under revolving line of credit
            
            
            **-**
            
            
            (10,395
            )Proceeds
                from stockholder advances and demand notes
            
            
            **8,474**
            
            
            600Repayment
                of stockholder advances and demand notes
            
            
            **(8,474**
            **)**
            
            (67
            )Proceeds
                from exercise of stock options
            
            
            **5**
            
            
            -Proceeds
                from exercise of warrants ( net of issuance costs)
            
            
            **9,382**
            
            
            50Repayment
                of capital lease obligation
            
            
            **(94**
            **)**
            
            (123
            )Net
                cash provided by financing activities
            
            
            **31,558**
            
            
            63,627Effect
                of exchange rate changes on cash
            
            
            **1,422**
            
            
            (656
            )Net
                increase in cash and cash equivalents
            
            
            **495**
            
            
            3,884CASH
                AND CASH EQUIVALENTS, beginning of the period
            
            
            **1,023**
            
            
            336CASH
                AND CASH EQUIVALENTS, end of the period
            
            **$**
            **1,518**
            
            $
            4,220Supplemental
                disclosure of cash flow information:Cash
                paid for interest
            
            **$**
            **6,681**
            
            $
            2,188Cash
                paid for taxes
            
            **$**
            **1**
            
            $
            -Supplemental
                disclosure of non cash financing activities:Repayment
                of seller financing with trade receivables
            
            **$**
            **(2,798**
            **)**
            **$**
            -Issuance
                of stock options
            
            **$**
            **34**
            
            $
            -




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


F-4
  **INYX,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(tabular
        amounts are expressed in thousands)**




**Note
      1** **.** **Nature
      of** **Business
      and Basis of Presentation**




Inyx,
      Inc. (“Inyx” or the “Company”) through its wholly-owned subsidiaries, Inyx
      Pharma Limited (“Inyx Pharma”); Inyx Canada Inc. (“Inyx Canada”); Inyx USA, Ltd.
      (“Inyx USA”); Inyx Europe Limited (“Inyx Europe”), including Inyx Europe’s
      wholly-owned subsidiary Ashton Pharmaceuticals Limited (“Ashton Pharmaceuticals”
or “Ashton”);  and
      Exaeris Inc. (“Exaeris”), is a specialty pharmaceutical company which focuses on
      the development, manufacturing and marketing of prescription and
      over-the-counter aerosol pharmaceutical products and drug delivery technologies
      for the treatment of respiratory, allergy, cardiovascular and dermatological
      and
      topical conditions. On
      September 15, 2006, the Company also incorporated a new wholly-owned United
      Kingdom entity for business and corporate development activities in the Middle
      East, the Gulf region and the Asian Pacific markets.




Inyx’s
      client base primarily consists of ethical pharmaceutical corporations, branded
      generic pharmaceutical distributors and biotechnology companies. Until it has
      completed developing its own products as well as its own distribution and
      marketing capabilities, the Company expects to continue to depend on its
      customers’ distribution channels or strategic partners to market and sell the
      products it manufactures. In addition, the Company performs certain sales and
      marketing functions to market and promote its manufacturing, technical and
      product development capabilities to its client base.




The
      accompanying unaudited consolidated financial statements of Inyx have been
      prepared in accordance with generally accepted accounting principles for interim
      financial information and with the instructions for Form 10-Q and Rule 10-01
      of
      Regulation S-X. They do not include all information and notes required by
      generally accepted accounting principles for complete financial statements
      and
      should be read together with the audited financial statements and notes thereto
      included in our annual report on Form 10-K for the year ended December 31,
      2005.
      The balance sheet data as of December 31, 2005 was derived from audited
      financial statements but does not include all disclosures required by generally
      accepted accounting principles. Certain reclassifications have been made to
      conform to the 2006 presentation. The financial information furnished reflects
      all adjustments, consisting only of normal recurring accruals, which are, in
      the
      opinion of management, necessary for a fair presentation of the financial
      position, results of operations and cash flows for the quarterly periods
      presented. The results of operations for the periods presented are not
      necessarily indicative of our future results of operations for the entire year.




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


**Note
        2.** **Going
        Concern**
  The
        accompanying consolidated financial statements have been prepared in conformity
        with accounting principles generally accepted in the United States of America,
        which contemplates continuation of the Company as a going concern. The Company
        has experienced recurring operating losses, and has an accumulated deficit
        and
        negative working capital.
  The
        Company has been financing operations primarily through (i) credit facilities
        with its primary lender, Westernbank of Puerto Rico, a wholly-owned subsidiary
        of W Holding Company, Inc. (“Westernbank”); (ii) revenues from multi-year and
        short-term contract manufacturing, product development contracts and purchase
        orders; (iii) the sale of equity securities including proceeds from option
        and
        warrant exercises; (iv) stockholder advances, loans and financial
        guarantees.
  The
        Westernbank credit facilities, consisting of both short-term and long-term
        debt,
        are due through 2008 and are automatically renewable on maturity in March
        2008,
        on a year-to-year basis, unless terminated by Westernbank or the Company.
        On
        November 21, 2006, the Company informed Westernbank that it intends to pay
        off the loan amounts by December 31, 2006. As a result, on
        its
        September 30, 2006 balance sheet,the Company has classified as current
        liabilities, the amounts due under its credit facilities with the bank. As
        of
        November 21, 2006, the Company owed Westernbank approximately $120.0
        million.
  As
          of
          September 30, 2006, the Company had approximately $119.4 million in loan
          obligations, including approximately $108.2 million relating to the credit
          facilities with Westernbank, with the balance of the obligations, amounting
          to
          approximately $11.2 million, relating to the balance due to UCB Pharma
          Limited
          (“UCB Pharma”) as a result of the purchase of the Ashton business from UCB. The
          Company’s annual debt service requirements are approximately $14.4 million
          (which includes approximately $4.9 million of interest). Such debt is
          collateralized by all the existing and future assets of the Company and
          its
          subsidiaries.
  As
          of
          September 30, 2006, the Company was in violation of certain financial covenants
          in connection with its Westernbank loan and security agreements. As it
          has
          previously done when requested so by the Company, Westernbank has waived,
          through December 15, 2006, certain requirements such that the Company’s
          non-compliance with its covenants under such agreements has not resulted
          in an
          event of default by the Company. There can be no assurances the Company
          will
          meet such covenants in the future or that Westernbank will continue to
          grant
          such waivers.
  On
          November 20, 2006, the Company reported that a group comprised of Inyx
          senior
          management, which includes its Chairman and CEO and President, had approached
          the Company’s Board of Directors about taking the Company private in a
          transaction that would be in the best interests of all of the Company’s
          stockholders. As a result, the board authorized the formation of an independent
          committee to evaluate such offer. The Company’s Chairman and CEO then informed
          the Company’s board that before the group tries to finalize financing for any
          going-private offer, he will work to secure new debt financing to replace
          the
          Westernbank facilities by December 31, 2006. There is no assurance that
          the
          Company will be able to obtain such new debt financing. The Company’s
          Chairman and CEO and his spouse provided a personal guarantee to Westernbank
          for
          up to $10.0 million of the amount owed by the Company to the bank. Westernbank
          has requested that the Company provide a further personal guarantee from
          the
          Chairman and CEO and his spouse.
 Until
        such time that the Company is refinanced, the Company expects to continue
        to
        meet short-term liquidity requirements through the existing credit facilities
        with Westernbank as well as:
  1)
        Cash
        generated from operations.
  2)
        As of
        September 30, 2006, the
        Companyhad approximately seven million warrants issued and outstanding
        with an average exercise price of $1.26, which, if exercised by stockholders,
        will provide additional funds to the Company.
  3)
        The
        use of shareholder advances to continue to assist funding the
        Company's operations and strategic growth plans including planned product
        and business acquisitions. For the nine months ended September 30, 2006,
        Inyx’s
        Chairman and CEO, provided the Company approximately $8.5 million in the
        form of
        stockholder advances.
  The
          Company’s management believes that through the end of the year, these
          sources of funds will continue to assist the Company with funding
          its operations, planned capital expenditures and business and corporate
          development strategies as it may require from time to time.
  However,
        on a long-term basis, the Company cannot predict exactly if, or when, additional
        funds will be needed. The Company may obtain funds through additional financing,
        including equity financing, debt financing, a combination of debt and equity
        financing, and/or through collaborative arrangements. Additionally, the Company
        cannot predict whether any such financing will be available on acceptable
        terms
        or at all. If funding requirements are not available, the Company may have
        to
        delay, reduce in scope, or terminate business development activities, capital
        expenditure plans, proprietary product development, marketing and
        commercialization initiatives.




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




Significant
      accounting policies are detailed in our annual report on Form 10-K for the
      year
      ended December 31, 2005. The financial information presented herein should
      be
      read in conjunction with our consolidated financial statements for the year
      ended December 31, 2005.




Investments
        in Common Stock
 
 Investments
        in common stock represent investments in which the Company maintains
        an interest in excess of 20%, but less than or equal to 50% and/or has
        significant influence over the investee. Investments in common stock
        are accounted for in accordance with Accounting Principles Board Opinion
        No. 18,
*The Equity Method of Accounting for Investments in Common Stock*, under
        which investments are reported at cost and the carrying amount of the
        investments are adjusted by the Company’s proportionate share of the income
        or loss of  investees since its inception. Differences, if any, between the
        Company’s carrying value and the underlying equity in the net assets of 
investees are accounted for as if the investees were a consolidated
        subsidiary.




Revenue
      Recognition





The
      Company recognizes revenue in accordance with the SEC’s Staff Accounting
      Bulletin Topic 13, “ *Revenue
      Recognition* ”.
      Revenue is recognized when all of the following criteria are met:
      (1) persuasive evidence of an arrangement exists; (2) delivery has
      occurred or services have been rendered; (3) the seller’s price to the
      buyer is fixed and determinable; and (4) collection is reasonably assured.
      Revenue is recognized when products are shipped and are recorded at the invoiced
      value of goods supplied to customers net of discounts, sales tax and value-added
      tax. Development revenue in the form of products and services is recognized
      using the proportional-performance model, whereby revenue is recognized as
      performance occurs based on the relative value of the performance that has
      occurred to that point in time. The Company fulfills obligations for development
      revenue over a period of time as its customers receive value throughout the
      performance period.




F-5




**INYX,
      INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(tabular
      amounts are expressed in thousands)**





The
      Company allocates revenue to separate elements in multiple element arrangements
      based on the guidance in Emerging Issues Task Force No. 00-21 (“EITF 00-21”),
“ *Accounting
      for Revenue Arrangements with Multiple Deliverables* .”
      Revenue is allocated to a delivered product or service when all of the following
      criteria are met: (1) the delivered item has value to the customer on a
      stand alone basis; (2) there is objective and reliable evidence of the fair
      value of the undelivered item; and (3) if the arrangement includes a
      general right of return relative to the delivered item, delivery, or performance
      of the undelivered item is considered probable and substantially in our control.
      The Company uses the relative fair values of the separate deliverables to
      allocate revenue.





The
      Company obtains detailed credit evaluations of customers and establishes credit
      limits as required, generally without requiring collateral. 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.





Multiple
      Deliverables





The
      Company has revenue arrangements whereby it delivers to the customer multiple
      products and services. Such arrangements have generally included some
      combination of the following: product commercialization services; licensed
      rights to technology, patented products, compounds, data and other intellectual
      property; and development services. In accordance with EITF 00-21, the Company
      analyzes our multiple element arrangements to determine whether the elements
      can
      be separated. The Company performs its analysis at the inception of the
      arrangement and as each product or service is delivered. If a product or service
      is not separable when it is delivered, no revenue is allocated. When a delivered
      product or service (or group of delivered products or services) meets the
      criteria in EITF 00-21, the Company allocates revenue. The Company determines
      the fair value of a separate deliverable using the price it charges other
      customers when it sells that product or service separately; however, if the
      Company does not sell the product or service separately, it uses third-party
      evidence of fair value. The Company considers licensed rights or technology
      to
      have stand-alone value to its customers if the Company or others have sold
      such
      rights or technology separately or the Company’s customers can sell such rights
      or technology separately without the need for our continuing
      involvement.




License
      Arrangements





License
      arrangements may consist of non-refundable up-front license fees, data transfer
      fees, various performance or sales milestones and future product royalty
      payments. Some of these arrangements are multiple element arrangements.





Non-refundable,
      up-front fees that are not contingent on any future performance by the Company,
      and require no consequential continuing involvement on its part, are recognized
      as revenue when the license term commences and the licensed data, technology
      and/or compound is delivered. Such deliverables may include physical quantities
      of compounds, design of the compounds and structure-activity relationships,
      the
      conceptual framework and mechanism of action, and rights to the patents or
      patents pending for such compounds. The Company defers recognition of
      non-refundable up-front fees if it has continuing performance obligations
      without which the technology, right, product or service conveyed in conjunction
      with the non-refundable fee has no utility to the licensee that is separate
      and
      independent of the Company’s performance under the other elements of the
      arrangement. In addition, if the Company has continuing involvement through
      development services that are required because its know-how and expertise
      related to the technology is proprietary to the Company, or can only be
      performed by the Company, then such up-front fees are deferred and recognized
      over the period of continuing involvement.


F-6
  **INYX,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(tabular
        amounts are expressed in thousands)**




Development
      Services





Payments
      related to substantive, performance-based milestones in a development
      arrangement are recognized as revenue upon the achievement of the milestones
      as
      specified in the underlying agreements when they represent the culmination
      of
      the earnings process. Revenue from development services is recognized during
      the
      period in which the services are performed and is based upon the number of
      full-time-equivalent personnel working on the specific project at the
      agreed-upon rate. Payments received in advance are recorded as deferred revenue
      until the development services are performed, costs including labor, materials
      and overhead are incurred, or a milestone has been achieved.




Shipping
      and Handling Costs





The
      Company typically does not charge customers for shipping and handling costs.
      Shipping and handling costs are classified as cost of sales in the accompanying
      consolidated statements of operations.




Stock
      Option Compensation




On
      January 1, 2006, the Company adopted Financial Accounting Standards No. 123
      (revised 2004), “Share-Based Payment” (“FAS 123R”), that addresses the
      accounting for share-based payment transactions in which an enterprise receives
      employee services in exchange for either equity instruments of the enterprise
      or
      liabilities that are based on the fair value of the enterprise’s equity
      instruments or that may be settled by the issuance or such equity instruments.
      The statement generally requires that share-based compensation transactions
      be
      accounted for using a fair value based method and recognized as expenses in
      our
      consolidated statement of operations.




The
      adoption of the SFAS 123R did not impact the recognition or measurement of
      share-based compensation for the Company or its financial results, as the
      Company has been using the fair value method of SFAS 123 to measure stock based
      compensation since the inception of its stock option plan in 2003.  The
      impact of adopting the Statement was on the disclosure requirement and the
      Company has made the required changes (see Note 19).




**Recent
      Accounting Pronouncements**




In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value
      Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework
      for measuring fair value in accordance with accounting principles generally
      accepted in the United States, and expands disclosures about fair value
      measurements. The provisions of SFAS 157 are effective for fiscal years
      beginning after November 15, 2007. The Company is currently evaluating the
      impact, if any, of the provisions of SFAS 157.





In
      September 2006, the SEC issued Staff Accounting Bulletin No. 108, “Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements” (“SAB 108”). SAB 108 provides interpretive
      guidance on how the effects of the carryover or reversal of prior year
      misstatements should be considered in quantifying a current year misstatement.
      The SEC staff believes that registrants should quantify errors using both a
      balance sheet and an income statement approach and evaluate whether either
      approach results in a misstatement that, when all relevant quantitative and
      qualitative factors are considered, is material and therefore must be
      quantified. SAB 108 is effective for years ending on or after November 15,
      2006.




In
      July
      2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), "Accounting for
      Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,
      Accounting for Income Taxes." FIN 48 clarifies the accounting for income taxes
      by prescribing the minimum recognition threshold a tax position is required
      to
      meet before being recognized in the financial statements. FIN 48 also provides
      guidance on de-recognition, measurement, classification, interest and penalties,
      accounting in interim periods, disclosure and transition. The interpretation
      applies to all tax positions related to income taxes subject to FASB Statement
      No. 109.




F-7




**INYX,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(tabular
        amounts are expressed in thousands)**




FIN
      48 is
      effective for fiscal years beginning after December 15, 2006. Differences
      between the amounts recognized in the statements of financial position prior
      to
      the adoption of FIN 48 and the amounts reported after adoption should be
      accounted for as a cumulative-effect adjustment recorded to the beginning
      balance of retained earnings. The Company does not believe the adoption of
      FIN
      48 will have a material impact on the Company’s financial
      statements.




In
      March
      2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial
      Assets" ("SFAS 156"). SFAS 156 provides relief for entities that use derivatives
      to economically hedge fluctuations in the fair value of their servicing rights
      and changes how gains and losses are computed in certain transfers or
      securitizations. SFAS 156 is effective as of the beginning of the first fiscal
      year that begins after September 15, 2006. The Company does not expect the
      adoption of SFAS 156 to have a material impact on its consolidated financial
      position or results of operations.




In
      February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
      Financial Instruments" ("SFAS 155"). SFAS 155 allows financial instruments
      that
      have embedded derivatives to be accounted for as a whole, eliminating the need
      to bifurcate the derivative from its host, if the holder elects to account
      for
      the whole instrument on a fair value basis. This statement is effective for
      all
      financial instruments acquired or issued after the beginning of an entity’s
      first fiscal year that begins after September 15, 2006. The Company does not
      expect the adoption of SFAS 155 to have a material impact on its consolidated
      financial position or results of operations.




**Reclassifications**




Certain
      reclassifications have been made to prior period consolidated financial
      statements to conform to the current period presentation. These
      reclassifications had no effect on net income or earnings per share as
      previously reported.




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




On
      March
      31, 2005, Inyx USA acquired the business assets of Aventis PR from the
      Sanofi-Aventis Group. The acquisition was accounted for as a business
      combination in accordance with Statement of Financial Accounting Standard No.
      141 *“Business
      Combinations”.* In
      connection with this acquisition, Inyx USA paid approximately $20.8 million
      as a
      total purchase price comprising of a cash payment of approximately $19.7 million
      paid upon closing, approximately $2.7 million in direct transaction costs
      (including approximately $90,000 of additional transaction costs incurred
      subsequent to closing), a subsequent purchase price adjustment of approximately
      $570,000 paid to Aventis PR in August 2005, and received a purchase price
      reduction amounting to approximately $2.3 million relating to the final value
      assigned to the commercial contracts transferred to the Company on acquisition
      as agreed by the Company and Aventis PR, pursuant to a purchase price settlement
      adjustment in November 2005. Aventis PR is a pharmaceutical manufacturing
      operation producing dermatological, respiratory and allergy products under
      contract manufacturing agreements with third party customers. The results of
      operations of the acquired Aventis PR business assets are included in the
      Company’s consolidated results of operations effective April 1, 2005 (the day
      after completion of the acquisition of such business assets).




F-8




INYX,
        INC.
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 **(tabular
        amounts are expressed in thousands)**
  The
        Aventis PR acquisition was funded through a credit facility from Westernbank
        Business Credit, a Division of Westernbank Puerto Rico (“Westernbank”). The
        Westernbank financing consists of a revolving working capital line of credit,
        three term loans and a mezzanine loan, together referred to as the “First
        Westernbank Credit Facility” (see Note 16 ).
  The
        purchase price was allocated to the identifiable net assets acquired including
        the identifiable intangible assets based on their estimated fair market values
        at the date of acquisition as determined by the Valuations Services Practice
        of
        BearingPoint, Inc.
  The
        fair
        value of the assets acquired from the transaction totalled approximately
        $62.9
        million based on independent third-party appraisals and valuations, which
        resulted in negative goodwill of $42.1 million. The negative goodwill was
        proportionately allocated over the non-current tangible and intangible assets
        acquired as follows:
  **Fair
                  Value of Assets Acquired**
              ****
              **Allocation
                  of Negative Goodwill**
              ****
              **Allocation
                  of Purchase Price of Assets Acquired**Land
              
              $
              3,040
              
              $
              (2,129
              )
              $
              911Building
              
              
              12,700
              
              
              (8,893
              )
              
              3,807Machinery
                  and equipment
              
              
              21,809
              
              
              (15,090
              )
              
              6,719Computer
                  hardware and software
              
              
              1,185
              
              
              (720
              )
              
              465Inventory
              
              
              2,334
              
              
              -
              
              
              2,334Identifiable
                  intangible assets subject to amortization:Customer
                  contracts
              
              
              4,700
              
              
              (3,291
              )
              
              1,409Customer
                  relationships
              
              
              17,100
              
              
              (11,975
              )
              
              5,125$
              62,868
              
              $
              (42,098
              )
              $
              20,770
  The
        fair
        values assigned to the acquired assets are based on estimates and assumptions
        provided and other information compiled by management, including independent
        valuations that utilize established valuation techniques appropriate for
        the
        industry in which the Company operates. The property, plant and equipment
        are
        depreciated based on the Company’s existing depreciation policies. The
        intangible assets, which represent the value assigned to customer contracts,
        are
        amortized on a straight line basis over three years. The intangible asset
        which
        represents the value assigned to customer relationships is amortized over
        a
        period of ten years.
  **Note
        5. Acquisition of CMSL**
  On
        August
        31, 2005, Inyx Europe, a wholly-owned United Kingdom subsidiary of the Company,
        completed the purchase of all of the outstanding shares of CMSL from UCB.
        On
        September 9, 2005, the Company changed the “CMSL” name to Ashton Pharmaceuticals
        Limited.
  The
        Ashton share acquisition was accounted for as a business combination in
        accordance with Statement of Financial Accounting Standard No. 141 “Business
        Combinations”. The
        acquisition cost of $40.7 million consisted of an initial deposit of
        approximately $610,000, a cash payment at closing of approximately $23.2
        million, a purchase price deferral of approximately $9.8 million, an amount
        equivalent to $4.6 million representing the additional net current assets
        acquired not considered when purchase price was negotiated and direct
        transaction costs of approximately $2.4 million.
  The
        Ashton acquisition was funded through a credit facility from Westernbank.
        The
        Westernbank financing consists of a revolving working capital line of credit,
        three term loans and a mezzanine loan, together referred to as the “Second
        Westernbank Credit Facility” (see Note 16 ).




F-9








**INYX,
          INC.**
 **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(tabular
          amounts are expressed in thousands)**


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




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




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




**Note
      6.** **Accounts**  **Receivable,
      Net**




Accounts
      receivable, net, consist of the following:




**September
                30, 2006**
            
            **December
                31,**
              **2005****(Unaudited)**Trade
                receivables
            
            **$**
            **25,428**
            
            $
            20,824Less
                allowance for doubtful accounts
            
            
            **(2,638**
            **)**
            
            (1,042
            )**$**
            **22,790**
            
            $
            19,782





As
      of
      September 30, 2006, the Company billed certain customers in advance for products
      and services to be provided pursuant to arrangements under contract
      manufacturing and product support and service agreements. Such pre-billings
      are included with the Company's sales invoices for purposes of determining
      advances under the working capital lines of credit. Pre-billings of
      approximately $37.7 million were reversed from the related accounts
      receivable amount in the accompanying condensed consolidated balance
      sheets. Subsequent
      to September 30, 2006, Westernbank requested a personal guarantee from the
      Company’s Chairman and CEO as collateral fortheadvances made to the Company.




The
      Company has also received  payments in advance of shipments or services
      provided relating to contract manufacturing and product support and service
      agreements. As of September 30, 2006, total advance payments amounted to
      approximately $5.9 million and are recorded as deferred revenues in the
      accompanying balance sheets.




F-10


**INYX,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(tabular
        amounts are expressed in thousands)**




**Note
      7.** **Inventories,
      Net**




Inventories,
      net, which are valued using the first-in, first-out method of accounting and
      are
      stated at the lower of cost or net realizable value, are comprised of the
      following:




**September
                30, 2006**
            
            **December
                31,**
              **2005****(Unaudited)**Raw
                materials
            
            **$**
            **8,606**
            
            $
            8,000Work
                in process
            
            
            **3,139**
            
            
            3,145Finished
                goods
            
            
            **2,115**
            
            
            1,244**13,860**
            
            
            12,389Less
                provision for obsolescence
            
            
            **(1,743**
            **)**
            
            (1,058
            )**$**
            **12,117**
            
            $
            11,331




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




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




**September
                30, 2006**
            
            **December
                31, 2005****(Unaudited)**Land
            
            **$**
            **2,817**
            
            $
            2,662Buildings
            
            
            **9,707**
            
            
            9,144Machinery,
                equipment and office furniture
            
            
            **31,712**
            
            
            27,693Computer
                hardware and software
            
            
            **1,825**
            
            
            1,156**46,061**
            
            
            40,655Less
                accumulated depreciation
            
            
            **(9,198**
            **)**
            
            (4,201
            )**36,863**
            
            
            36,454Construction
                in progress
            
            
            **4,665**
            
            
            4,327**$**
            **41,528**
            
            $
            40,781





Machinery
      and equipment  includes hydrofluoroalkane (“HFA”) metered dose inhaler
      manufacturing equipment in the amount of approximately $1.5 million as of
      December 31, 2005, which was placed in service during the nine months ended
      September 30, 2006, to commercially manufacture products for two of our larger
      customers at our manufacturing facility in Astmoor, United Kingdom.




The
      construction in progress relates primarily to costs associated with building
      a
      hydrocarbon aerosol manufacturing line for a number of pending customer projects
      at manufacturing facilities in Manatí, Puerto Rico. Additional costs and
      expenses necessary to complete the manufacturing line and commence commercial
      manufacturing on the line are estimated to be in excess of $7.8 million
      over the next two years.




For
      the
      three and nine months ended September 30, 2006, depreciation of property, plant
      and equipment was approximately $1.6 million and $4.7 million, respectively.
      For
      the three and nine months ended September 30, 2005, depreciation of property,
      plant and equipment was approximately $903,000 and $1.6 million, respectively.




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




Deferred
      financing costs, net, are comprised of bank fees and legal costs incurred in
      connection with obtaining the First and Second Westernbank Credit Facilities.
      The Company incurred approximately $919,000 in such costs and fees on March
      31,
      2005, when obtaining the First Westernbank Credit Facility, and an additional
      amount approximating $788,000 on August 31, 2005 in obtaining the Second
      Westernbank Credit Facility used to fund the Company’s acquisition of Ashton. In
      addition, in November 2005, the Company incurred approximately $50,000 in
      fees relating to the obtaining of a SOFA revolving facility (see Note 16).
      During the nine months ended September 30, 2006, the Company incurred an
      additional amount approximating $455,000 relating to amendment to the agreements
      increasing the limits under these credit facilities. Such deferred financing
      costs are being amortized to interest and financing costs over the three year
      term of the Westernbank credit facilities.




F-11


**INYX,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(tabular
        amounts are expressed in thousands)**


Deferred
      financing costs, net, consist of the following:




**September
                30, 2006**
            
            **December
                31, 2005****(Unaudited)**Deferred
                financing costs
            
            **$**
            **2,212**
            
            $
            1,757Less
                accumulated amortization
            
            
            **(849**
            **)**
            
            (323
            )**$**
            **1,363**
            
            $
            1,434





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




Deferred
      costs and deposits consist of the following:





**September
                30, 2006**
            
            **December
                31, 2005****(Unaudited)**Deferred
                acquisition costs
            
            **$**
            **3,355**
            
            $
            407Deposits
              on
              hydrocarbon production line
            
            
            **1,409**
            
            
            -Deposits
                and other
            
            
            **554**
            
            
            24**$**
            **5,318**
            
            $
            431




The
          Company has incurred deferred acquisition costs consisting of legal, consulting,
          translation, environmental, regulatory and risk assessment fees and costs
          for
          appraisals, third party travel and other direct costs relating to the strategic
          acquisitions (including business and intellectual property acquisitions)
          that
          the Company is currently working on. In management’s judgment, these business
          development activities and strategic acquisitions have a high probability
          of
          being successful and are expected to be completed within the next twelve
          months.
Deferred
          costs associated with successful negotiations will be included as part
          of the
          acquisition costs of such investments. If a related project is abandoned,
          deferred costs will be expensed in the Company’s results of
          operations.
  On
            May
            16, 2006, the Company entered into a Consultancy Agreement (the “Agreement”)
            with Zircon Consultants LLC, an unrelated third party, hereinafter referred
            to as “Consultants LLC”. Under terms of the Agreement, Consultants LLC will
            provide the Company with commercial project management and advisory services
            for
            business and corporate development initiatives including investments
            in the
            pharmaceutical industry within designated geographic territories including
            Eastern Europe, the Middle East and the Gulf Region. The Company has
            advanced
            payments to Consultants LLC for such services and investments, and Consultants
            LLC has made and managed investments and corporate initiatives on behalf
            of the
            Company, particularly in the early stages of such investment projects
            in the
            noted territories. The Agreement is effective through May 15, 2007, and
            may be
            extended for an additional one-year period. The Company, through Consultants
            LLC, is collaborating with a European-based specialty pharmaceutical
            company to
            develop and build a hydrocarbon aerosol pharmaceutical line at their
            facility in
            Eastern Europe. Such manufacturing line and related intellectual property
            is to
            be owned by the Company and operated by a European-based specialty
            pharmaceutical company. The Company, through Consultants LLC, has made
            advances
            of approximately $1.4 million for the assembly of the hydrocarbon production
            line. The Company believes that the hydrocarbon production line will
            be ready
            for commercial production by the end of 2007 under an equal revenue sharing
            relationship with a European-based specialty pharmaceutical
            company.
 Note
        11.Advances
        for Investment
  During
          the three months ended September 30, 2006, the Company made advances through
          Consultants LLC amounting to approximately $5.6 million. The advances are
          to be
          invested in a newly formed legal entity with projects in Dubai, U.A.E.
          and in
          Qatar. The Company is in the process of obtaining its trading license for
          Dubai
          and Qatar, respectively, and is also working on a number of strategic
          partnership and distribution agreements with both private and governmental
          entities in the Gulf region (see Note 25), including working with such
          entities
          to develop, manufacture and distribute Inyx products in the Gulf region.
          Such
          products will initially include the eye-care products that the Company
          has
          acquired (see Note 13a) and then respiratory, allergy, cardiovascular,
          pain-management pharmaceuticals, initially to be manufactured by Inyx at
          its
          current facilities and later expected to be commercialized and manufactured
          locally at new production and distribution facilities planned for in Dubai
          and
          Qatar, respectively. The Company also plans to make strategic investments
          in
          established pharmaceutical distributors in the geographic region in order
          to
          distribute Inyx’s and its clients’ products, thereby enhancing the utilization
          of Inyx’s manufacturing facilities.


**Note
      12. Deposits for Acquisition of Office Building**




As
        of
        September 30, 2006, the Company has advanced approximately $2.2
        million towards the acquisition of a building in Miami, Florida,
        to be used for office space, meeting and training facilities. This acquisition
        is expected to close by December 31, 2006. The total purchase price of the
        building is approximately $4.3 million. The Company is in the process of
        obtaining certain permits to approve renovations which will cost approximately
        $500,000.




**Note
        13.** **Intangible
        Assets, Net**


Intangible
        assets, net, consist of the following:
  **September
                  30, 2006**
              
              **December
                  31, 2005****(Unaudited)**Customer
                  relationships (accelerated 10 year life and 15 year life)
              
              $
              10,810
              
              $
              10,810Customer
                  contracts (3 year life)
              
              
              1,409
              
              
              1,409Customer
                  list (4 year and 12 year life)(a)
              
              
              2,580
              
              
              1,280Product
                  licenses (6 year and 10 year life)
              
              
              1,232
              
              
              1,232Know-how
                  (10 year life)
              
              
              1,907
              
              
              1,415Patent
                  (7 year life)
              
              
              132
              
              
              132Trademarks
                  and trade names (3 month and 15 year life)(a)
              
              
              2,019
              
              
              108Formula
                  (8 year and 6 year life)(a)
              
              
              1,101
              
              
              18321,190
              
              
              16,569Effect
                  of foreign currency translation
              
              
              659
              
              
              (116
              )Less
                  accumulated amortization
              
              
              (3,080
              )
              
              (1,671
              )$
              18,769
              
              $
              14,782
  (a)
          During the three months ended September 30, 2006, the Company completed
          the
          acquisition of the Carr assets including manufacturing protocols, standard
          operating procedures, know-how, testing, drug stability and technical data,
          and
          FDA registrations for seven prescription eye-care formulations and five
          over-the-counter eye-care and contact-lens solutions. In addition, on August
          8,
          2006, the Company also acquired a portfolio of complementary over-the-counter
          eye-care products from Advanced Medial Optics, Inc. (“AMO”). The AMO product
          line consisted primarily of trademarks, formulas and world-wide customer
          lists
          related to six non-prescription contact lens eye-care products. The
          Company expects to market these eye-care products in North America through
          its
          Exaeris subsidiary, in Europe through its Inyx Pharma subsidiary, in Latin
          America through is Inyx USA subsidiary and in the Middle East and the
          Asian-Pacific market through its investment vehicle in the Gulf region,
          once
          that company receives its required trade licenses for that region. The
          total
          purchase price of these Carr and AMO assets was approximately $5.6 million
          including direct transaction costs of approximately $372,000. The fair
          value of
          the assets acquired from the transactions totaled approximately $5.7 million
          based on independent third-party appraisals and valuations. The excess
          of the
          fair value of the assets acquired over amounts paid of approximately $100,000
          was proportionately allocated over the non-current intangible assets acquired.
          The purchase price was allocated to the identifiable intangible assets
          based on
          their estimated fair market values at the date of acquisition as determined
          by
          an independent specialist.
 For
        the
        three and nine months ended September 30, 2006, amortization expense related
        to
        intangible assets totaled approximately $448,000 and $1.3 million, respectively.
        In comparison, for the three and nine months ended September 30, 2005,
        amortization expense related to intangible assets totaled approximately $436,000
        and $845,000, respectively. The aggregate estimated amortization expense
        for
        intangible assets as of September 30, 2006, for the remainder of this year,
        each
        of the following four years and thereafter is as follows:
 
 3
                  months ending December 31, 2006
              
              $
              713Year
                  ending December 31, 2007
              
              
              2,637Year
                  ending December 31, 2008
              
              
              2,551Year
                  ending December 31, 2009
              
              
              2,122Year
                  ending December 31, 2010
              
              
              1,962Thereafter
              
              
              8,784$
              18,769


F-12




**INYX,
      INC.**


**NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(tabular
          amounts are expressed in thousands)**
 **Note
      14.** **Accrued
      Expenses**




The
      components of accrued expenses are as follows:




**September
                  30, 2006**
              
              **December
                  31, 2005**(unaudited)Value
                  added tax and other taxes payable
              
              $
              5,330
              
              $
              1,511Employee
                  related expenses
              
              
              2,122
              
              
              2,383Professional
                  fees
              
              
              1,509
              
              
              1,218Interest
                payable
              
              
              937
              
              
              1,359All
                  other
              
              
              2,320
              
              
              3,086**$**
              **12,218**
              
              **$**
              **9,557**




The
      Company has certain local statutory tax requirements for its subsidiaries.
      Under
      these local statutory requirements, subsidiaries of the Company are required
      to
      pay local value added taxes. Such taxes are determined based on local laws
      and
      subject to review by the Company. Included within “Value added
      tax
      and other taxes payable” in the
      table
      above is approximately $4.7 million relating to value added tax (“VAT”) for our Ashton
      facility. An audit has been completed regarding the Ashton VAT amount due,
      and
      as a result such amount due is expected to be settled and paid in full by
      January 2007.




Note
        15. Seller
        Financing
  As
        of
        September 30, 2006, the amount owed to the previous owner of Ashton, UCB
        Pharma,
        was approximately $6.3 million (€5.0
        million) ,
        relating to a deferred purchase price of that business. The Company also
        owes
        approximately $4.8 million (£2.6 million) as payment due for the additional net
        current assets acquired not considered when the purchase price was negotiated
        between the parties (“excess working capital adjustment”). This excess working
        capital adjustment is non-interest bearing, and was settled subsequent to
        September 30, 2006, (see Note 25).
 
 The
        deferred purchase price is non-interest bearing and is payable in monthly
        installments. The Company also agreed with UCB Pharma to settle any outstanding
        balances due to UCB Pharma under the deferred purchase price arrangement
        by
        December 31, 2006,
        including if necessary through an offset against the amounts due from UCB
        Pharma
        for trade receivables. The Company is also entitled, at any time prior to
        payment of the balance of the purchase price, to offset against any unpaid
        claims it may have against UCB under the Ashton share purchase agreement.
        As
        collateral for the deferred portion of the purchase price, the Company granted
        UCB a secondary security position over the Company’s assets behind Westernbank’s
        current first security position, which is to be released upon full payment
        of
        the deferred purchase price. Westernbank and UCB have also agreed to an
        inter-creditor agreement to be terminated upon full payment of the deferred
        purchase price.


**Note
      16.** **Borrowings
      Under Lines of Credit and Term Loans**


Pursuant
        to covenant waiver discussions, the Company informed Westernbank of its
        intent to pay off the loan amounts owed to Westernbank by December 31,
        2006. As a result, the Company has classified the amounts due under its credit
        facilities with the bank as
        current liabilities in the accompanying balance sheet as of September 30,
        2006. The Company's Chairman and CEO and his spouse also provided
        Westernbank a personal guarantee of up to $10.0 million of the amounts due
        under
        the credit facilities. Westernbank
        has requested that the Company provide a further personal guarantee from
        the
        Chairman and CEO and his spouse.




Borrowings
        under lines of credit and term loans,
        consist of the following:
  **September
                  30, 2006**
              
              **December
                  31, 2005****(Unaudited)**Borrowings
                  under lines of credit
              
              **$**
              **58,778**
              
              $
              30,011Term
                  loans -First Westernbank Credit Facility:Prime+
                  2% Secured Term Promissory Note A issued to Westernbank
              
              
              **2,594**
              
              
              2,315Prime+
                  2% Secured Term Promissory Note B issued to Westernbank
              
              
              **10,650**
              
              
              12,780Prime+
                  2% Secured Term Promissory Note C issued to Westernbank
              
              
              **10,816**
              
              
              11,40715%
                  Secured Term Loan D Promissory Note issued to Westernbank
              
              
              **3,750**
              
              
              4,500Term
                loans - Second
                Westernbank Credit Facility:Prime+
                  2% Secured Term Promissory Note A issued to Westernbank by Inyx
                  Europe
              
              
              **2,833**
              
              
              2,983Prime+
                  2% Secured Term Promissory Note B issued to Westernbank by Inyx
                  Europe
              
              
              **8,167**
              
              
              9,637Prime+
                  2% Secured Term Promissory Note C issued to Westernbank by Inyx
                  Europe
              
              
              **2,500**
              
              
              2,95015%
                  Secured Term Loan D-Europe Promissory Note issued to Westernbank
                  by Inyx
                  Europe
              
              
              **7,500**
              
              
              8,850Prime+2%
                  Secured Term Promissory Note 1 issued to Westernbank by Inyx
                  Europe
              
              
              **556**
              
              
              -**49,366**
              
              
              55,422Lesscurrent
                  portion
              
              
              **(49,366**
              **)**
              
              (9,288
              )Term
                  loans, net ofcurrent
                  portion
              
              $
              **-**
              
              $
              46,134
  The
          Company is required to maintain compliance with
          certain financial covenants including a specified working capital and net
          worth
          levels based on the Company’s consolidated financial results. As of September
          30, 2006, the Company was in violation of certain financial covenants pursuant
          to the Westernbank Credit Facilities, which were waived by Westernbank
          through
          December 15, 2006. As of September 30, 2006, the total loan limit under the
          First and Second Westernbank Credit Facility amounted to approximately
          $60.3
          million and $49.7 million, respectively.


Borrowings
        under Lines of Credit
  On
        March
        31, 2005, the Company obtained a three-year revolving working capital line
        of
        credit facility from Westernbank, under the First Westernbank Credit Facility,
        allowing the Company to borrow up to $10.0 million. On September 1, 2005,
        the
        limit was increased to $15.0 million.  During the three months ended
        September 30, 2006, the facility was increased to $27.2 million. Advances
        under
        this facility are limited to 85% of eligible accounts receivables and together
        with the reserve amounting to $500,000, shall not exceed $28.0 million, and
        60%
        of eligible inventory, which shall not exceed a sub-limit of $5.0 million
        for
        such inventory.


F-13


**INYX,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(tabular
        amounts are expressed in thousands)**


On
        August
        31, 2005, the Company obtained an additional revolving working capital line
        of
        credit facility with Westernbank, under the Second Westernbank Credit Facility,
        allowing the Company to borrow up to $11.7 million.  During the nine months
        ended September 30, 2006, this facility was increased to $27.0 million. Advances
        under this facility are limited to 85% of eligible accounts receivables together
        with the reserve of $500,000, not to exceed $27.0 million plus a reserve
        of
        $500,000, and 60% of eligible inventory, which shall not exceed a sub-limit
        of
        $5.0 million for such inventory.
  On
        November 22, 2005, the Company obtained an additional facility of up to $5.0
        million from Westernbank under the First Westernbank Credit Facility. This
        Secured Over Formula Advance (“SOFA”) facility is collateralized by the equity
        in Company owned fixed assets, to be utilized for prepayment of inventory
        purchases, and is revolving in nature. As at September 30, 2006, total advances
        under this facility amounted to approximately $4.6 million.
  Borrowings
        under lines of credit as of September 30, 2006, amounted to approximately
        $58.8
        million, consisting of approximately $54.2 million relating to the revolving
        working capital lines under the First and Second Westernbank Credit Facilities,
        and approximately $4.6 million under the SOFA line.
  Borrowings
        under the above facilities bear interest at Westernbank’s prime rate (8.25% as
        of September 30, 2006 and 7.0% as of December 31, 2005) plus 1.0%. 
Borrowings under the revolving working capital lines of credit are
        collateralized by the eligible receivables and inventories and are guaranteed
        by
        the Company and its subsidiaries.
  Term
        Loans
  The
        First
        Westernbank Credit Facility as amended, which was originally obtained for
        the
        purpose of refinancing the indebtedness to Laurus Funds and purchasing the
        business assets of Aventis PR., in addition to the revolving working capital
        line of credit, also includes a capital expenditure loan Term Promissory
        Note
“A” of up to $5.0 million, for the purpose of funding ongoing construction or
        the acquisition of new equipment, two term loans (Term Notes “B” and “C”) and a
        mezzanine loan (Term Note “D”) amounting in aggregate to $36.0 million
        originally. As of September 30, 2006, amounts due under these facilities
        in
        aggregate approximated $27.8 million. The term notes are collateralized by
        substantially all the property of the Company and its subsidiaries whether
        now
        owned or thereafter to be acquired. All the term notes mature March 31, 2008,
        and are automatically renewed on a year-to-year basis unless terminated by
        the
        Company or Westernbank. Term Notes “A”, “B”, and “C” bear interest at
        Westernbank prime rate (8.25% and 7.0% at September 30, 2006 and December
        31,
        2005, respectively) plus 2.0%. The Term Note “D” bears interest at the rate of
        15.0% per annum. Payment of the amounts due under the Term Notes accelerates
        upon the occurrence of an Event of Default.
  The
        Second Westernbank Credit Facility, as amended, in addition to the revolving
        working capital line of credit, is comprised of a series of four term loans
        (Term Note “A”, “B”, “C” and “D”), amounting in the aggregate to $24.8 million
        originally, and utilized to help fund the acquisition of all the outstanding
        shares of Ashton. As of September 30, 2006, amounts due under these four
        term
        loans amounted to approximately $21.0 million plus $556,000 due under a term
        promissory note (“Term Promissory Note 1”) established for the purpose of
        funding capital improvements to the Company’s Ashton facility. The loans are
        secured by all of the assets of the Company and its subsidiaries whether
        now
        owned or thereafter to be acquired. The principal payments of Term Notes
“A”,
“B” and “C” commenced on December 1, 2005. The principal payment of Term
        Promissory Note 1 shall commence on April 1, 2007. All of the Term Notes,
        including the Term Promissory Note, mature on March 31, 2008, and are
        automatically renewed on a year-to-year basis unless terminated by the Company
        or Westernbank. Term Notes “A”, “B” and “C” and Term Promissory Note 1 bear
        interest at Westernbank prime rate + 2% (8.25% and 7.0% at September 30,
        2006
        and December 31, 2005, respectively). Term Note “D” bears interest at the rate
        of 15.0% per annum, and principal payments based on an agreed-upon formula
        commenced January 1, 2006. Payment of the amounts due under the Term Notes
        accelerates upon the occurrence of an Event of Default.


F-14


**INYX,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(tabular
        amounts are expressed in thousands)**




**Note
      17.** **Net
      Loss per Share**




The
      Company follows the guidelines of Statement of Financial Accounting Standards
      No. 128, “ *Earnings
      per Share* ”
(“SFAS
      No.128”) in calculating its loss per share. SFAS No.128 states basic and diluted
      earnings per share are based on the weighted average number of shares of common
      stock and potential common stock outstanding during the period. Potential common
      stock equivalents for purposes of determining diluted earnings per share include
      the effects of dilutive stock options, warrants and convertible securities.
      The
      effect on the number of shares of such potential common stock equivalents is
      computed using the treasury stock method or the if-converted method, as
      applicable. The Company has excluded all outstanding options and warrants as
      well as shares issued upon conversion of convertible debt from the calculation
      of diluted net loss per share because these securities are anti-dilutive.




Accordingly,
      as of September 30, 2006, and December 31, 2005, the Company had common stock
      equivalents of approximately 8,590,375 and 3,043,172 shares related to
      options and warrants, respectively.


**Note
        18.** **Commitments
        and Contingencies**
 Leases
        and Insurance Premiums




The
      Company has commitments under various long term operating lease agreements
      for
      various premises. In addition to rent, the Company and its subsidiaries are
      responsible for operating costs, real estate taxes and insurance.




In
      addition the Company finances insurance premiums in the ordinary course of
      business. As of September 30, 2006, the total commitment under such finance
      arrangements amounted to approximately $1.5 million and matures at various
      times
      through July 31, 2007.


F-15
  **INYX,
            INC.**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(tabular
            amounts are expressed in thousands)**




As
      of
      September 30, 2006, future minimum annual commitments under operating leases
      and
      financing of insurance premiums are as follows:




3
                month period ending December 31, 2006
            
            $
            1,159Year
                ending December 31, 2007
            
            
            1,723Year
                ending December 31, 2008
            
            
            741Year
                ending December 31, 2009
            
            
            431Year
                ending December 31, 2010
            
            
            221Thereafter
            
            
            31$
            4,306





Legal
      Matters




The
      Company and its
      subsidiaries are subject to claims and lawsuits arising in the ordinary course
      of business. Management, in consultation with its legal advisors, believes
      that
      the outcomes of such legal matters are remote and unlikely to have a material
      adverse effect on the Company’s financial position or operating
      results.




Key
      Suppliers




The
      Company purchases raw materials and components from a limited number of key
      suppliers. A loss of any one of these suppliers would have a material adverse
      effect on the Company’s operations.




Key
      Customers




For
      the
      three months ended September 30, 2006, the Company’s three largest
      customers in the
      aggregate accounted
      for approximately $9.7 million of revenue or approximately 54% of total net
      revenues. In comparison, for the three months ended September 30, 2005, the
      Company’s top three customers in the aggregate accounted for approximately $7.4
      million in net revenues or approximately 57% of total net revenues.




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




Corporate
      Development Activities




The
        Company is also involved in a number of corporate development projects including
        research and development, and equipment acquisition activities that require
        the
        use of capital resources over extended periods of time. These activities
        may
        also include the use of external resources and third parties that require
        prepayment or cash deposits for supplies, equipment, and products or services
        that the Company may require from time to time. The Company is currently
        developing two new hydrocarbon aerosol manufacturing lines. Costs and expenses
        necessary to complete such lines over the next two years are estimated to
        cost
        approximately $10.0 million.


F-16




**INYX,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(tabular
        amounts are expressed in thousands)**


Other




The
      Company had purchase obligations of approximately $3.3 million as of September
      30, 2006 for manufacturer’s components and inventory items, including
      approximately $300,000 for approved capital expenditures.




On
        September 28, 2006, the Company announced that it had executed a definitive
        agreement to acquire all of the outstanding shares of Pharmapac UK Ltd.
        (“Pharmapac”), a United Kingdom based pharmaceutical contract manufacturing and
        packaging company, from its shareholders and management team. The acquisition
        is
        scheduled to complete on January 4, 2007. The Company has agreed to pay £10.5
        million sterling (approximately $20.0 million) to the shareholders of
        Pharmapac.
  The
          Company also has a pending acquisition of a German pharmaceutical production
          business. On November 20, 2006, the Company reported that it is reviewing
          this
          acquisition because of a recent disclosure that significantly reduces the
          mid-term operating results for the German site and, consequently, it is
          uncertain now if this transaction will be consummated.


**Note
      19.** **Equity
      Incentive Plans**




On
      August
      28, 2005, the Board of Directors approved, subject to stockholder approval,
      the
      Company’s 2005 Equity Incentive Plan (the “Incentive Plan”). The Incentive Plan
      provides that key employees, consultants and non-employee directors of the
      Company or an affiliate (“ eligible
      participants ”)
      may be
      granted: (1) options to acquire shares of the Company’s common stock, (2) shares
      of restricted common stock, (3) stock appreciation rights, (4) performance-based
      awards, (4) “Dividend Equivalents,” and (5) other stock-based awards. The
      Incentive Plan will permit eligible participants to acquire a proprietary
      interest in the growth and performance of the Company. The purposes of the
      Incentive Plan are (1) to increase the incentive of its participants to
      contribute to the Company’s success and prosperity, thus enhancing stockholder
      value; and (2) to provide the Company with a proven means to attract and retain
      exceptionally qualified individuals upon whom, in large measure, the sustained
      progress, growth and profitability of the Company depend.




The
      Incentive Plan authorizes total stock awards of up to 6,000,000 shares of the
      Company’s common stock. The Incentive Plan was approved by the shareholders on
      August 24, 2006.




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




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




For
      the
      three and nine months ended September 30, 2006, the Company granted 462,500
      and
      1,469,500 stock options to purchase 462,500 and 1,469,500 shares of the
      Company’s common stock, respectively, which were subject to the provisions of
      SFAS 123R. The fair value of these shares approximating $465,000 and $1.8
      million respectively was evaluated using the Black-Scholes option pricing model
      with the following assumptions: a risk free interest rate of 4.75% to 5.09%,
      an
      expected life of four years, a volatility factor of 38.4% to 49.7% and a
      dividend yield of 0%.




During
      the three months and nine ended September 30, 2006, the Company issued zero
      and 5,000 shares of its common stock with a value of approximately zero and
      $5,500 respectively for exercising stock options at a price of $1.10 per
      share.




For
      the
      three and nine months ended September 30, 2006, 325,000 and 635,000 stock
      options respectively were forfeited and cancelled, as compared to zero and
      550,000 shares for the three and nine months ended September 30, 2005,
      respectively.




SFAS
      123R
      requires the estimation of forfeitures when recognizing compensation expense
      and
      that this estimate of forfeitures be adjusted over the requisite service period
      should actual forfeitures differ from such estimates. Changes in forfeitures
      are
      recognized through a cumulative adjustment, which is recognized in the period
      of
      change and which impacts the amount of unamortized compensation expense to
      be
      recognized in future periods. At September 30, 2006, there was approximately
      $2.1 million of unrecognized share-based compensation expense associated with
      these non-vested stock option grants. Stock based compensation expense is
      expected to be recognized over a weighted-average period of 3 years.




For
      the
      three and nine months ended September 30, 2006, total compensation costs
      relating to stock options granted to employees, officers, directors, and other
      persons approximated $310,000 and $752,000, as compared to $66,000 and $131,000
      for the three and nine months ended September 30, 2005 respectively. These
      amounts are included in general and administrative expenses in the condensed
      consolidated statements of operations, as the Company expects that it will
      continue to issue stock options to such persons. The income tax benefit
      associated with options granted during the nine month period ending September
      30, 2006, was approximately $263,000.




F-17






**INYX,
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(tabular
        amounts are expressed in thousands)**




SFAS
      123R
      requires the cash flows as a result of the tax benefits resulting from tax
      deductions in excess of the compensation cost recognized for those options
      (excess tax benefits) to be classified as financing cash flows. There are no
      excess tax benefits for the nine months ended September, 30, 2006, and
      therefore, there is no impact on the accompanying unaudited consolidated
      statements of cash flows.





**Note
      20.**  **Accumulated
      Other Comprehensive Income (Loss)**




SFAS
      No.
      130, “Reporting Comprehensive Income”, establishes standards of reporting and
      displaying of comprehensive income or loss and the related components in a
      full
      set of financial statements. In addition to reported net income or loss,
      comprehensive income or loss includes revenues, expenses, gains and losses
      that
      are not included in reported net income or loss but rather are recorded directly
      in stockholders’ equity, such as certain unrealized gain or loss items.
      Comprehensive income for the three and nine months ended September 30, 2006,
      was
      $1.1 million and $3.5 million, respectively. Comprehensive losses for the three
      and nine months ended September 30, 2005, were $786,000 and $656,000
      respectively.





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




**Note
      21** **.**  **Warrants**




During
      the three and nine months ended September 30, 2006, the Company received
      approximately $3.0 million and $9.4 million respectively in cash proceeds from
      the exercise of 2,659,290 and 9,101,267 warrants respectively at exercise prices
      per share ranging from $0.95 to $2.84. All such proceeds were used for operating
      activities and working capital. In addition, for the three and nine months
      ended
      September 30, 2006, pursuant to certain cashless exercise of warrants, zero
      and 610,461 shares of common stock were returned into treasury,
      respectively.




In
      comparison, the Company did not issue any warrants for the three months ended
      September 30, 2005. During
      the nine months ended September 30, 2005, the Company issued to Laurus Funds
      300,000 five year warrants in conjunction with a waiver received and certain
      amendments to the registration rights agreements with Laurus Funds. The waiver
      covered any Events of Default that may have occurred under the credit facility
      and term note due to Laurus Funds. These warrants allow the holders to purchase
      the Company’s common stock at a price of $0.95 per share. The fair value of
      these warrants was estimated using the Black-Scholes option pricing model with
      the following weighted average assumptions: a risk free interest rate of 3.14%,
      an expected life of four years, a volatility factor of 57.0%, and a dividend
      yield of 0.0%. The value assigned to these warrants was approximately $162,000
      and was charged as interest and financing costs to the Company’s consolidated
      statement of operations for the nine months ended September 30, 2005.




**Note
      22** **.**  **Related
      Party Transactions**




During
      the three and nine months ended September 30,
      2006, the Company’s Chairman and CEO advanced funds to the Company in the
      aggregate amount of approximately $7.1 million and $8.5 million, respectively.
      As
      of September 30, 2006, suchamounts have been repaid by the
      Company.






F-18


**INYX,
      INC.**


**NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**
 **(tabular
        amounts are expressed in thousands)**


In
          February 2006, the Company entered into a short-term sub-lease agreement
          with
          Karver International, Inc. (“Karver”), an affiliated company, for office space
          in Miami, Florida on a month-to-month basis at a monthly rental rate of
          $2,500.That lease was terminated on August 31, 2006.   For
          the three and nine month periods ended September 30, 2006, Karver charged
          the
          Company a total of $9,000 and $21,500, respectively, for the office
          space.
  In
          July
          2004, Karver entered into a sub-lease agreement with the Company for the
          rental
          of approximately 25% of the Company’s office space in New York.  This
          sublease was terminated on August 31, 2006. For the three and nine months
          ended September 30, 2006, the Company charged Karver $6,750 and $26,250,
          respectively, for this furnished office space. For the three and nine months
          ended September 30, 2005, the Company charged Karver $9,000 and $27,000,
          respectively, for the sub-lease. In addition, for management services in
          accordance with a related management services agreement, the Company charged
          Karver $8,500 and $23,500, respectively, for the three and nine months
          ended
          September 30, 2006. For the three and nine months ended September 30, 2005,
          the
          Company charged Karver $7,500 and $7,500, respectively, for management
          services.
          Under the management services agreement, certain Inyx employees located
          at the
          Company’s office in Toronto, Canada provided information technology, word
          processing and bookkeeping services to Karver, with such services having
          consisted of approximately ten hours of allocated work-time per
          week.


**Note
          23.**  **Income
          Taxes**
 
 Significant
          management judgment is required in developing the Company’s provision for income
          taxes, including the determination of foreign tax liabilities, deferred
          tax
          assets and liabilities and any valuation allowances that might be required
          against the deferred tax assets. Management evaluates its ability to realize
          its
          deferred tax assets on a quarterly basis and adjusts its valuation allowance
          when it believes that it is more likely that the asset will not be realized.
 
 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 statement
          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.
 
 Due
          to
          the prior changes of control of the Company, the net operating loss carry
          over
          may be subject to the IRS Section 382 limitations. The Company had gross
          deferred tax assets of approximately $17.5 million and $17.5 million, against
          which the Company recorded full valuation allowances as of September 30,
          2006
          and December 31, 2005, respectively. For the quarters ended September 30,
          2006
          and 2005, the Company recorded no tax provision.


**Note
        24.**  **Extraordinary
        Gain**




For
      the
      three and nine months ended September 30, 2006, the Company recorded no income
      or expenses from extraordinary items.




By
      way of
      comparison, on March 31, 2005, Sanofi-Aventis advanced the Company, on a one
      time basis, $3.5 million for manufacturing, product support and business
      transition services to be provided from our Puerto Rico site. For the nine
      months ended September 30, 2005, the Company recorded extraordinary income,
      net
      of costs and accrued interest, of approximately $917,000 for the services
      provided for the amount advanced. As of September 30, 2005, approximately $1.2
      million of the amount advanced remained deferred and was subsequently repaid
      as
      services were not provided.





**Note
      25.**  **Subsequent
      Events**




In
      October 2006, the Company obtained a $10.0 million aggregate increase in the
      available limit of its revolving working capital line of credit facilities
      with
      Westernbank, allowing the Company to borrow up to an aggregate of $64.2 million
      under the First and Second Westernbank Revolving Credit Facilities. In
      consideration of such increase in loan limits and for continuing to make and
      provide financial accommodations to Inyx pursuant to the Agreements, the
      Company’s Chairman and CEO and his spouse have provided a personal
      guarantee for payment of up to $10.0 million. Westernbank
      has requested that the Company provide a further personal guarantee from the
      Chairman and CEO and his spouse.


In
          November 2006, the Company settled the second monthly installment payment
          to UCB
          Pharma amounting to approximately $2.1 million regarding the deferred purchase
          price of that business. In addition, subsequent to September 30, 2006,
          the
          Company settled the working capital amount due to UCB Pharma and agreed
          with UCB
          Pharma, to settle any outstanding balances due to UCB Pharma under the
          deferred
          purchase price arrangement, by December 31, 2006, including if necessary
          through
          an offset against the amounts due from UCB Pharma for trade receivables.
          The
          Company is also entitled, at any time prior to payment of the balance of
          the
          purchase price, to offset against any unpaid claims it may have against
          UCB
          Pharma under the Ashton share purchase agreement.


On
        November 6, 2006, the Company incorporated, through a newly formed wholly-owned
        United Kingdom entity, L.I.N.X Investments, a new limited liability company
        headquartered in Dubai, U.A.E. (“Inyx UAE”), which is also in the
        process of establishing operations in Qatar. The Company owns 49% of Inyx
        UAE
        through advances made by its newly formed wholly-owned United Kingdom
        entity, which was incorporated on September 15, 2006. In accordance with
        the Memorandum of Association of the limited liability company, 10% of the
        annual net profits of Inyx UAE are required to be set aside toward the creation
        of the Statutory Reserve, as defined, until such time as the said Reserve
        reaches 50% of Inyx UAE’s initial paid-in capital or approximately $412,000.
        Profits remaining after the Statutory Reserve deductions are distributed
        80% to
        Inyx through a wholly owned United Kingdom entity. Inyx UAE is currently
        obtaining its trading license for Dubai and Qatar, respectively, and is also
        working on a number of strategic partnership and distribution agreements
        with
        both private and governmental entities in the Gulf region.
  On
        November 20, 2006, a group comprised of Inyx
        senior management and strategic outside investors approached the Company’s Board
        of Directors about taking the Company private.  The group said it is in the
        process of finalizing the financing to make a proposal shortly that it “believes
        will be in the best interests of all Inyx shareholders.”  On the same day,
        the Inyx board formed a Special Committee comprised of three independent
        directors, which will evaluate any specific proposal.  The committee
        will retain an independent investment-banking firm to review the fairness
        of any
        proposed offer made by the group.


F-19




**UNAUDITED
      PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS**




The
      following unaudited consolidated pro forma statements of operations presented
      herein for the three and nine months ended September 30, 2005, give effect
      to
      the acquisitions of the business assets of Aventis PR and the Ashton (f/k/a
      CMSL) operations as if these acquisitions had taken place at the beginning
      of
      the respective periods presented.




The
      pro
      forma results for the three months ended September 30, 2005, as summarized
      below, include the actual results of the Company combined with the results
      of
      the acquired business of Ashton (f/k/a CMSL) for the two months ended August
      31,
      2005.




The
      pro
      forma results for the nine months ended September 30, 2005, as summarized below,
      include the actual results of the Company combined with the results of the
      acquired business of Aventis PR for the three months ended March 31, 2005,
      and
      the results of the acquired business of Ashton (f/k/a CMSL) for the eight months
      ended August 31, 2005; i.e. prior to the respective acquisition dates of those
      two businesses.




The
      historical financial data presented is derived from the historical financial
      statements of both companies, prepared in accordance with generally accepted
      accounting principles in the United States of America. The unaudited pro forma
      adjustments and certain assumptions are described in the accompanying notes
      which should be read in conjunction with this unaudited pro forma consolidated
      statement of operations.




The
      preparation of the unaudited pro forma statement of operations for Aventis
      PR
      included an adjustment to reduce any revenues attributable to any Aventis PR
      inter-company sales and customer contracts not renewed at the date of
      acquisition. The Aventis acquisition was accounted for using the purchase method
      of accounting. The unaudited pro forma financial data is not necessarily
      indicative of the operations had the acquisition taken place at the beginning
      of
      the periods presented and such data is not intended to project the Company’s
      results of operations for any future period.




The
      Ashton (f/k/a CMSL) acquisition was a share purchase agreement. As such, all
      historical financial information is assumed to be as recorded with the exception
      of the pro forma adjustments as described in the following notes.




20




**Unaudited
      Consolidated Pro Forma Statement of Operations**


**For
      the Nine Months Ended September 30, 2005**


**(in
      thousands)**


Aventis
                  Pharma-ceuticals Puerto Rico, Inc.
              
              Adjustments(1)
              
              Aventis
                  Puerto Rico (Acquired)
              
              Ashton
                  (f/k/a CMSL)(Acquired)(2)
              
              Inyx,
                  Inc.
              
              Aventis
                  PR Pro Forma Adjustments
                (3)
              
              Ashton
                  (f/k/a CMSL) Pro Forma Adjustments
                (4)
              
              CombinedNet
                  revenues
              
              $
              15,575
              
              $
              (11,905(a
              ))
              $
              3,670
              
              $
              28,042
              
              $
              24,086
              
              $
              -
              
              $
              -
              
              $
              55,798Cost
                  of sales
              
              
              12,242
              
              
              (10,261
              )
              
              1,981
              
              
              22,127
              
              
              16,236
              
              
              -
              
              
              -
              
              
              40,344Gross
                  profit
              
              
              3,333
              
              
              (1,644
              )
              
              1,689
              
              
              5,915
              
              
              7,850
              
              
              -
              
              
              -
              
              
              15,454Operating
                  expenses:Research
                  and development
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,876
              
              
              -
              
              
              -
              
              
              1,876General
                  and administrative
              
              
              2,609
              
              
              (1,729
              )
              
              880
              
              
              2,401
              
              
              12,239
              
              
              -
              
              
              -
              
              
              15,520Selling
              
              
              -
              
              
              12
              
              
              12
              
              
              635
              
              
              355
              
              
              -
              
              
              -
              
              
              1,002Depreciation
              
              
              -
              
              
              71
              
              
              71
              
              
              2,690
              
              
              1,619
              
              
              220(a
              )
              
              248(a
              )
              
              4,848Amortization
                  of intangible assets
              
              
              -
              
              
              226
              
              
              226
              
              
              440
              
              
              845
              
              
              89(b
              )
              
              605(b
              )
              
              2,205Total
                  Operating expenses
              
              
              2,609
              
              
              (1,420
              )
              
              1,189
              
              
              6,166
              
              
              16,934
              
              
              309
              
              
              853
              
              
              25,451Income
                  (loss) from operations before interest and financing costs, income
                  tax
                  benefit and extraordinary gain
              
              
              724
              
              
              (224
              )
              
              500
              
              
              (251
              )
              
              (9,084
              )
              
              (309(c
              ))
              
              (853(c
              ))
              
              (9,997
              )Interest
                  (benefit) expense
              
              
              (1,159
              )
              
              1,524
              
              
              365
              
              
              -
              
              
              7,896
              
              
              (3,061
              )
              
              1,728
              
              
              6,928Restructuring
                  expense (benefit)
              
              
              7,965
              
              
              (7,965
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -(Loss)
                  profit before income tax benefit and extraordinary gain
              
              
              (6,082
              )
              
              6,217
              
              
              135
              
              
              (251
              )
              
              (16,980
              )
              
              2,752
              
              
              (2,581
              )
              
              (16,925
              )Income
                  tax benefit
              
              
              -
              
              
              -
              
              
              -
              
              
              98
              
              
              -
              
              
              -
              
              
              775
              
              
              873Extraordinary
                  gain
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              917
              
              
              -
              
              
              -
              
              
              917Net
                  (loss) income
              
              $
              (6,082
              )
              $
              6,217
              
              $
              135
              
              $
              (153
              )
              $
              (16,063
              )
              $
              2,752
              
              $
              (1,806
              )
              $
              (15,135
              )
 
  **Unaudited
        Consolidated Pro Forma Statement of Operations**
 **For
        the Three Months Ended September 30, 2005**
 **(in
        thousands)**
  Ashton
                  (f/k/a CMSL) (Acquired)(2)
              
              Inyx,
                  Inc.
              
              Ashton
                  (f/k/a CMSL) Pro Forma Adjustments
                (4)
              
              CombinedNet
                  revenues
              
              $
              5,858
              
              $
              12,908
              
              $
              -
              
              $
              18,766Cost
                  of sales
              
              
              4,054
              
              
              7,837
              
              
              -
              
              
              11,891Gross
                  profit
              
              
              1,804
              
              
              5,071
              
              
              -
              
              
              6,875Operating
                  expenses:Research
                  and development
              
              
              -
              
              
              929
              
              
              -
              
              
              929General
                  and administrative
              
              
              583
              
              
              5,813
              
              
              -
              
              
              6,396Selling
              
              
              (24
              )
              
              181
              
              
              -
              
              
              157Depreciation
              
              
              738
              
              
              903
              
              
              62(a
              )
              
              1,703Amortization
                  of intangible assets
              
              
              107
              
              
              436
              
              
              151(b
              )
              
              694Total
                  Operating expenses
              
              
              1,404
              
              
              8,262
              
              
              213
              
              
              9,879Income
                  (loss) from operations before interest and financing costs, income
                  tax
                  benefit and extraordinary gain
              
              
              400
              
              
              (3,191
              )
              
              (213(c
              ))
              
              (3,004
              )Interest
                  (benefit) expense
              
              
              -
              
              
              1,750
              
              
              576
              
              
              2,326Restructuring
                  expense (benefit)
              
              
              -
              
              
              -
              
              
              -
              
              
              -(Loss)
                  profit before income tax benefit and extraordinary item
              
              
              400
              
              
              (4,941
              )
              
              (789
              )
              
              (5,330
              )Income
                  tax benefit
              
              
              (155
              )
              
              -
              
              
              237
              
              
              82Extraordinary
                  gain
              
              
              -
              
              
              -
              
              
              -
              
              
              -Net
                  (loss) income
              
              $
              245
              
              $
              (4,941
              )
              $
              (552
              )
              $
              $
                  (5,248
              )






21




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




**For
      the Three and Nine Months Ended September 30, 2005**




(1) Reflects
      adjustments to eliminate certain revenues and expenses historically recorded
      or
      incurred by Aventis PR which related to those operations not acquired by Inyx
      USA.




a.
            Aventis
                PR’s revenue represents all manufacturing revenues relating to the
                carved-out business of Aventis PR and was derived using the actual
                product
                volumes of the products acquired in the acquisition on March 31,
                2005,
                extended at the newly negotiated unit prices for each one of these
                products.




(2)
            Reflects
                the actual revenue and expenses historically recorded by Ashton (f/k/a
                CMSL). The figures have been converted from GBP’s to US dollars based on
                average exchange rates for each period. Adjustments were made to
                reduce
                the cost of sale and correspondingly increase the selling, general
                and
                administration cost to remain consistent with US reporting
                format.




(3)
            Reflects
                the following pro forma adjustments related to the Aventis PR
                acquisition:




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




b.
            The
                amortization of intangible assets was recorded to reflect the amortization
                of purchased intangible assets subject to amortization, including
                customer
                contract renewals and customer relationships that were acquired in
                the
                Aventis PR transaction on March 31, 2005, and based on valuations
                provided
                by an independent third party.




c.
            Reflects
                additional interest expense from the Westernbank credit facility
                closed on
                March 31, 2005 and a reduction of interest expense due to the repayment
                of
                the Laurus Master Funds credit facility also occurring on March 31,
                2005.




(4) Reflects
      the following pro forma adjustments related to the Ashton (f/k/a CMSL)
      acquisition:




a.
            Depreciation
                expense was adjusted to reflect the fair value of assets acquired
                as of
                the closing of the acquisition on August 31, 2005, based on valuations
                provided by a third party.  b.
            Amortization
                of intangible assets was recorded to reflect the amortization of
                purchased
                intangible assets subject to amortization including customer contract
                renewals and customer relationships acquired in the Ashton (f/k/a
                CMSL)
                acquisition on August 31, 2005, and based on valuations provided
                by a
                third party. c.
            Reflects
                additional interest expense from the new Westernbank credit facility
                closed on August 31, 2005.




22




**Item** **2.****MANAGEMENT’S
          DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
          OPERATIONS**
  **Cautionary
          Note Regarding Forward-Looking Statements**
  Statements
          included in this Quarterly Report on Form 10-Q that are not historical
          facts are
“forward-looking statements” within the meaning of the Private Securities
          Litigation Reform Act of 1995. Such statements are based on current
          expectations, but involve risks and uncertainties that could cause actual
          results to differ from those projected. The use of terminology such as
“expect,”
“believe,” “intend,” “continue,” “anticipate” and other similar expressions
          generally identify forward-looking statements. They include statements
          relating
          to, among other things, future capital, business strategies, expansion
          and
          growth of operations, cash flow, marketing of products and services, and
          development of new products and services. Factors that could cause actual
          results to differ materially include, but are not limited to, those described
          throughout this report. The Company disclaims any obligation to update
          or revise
          any forward-looking statements to reflect events or circumstances occurring
          hereafter.
  **General**
  Inyx,
          Inc. (“Inyx”, “we”, “us”, “our”, or the “Company”), through its wholly-owned
          subsidiaries, Inyx USA, Ltd. (“Inyx USA”); Inyx Pharma Limited (“Inyx Pharma”);
          Inyx Europe Limited (“Inyx Europe”), including Inyx Europe’s wholly-owned
          subsidiary Ashton Pharmaceuticals Limited (“Ashton Pharmaceuticals” or
“Ashton”); Inyx Canada Inc. (“Inyx Canada”); and Exaeris Inc. (“Exaeris”) is a
          specialty pharmaceutical company. On
          September 15, 2006, the Company also incorporated a new wholly-owned United
          Kingdom entity for business and corporate development activities in the
          Middle
          East, the Gulf region and the Asian Pacific markets.
  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; therefore
          we
          depend on our customers’ distribution channels or strategic partners to market
          and sell the pharmaceutical products we develop and manufacture for them.
  On
            November 20, 2006, the Company reported that a group comprised of Inyx
            senior
            management, including Chairman and CEO, Dr. Jack Kachkar, and other
            strategic outside investors had approached the Company’s Board of Directors
            about taking the Company private in a transaction that the group said
            would be
            in “the best interests of all of the Company’s shareholders.” On the same day,
            the Inyx board formed a Special Committee comprised of three independent
            directors, which will evaluate any specific proposal. Such
            independentcommittee will retain an independent investment-banking firm
            to review the fairness of any proposed offer made by the group. Dr. Jack
            Kachkar
            then informed the Special Committee that, before the group tries to finalize
            financing for any going-private offer, he will work to secure new debt
            financing
            to replace the Westernbank facilities by December 31, 2006. Dr. Kachkar
            and his
            spouse also have provided a personal guarantee to Westernbank for up
            to $10.0
            million of the amount owed by the Company to the bank. Westernbank
            has requested that the Company provide a further personal guarantee from
            the
            Chairman and CEO and his spouse.
  **Consolidated
          Results**
  The
          accompanying consolidated financial information includes the accounts of
          Inyx
          and its wholly-owned subsidiaries: Inyx USA, Inyx Pharma, Inyx Europe,
          including
          Inyx Europe’s wholly-owned subsidiary Ashton Pharmaceuticals, Inyx Canada and
          Exaeris.  All significant inter-company accounts and transactions have been
          eliminated in consolidation.  The Pro Forma results give effect to the
          acquisitions of Aventis PR (“Inyx USA”) and CMSL (“Ashton”) as if these
          operations had been owned and operated by Inyx for the three and nine months
          ended September 30, 2005, along with our Company’s other
          operations.
  23
  **Critical
          Accounting Policies and Significant Estimates**
  Management’s
          discussion and analysis of Inyx’s financial condition and results of operations
          is based upon the consolidated financial statements which have been prepared
          in
          accordance with U.S. generally accepted accounting principles. The preparation
          of these financial statements requires management to make estimates and
          assumptions that affect the reported amounts of assets and liabilities,
          disclosure of contingent assets and liabilities at the date of the consolidated
          financial statements and the reported amount of revenues and expenses during
          the
          reporting period. Actual results may differ from these estimates under
          different
          assumptions or conditions. At least quarterly, management reevaluates its
          judgments and estimates which are based on historical experience, current
          trends
          and various other assumptions that are believed to be reasonable under
          the
          circumstances.
  The
          Company has identified significant accounting policies that, as a result
          of the
          judgments, uncertainties, uniqueness and complexities of the underlying
          accounting standards and operations involved could result in material changes
          to
          its financial condition or results of operations under different conditions
          or
          using different assumptions. The Company believes its most significant
          accounting policies are related to the following areas: revenue recognition,
          investments, translation of foreign currency, valuation of long lived assets
          and
          intangible assets. Details regarding the Company’s use of these policies and the
          related estimates are described fully in the Company’s 2005 Form 10-K. During
          2006, there have been no material changes to the Company’s significant
          accounting policies that impacted the Company’s financial condition or results
          of operations.
  **RESULTS
          OF OPERATIONS**
  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.
 Actual
                        Results for the
                      ThreeMonths
                        Ended
                      September
                        30,
                    
                    Pro
                        Forma
                      Results
                        for the
                      Three
                        Months
                      Ended
                      September
                        30,
                    
                    Actual
                        Results for the
                      Nine
                        Months Ended
                      September
                        30,
                    
                    Pro
                        Forma
                      Results
                        for the
                      Nine
                        Months
                      Ended
                      September
                        30,2006
                    
                    2005
                    
                    2005
                    
                    2006
                    
                    2005
                    
                    2005Net
                        revenues
                    
                    **$**
                    **18,006**
                    
                    
                    ***100***
                    ***%***
                    $
                    12,908
                    
                    
                    *100*
                    *%*
                    $
                    18,766
                    
                    
                    *100*
                    *%*
                    **$**
                    **59,560**
                    
                    
                    ***100***
                    ***%***
                    $
                    24,086
                    
                    
                    *100*
                    *%*
                    $
                    55,798
                    
                    
                    *100*
                    *%*Cost
                        of sales
                    
                    
                    **10,593**
                    
                    
                    ***59***
                    ***%***
                    
                    7,837
                    
                    
                    *61*
                    *%*
                    
                    11,891
                    
                    
                    *63*
                    *%*
                    
                    **36,231**
                    
                    
                    ***61***
                    ***%***
                    
                    16,236
                    
                    
                    *67*
                    *%*
                    
                    40,344
                    
                    
                    *72*
                    *%*Gross
                        profit
                    
                    
                    **7,413**
                    
                    
                    ***41***
                    ***%***
                    
                    5,071
                    
                    
                    *39*
                    *%*
                    
                    6,875
                    
                    
                    *37*
                    *%*
                    
                    **23,329**
                    
                    
                    ***39***
                    ***%***
                    
                    7,850
                    
                    
                    *33*
                    *%*
                    
                    15,454
                    
                    
                    *28*
                    *%*Operating
                        expenses:Research
                        and development
                    
                    
                    **667**
                    
                    
                    ***4***
                    ***%***
                    
                    929
                    
                    
                    *7*
                    *%*
                    
                    929
                    
                    
                    *5*
                    *%*
                    
                    **1,834**
                    
                    
                    ***3***
                    ***%***
                    
                    1,876
                    
                    
                    *8*
                    *%*
                    
                    1,876
                    
                    
                    *3*
                    *%*General
                        and administrative
                    
                    
                    **10,420**
                    
                    
                    ***58***
                    ***%***
                    
                    5,813
                    
                    
                    *45*
                    *%*
                    
                    6,396
                    
                    
                    *34*
                    *%*
                    
                    **25,681**
                    
                    
                    ***43***
                    ***%***
                    
                    12,239
                    
                    
                    *51*
                    *%*
                    
                    15,520
                    
                    
                    *28*
                    *%*Selling
                    
                    
                    **1,310**
                    
                    
                    ***7***
                    ***%***
                    
                    181
                    
                    
                    *1*
                    *%*
                    
                    157
                    
                    
                    *1*
                    *%*
                    
                    **4,584**
                    
                    
                    ***8***
                    ***%***
                    
                    355
                    
                    
                    *1*
                    *%*
                    
                    1,002
                    
                    
                    *2*
                    *%*Depreciation
                    
                    
                    **1,603**
                    
                    
                    ***9***
                    ***%***
                    
                    903
                    
                    
                    *7*
                    *%*
                    
                    1,703
                    
                    
                    *9*
                    *%*
                    
                    **4,655**
                    
                    
                    ***8***
                    ***%***
                    
                    1,619
                    
                    
                    *7*
                    *%*
                    
                    4,848
                    
                    
                    *9*
                    *%*Amortization
                        of
                      intangible
                        assets
                    
                    
                    **448**
                    
                    
                    ***2***
                    ***%***
                    
                    436
                    
                    
                    *3*
                    *%*
                    
                    694
                    
                    
                    *4*
                    *%*
                    
                    **1,327**
                    
                    
                    ***2***
                    ***%***
                    
                    845
                    
                    
                    *4*
                    *%*
                    
                    2,205
                    
                    
                    *4*
                    *%*Total
                        operating expenses
                    
                    
                    **14,448**
                    
                    
                    ***80***
                    ***%***
                    
                    8,262
                    
                    
                    *64*
                    *%*
                    
                    9,879
                    
                    
                    *53*
                    *%*
                    
                    **38,081**
                    
                    
                    ***64***
                    ***%***
                    
                    16,934
                    
                    
                    *70*
                    *%*
                    
                    25,451
                    
                    
                    *46*
                    *%*Loss
                        before interest
                      and
                        financing costs
                      and
                        extraordinary gain
                    
                    
                    **(7,035**
                    **)**
                    
                    ***-39***
                    ***%***
                    
                    (3,191
                    )
                    
                    *-25*
                    *%*
                    
                    (3,004
                    )
                    
                    *-16*
                    *%*
                    
                    **(14,752**
                    **)**
                    
                    ***-25***
                    ***%***
                    
                    (9,084
                    )
                    
                    *-38*
                    *%*
                    
                    (9,997
                    )
                    
                    *-18*
                    *%*Interest
                        and financing costs
                    
                    
                    **2,708**
                    
                    
                    ***15***
                    ***%***
                    
                    1,750
                    
                    
                    *14*
                    *%*
                    
                    2,326
                    
                    
                    *12*
                    *%*
                    
                    **7,428**
                    
                    
                    ***12***
                    ***%***
                    
                    7,896
                    
                    
                    *33*
                    *%*
                    
                    6,928
                    
                    
                    *12*
                    *%*Net
                        loss before provision
                      for
                        income taxes
                      and
                        extraordinary gain
                    
                    
                    **(9,743**
                    **)**
                    
                    ***-54***
                    ***%***
                    
                    (4,941
                    )
                    
                    *-38*
                    *%*
                    
                    (5,330
                    )
                    
                    *-28*
                    *%*
                    
                    **(22,180**
                    **)**
                    
                    ***-37***
                    ***%***
                    
                    (16,980
                    )
                    
                    *-71*
                    *%*
                    
                    (16,925
                    )
                    
                    *30*
                    *%*Provision
                        for income taxes
                    
                    
                    **-**
                    
                    
                    ***0***
                    ***%***
                    
                    -
                    
                    
                    *0*
                    *%*
                    
                    82
                    
                    
                    *0*
                    *%*
                    
                    **-**
                    
                    
                    ***0***
                    ***%***
                    
                    -
                    
                    
                    *0*
                    *%*
                    
                    873
                    
                    
                    *2*
                    *%*Extraordinary
                        gain,
                      net
                        of taxes
                    
                    
                    **-**
                    
                    
                    ***0***
                    ***%***
                    
                    -
                    
                    
                    *0*
                    *%*
                    
                    -
                    
                    
                    *0*
                    *%*
                    
                    **-**
                    
                    
                    ***0***
                    ***%***
                    
                    917
                    
                    
                    *4*
                    *%*
                    
                    917
                    
                    
                    *2*
                    *%*Net
                        loss
                    
                    **$**
                    **(9,743**
                    **)**
                    
                    ***-54***
                    ***%***
                    $
                    (4,941
                    )
                    
                    *-38*
                    *%*
                    $
                    (5,248
                    )
                    
                    *-28*
                    *%*
                    **$**
                    **(22,180**
                    **)**
                    
                    ***-37***
                    ***%***
                    $
                    (16,063
                    )
                    
                    *-67*
                    *%*
                    $
                    (15,135
                    )
                    
                    *-27*
                    *%*
 24
  **NET
          REVENUES**
  Our
          revenues are derived from pharmaceutical manufacturing revenues, product
          marketing and commercialization fees, and product formulation and development
          outsourcing services, including product stability, commercial scale-up,
          and
          validation and regulatory support for our clients’ products.
  As
          a
          result, our revenues are dependent upon our clients maintaining or obtaining
          regulatory approval for the sale of their products in their designated
          markets.
          As of September 30, 2006, we did not derive any revenues as a result of
          the sale
          of our own products.
  Revenue
          is recognized when products are shipped and are recorded at the invoiced
          value
          of goods supplied to customers net of discounts, sales tax and value-added
          tax.
          Development revenue in the form of products and services is recognized
          using the
          proportional-performance model, whereby revenue is recognized as performance
          occurs based on the relative value of the performance that has occurred
          to that
          point in time. Our Company fulfills obligations for development revenue
          over a
          period of time as we believe that our customers receive value throughout
          the
          performance period.
 
 Net
          revenues for the three months ended September 30, 2006, increased by
          approximately $5.1 million or 39% to approximately $18.0 million as compared
          to
          net revenues of approximately $12.9 million for the same period in the
          prior
          year. Pro forma net revenues amounted to approximately $18.8 million for
          the
          three months ended September 30, 2005.
  Net
          revenues for the nine months ended September 30, 2006, increased by
          approximately $35.5 million or 147% to approximately $59.6 million from
          net
          revenues of approximately $24.1 million for the nine months ended September
          30,
          2005. Pro forma net revenues amounted to approximately $55.8 million for
          the
          nine months ended September 30, 2005.
  The
          increase in net revenues for the three and nine months ended September
          30, 2006,
          as compared to the three and nine months ended September 30, 2005, is primarily
          attributable to the addition of the Ashton business that we acquired in
          August,
          2005, and the commencement of our Exaeris operation in January, 2006.  The
          Ashton business is currently our largest operation and, as a result of
          our
          increasing business development activities and overall business scope,
          we expect
          that business to continue to grow with the addition of new customers, new
          products and additional volume at the site, especially in the sterile and
          dry
          powder inhaler (“DPI”) areas of that operation. We also believe that the Exaeris
          operation will continue to grow as a result of our current business development
          activities and the increasing industry awareness of our capabilities to
          assist
          our clients direct their respective products to specific and targeted markets.
  Additionally,
          during the three and nine months ended September 30, 2006, we commenced
          certain
          contract development and product commercialization activities at all of
          our
          manufacturing sites, including technology transfers for a number of existing
          and
          new customers, which are included in our results of operations. Such
          manufacturing commercialization activities include product manufacturing
          site
          transfers, scale-up and industrialization technical and regulatory support,
          product development and testing work and commercial manufacturing support
          for
          our customers. We also expect for those customers with which we do not
          currently
          have a long-term manufacturing relationship, these development and
          commercialization activities will lead to long-term manufacturing contracts
          as a
          result of the associated product manufacturing site registration process
          that is
          regulated in our industry.
  25
  We
          also
          continue to expand the commercial manufacture of hydrofluoroalkane (“HFA”)
          non-ozone depleting metered dose inhalers (“MDIs”) at both our Inyx USA and Inyx
          Pharma manufacturing sites. We are currently commercializing and manufacturing
          at least ten HFA products for our customers; during the same period in
          2005, we
          were involved in only four such products. We believe that as the Montreal
          Protocol continues to be implemented around the world, and most importantly
          in
          the U.S. market, our expertise in converting from CFC to CFC-free aerosol
          pharmaceuticals, and the commercialization and production of HFA and hydrocarbon
          foam products, should continue to generate increasing business, especially
          at
          our Inyx Pharma and Inyx USA manufacturing sites where we are currently
          focused
          on such technologies.
  Although
          our net revenues improved between the comparative periods of 2006 and 2005
          as a
          result of the additional business noted above, certain existing and new
          business
          we expected during the nine months ended September 30, 2006 has been delayed
          into the fourth quarter of 2006 and early 2007, due to additional regulatory
          documentation and testing procedures that several of our customers have
          had to
          complete before the commercialization or transfer of their products to
          our
          sites.
  For
          the
          three months ended September 30, 2006, our three top customers in the aggregate
          accounted for approximately $9.7 million, or 54% of our total net revenues.
          In
          comparison, for the three months ended September 30, 2005, our three top
          customers in the aggregate accounted for approximately $7.4 million, or
          57% of
          our total net revenues.
  A
          delay
          in the production for any one of our three largest clients or the loss
          of any
          such client would have a material adverse affect on our revenues and
          profitability opportunities. As part of our strategic growth objectives,
          we
          continue to broaden our business scope, customer base and distribution
          channels
          to mitigate the risk of our economic dependence on any one client. We also
          believe that as we continue to expand our product commercialization,
          manufacturing, production, testing and regulatory support and product marketing
          and distribution infrastructure, we will be able to draw additional business
          and
          new clients who will want to leverage that infrastructure to reduce their
          own
          supply chain costs.
  Additionally,
            although we do not currently derive any of our revenues from the sale
            of our own
            products, we believe that we can also increase our revenues and achieve
            greater
            margins through the addition of our own product lines in selected pharmaceutical
            market sectors and geographic territories that we believe have high
            growth potential, with marketing to be conducted through alliances and
            partnerships with certain strategic partners or directly through our
            Exaeris
            operation. We expect that these types of revenues would include direct
            sales,
            royalty payments and marketing and licensing fees for our planned products.
            For
            example, during the nine months ended September 30, 2006, we acquired
            a number
            of eye-care product licenses and related manufacturing know-how that
            we expect
            to commence marketing on a global basis during the fourth quarter of
            2006. As a
            result of the world-wide customer base we have acquired with these products,
            and
            based on their historical financial performance, we believe that these
            products
            will commence to contribute to our revenues prior to the end of 2006. We
            expect
            to market these eye-care products in North America through our Exaeris
            subsidiary, in Europe through our Inyx Pharma subsidiary, in Latin America
            through our Inyx USA subsidiary and in the Middle East and the Asian-Pacific
            market through a new legal entity we are currently establishing in the
            Gulf
            region.
 ***Co-Promotion
          and Strategic Alliance Arrangements*** ****
  Our
          Company has entered into co-promotion and strategic alliance arrangements
          to
          co-promote certain respiratory products in the United States and other
          territories in North America. Pursuant to these arrangements, we expect
          to
          utilize Exaeris’ U.S. based contracted sales force to promote such products.
          Exaeris’ sales force has initially been established through a commercial
          relationship with a pharmaceutical contract sales representative
          organization.
  In
          January 2006, under the King marketing and collaboration agreements, Exaeris
          commenced co-promoting and marketing Intal ® and
          Tilade ® (both
          non-steroidal anti-inflammatory respiratory MDIs), to the respiratory specialist
          market.
  26
  In
          April
          2006, Exaeris also entered into a co-promoting and co-marketing agreement
          with
          Teamm to market and promote MD TurboTM to respiratory specialists in the United
          States. MD TurboTM was commercially launched in June 2006.
  **COST
          OF SALES**
  Cost
          of
          sales is associated with manufacturing and development revenues and includes
          materials, labor, factory overheads and technical affairs, including quality
          control and quality assurance regulatory support functions.
  Our
          cost
          of sales for the three months ended September 30, 2006, amounted to
          approximately $10.6 million, or 59% of net revenues. In comparison, for
          the
          three months ended September 30, 2005, cost of goods sold amounted to
          approximately $7.8 million, or 61% of net revenues. On a pro forma basis,
          for
          the three months ended September 30, 2005, pro forma cost of goods sold
          amounted
          to approximately $11.9 million or 63% of pro forma net revenues.
  Cost
          of
          sales for the nine months ended September 30, 2006, amounted to approximately
          $36.2 million, or 61% of net revenues. In comparison, for the nine months
          ended
          September 30, 2005, cost of goods sold amounted to approximately $16.2
          million,
          or 67% of net revenues. On a pro forma basis, for the nine months ended
          September 30, 2005, pro forma cost of goods sold amounted to approximately
          $40.3
          million or 72% of pro forma net revenues.
  The
          improvement in cost of sales as a percentage of net revenues between the
          respective reporting periods is primarily attributable to more efficiencies
          gained from the increasing utilization of our product commercialization,
          and
          manufacturing capacities and resources; and secondly, through the addition
          of
          more profitable business as a result of the inclusion of Exaeris and Ashton
          in
          our results of operation during the first half of 2006. Exaeris’ costs are
          primarily sales and administrative costs, while Ashton has traditionally
          had a
          lower cost of sales in comparison to our Inyx Pharma and Inyx USA
          operations.
  We
          expect
          to further reduce our cost of sales, as a percentage of net revenues, as
          we
          continue to add more business at our facilities and further increase the
          utilization of our manufacturing capacities and resources companywide,
          as well
          as grow Exaeris’ revenue opportunities while maintaining our cost base in that
          operation.
  **GROSS
          PROFIT**
  Gross
          profit for the three months ended September 30, 2006, increased by approximately
          $2.3 million to approximately $7.4 million, or 41% of net revenues of $18.0
          million. In comparison, for the three months ended September 30, 2005,
          we had a
          gross profit of approximately $5.1 million on net revenues of approximately
          $12.9 million, or 39% of net revenues. Pro forma gross profit for the three
          months ended September 30, 2005 amounted to approximately $6.9 million,
          or 37%
          of pro forma net revenues.
  Gross
          profit for the nine months ended September 30, 2006, amounted to approximately
          $23.3 million on net revenues of $59.6 million, or 39% of net revenues.
          In
          comparison, the gross profit for the nine months ended September 30, 2005
          amounted to approximately $7.9 million on net revenues of approximately
          $24.1
          million, or 33% of net revenues. On a pro forma basis, gross profits amounted
          to
          $15.5 million for the nine months ended September 30, 2005, or 28% of pro
          forma
          net revenue.
  The
          improvement in gross profitability between the comparative periods is the
          result
          of several factors, including the achievement of development milestones,
          during
          the three and nine months ended September 30, 2006, on several new customer
          contracts related to high-margin, technical transfer work required prior
          to the
          commencement of commercial manufacturing. Additionally, production volumes
          from
          commercial supply contracts with our larger current European customers
          have
          increased due to regulatory approvals in certain European markets having
          been
          granted for their respiratory products. This has all resulted in increased
          utilization of product development and manufacturing capacity at our facilities
          in the United States and United Kingdom. In turn, we have been able to
          absorb
          more of our fixed overhead and labor costs, thereby improving our overall
          gross
          profit margins.
  27
  We
          believe that we can further improve our gross profit margins as we continue
          to
          add more business at our facilities and through the addition of our own
          pharmaceutical product lines, which offer greater profit margins than those
          provided by contract manufacturing services. We also continue to pursue
          product
          in-licensing opportunities, including those in collaboration with other
          pharmaceutical companies. Although we do not currently derive any revenues
          from
          the sale or marketing of our own products, as noted above, due to our
          acquisition of a number of eye care product licenses, we believe that we
          can
          commence to market our own proprietary products prior to the end of 2006.
          We
          also expect to commence marketing additional proprietary products that
          we are
          currently developing during 2007. Based on pharmaceutical industry margins,
          we
          expect that such proprietary products will help improve our profit margins
          once
          we begin to market and distribute them to our customers.
  **OPERATING
          EXPENSES**
  Our
          operating expenses consist of product research and development costs, general
          and administrative, selling, depreciation as well as amortization of intangible
          assets expenses.
  Operating
          expenses for the three months ended September 30, 2006, amounted to
          approximately $14.4 million, or 80% of net revenues of $18.0 million. In
          comparison, for the three months ended September 30, 2005, our operating
          expenses amounted to approximately $8.3 million, or 64% of net revenues
          of $12.9
          million. On a pro forma basis, operating expenses for the three months
          ended
          September 30, 2005 amounted to approximately $9.9 million, or 53% of pro
          forma
          net revenues of $18.8 million.
  Operating
          expenses for the nine months ended September 30, 2006, amounted to approximately
          $38.1 million, or 64% of net revenues of $59.6 million. In comparison,
          operating
          expenses for the nine months ended September 30, 2005 amounted to approximately
          $16.9 million, or 70% of net revenues of $24.1 million. On a pro forma
          basis,
          operating expenses for the nine months ended September 30, 2005 amounted
          to
          approximately $25.5 million, or 46% of pro forma net revenues of $55.8
          million.
  The
          increase in our operating expenses for the three and nine months ended
          September
          30, 2006, is the result of significantly increased general and administrative
          and selling and depreciation expenses, which are due to our increasing
          business scope and larger base operations as compared to the same periods
          in
          2005. In
          addition, for the three and nine months ended September 30, 2006, we have
          been
          involved in a number of corporate and business development activities that
          has resulted in greater general and administrative costs, including travel
          and
          third-party costs that we are now expensing in anticipation of completing
          such
          activities. For example, for the three months ended September 30, 2006,
          we have
          expensed approximately $2.3 million in one-time, non-recurring due diligence,
          travel and other transaction-associated costs related to pending business
          development and corporate development activities, which also
          includes approximately $314,000 for Sarbanes-Oxley implementation and
          compliance.
  **Research
          and Development Costs**
  Research
          and development costs for the three months ended September 30, 2006, were
          approximately $667,000, or 5% of our operating expenses and 4% of our net
          revenues for the period. In comparison, for the three months ended September
          30,
          2005, our research and development costs amounted to approximately $929,000,
          or
          11% of our operating expenses and 7% of our net revenues for the comparable
          period. On a pro forma basis, research and development costs for the three
          months ended September 30, 2005, amounted to approximately $929,000, or
          9% of
          pro forma operating expenses and 5% of pro forma net revenues.
  28
  Research
          and development costs for the nine months ended September 30, 2006, were
          approximately $1.8 million, or 5% of our operating expenses and 3% of our
          net
          revenues. In comparison, research and development costs for the nine months
          ended September 30, 2005, were approximately $1.9 million, or 11% of our
          operating expenses and 8% of our net revenues. On a pro forma basis, research
          and development costs for the nine months ended September 30, 2005, amounted
          to
          approximately $1.9 million, or 7% of pro forma operating expenses and 3%
          of pro
          forma net revenues.
  As
          part
          of our strategy to evolve into a specialty pharmaceutical company with
          our own
          proprietary products, we will continue to incur research and development
          costs
          as part of operating expenses. We also expect research and development
          costs to
          generally increase as we increase our activities in these areas over the
          next
          twenty-four months. Such costs include intellectual property development
          costs,
          salaries for required technical staff, fees to consultants and costs associated
          with the use of external laboratory facilities, as may be required. We
          believe
          that even though research and development costs may increase our operating
          expenses in the short term, in the long term, these costs should be offset
          by
          the higher profit margins derived from the manufacturing and sale of our
          own
          proprietary products, as compared to the operating margins of our contract
          manufacturing services. We plan to distribute our proprietary products
          through
          our own customers’ distribution channels or in collaboration with other
          strategic marketing partners, as well as through Exaeris’ sales and distribution
          channels.
  We
          are
          focusing our product development efforts on inhalation-therapy drug delivery
          devices and methods, and generic prescription and over-the-counter aerosol
          pharmaceutical products for respiratory, dermatological, topical, and
          cardiovascular applications. We also believe that we can enhance our competitive
          position through the acquisition of regulatory-approved pharmaceutical
          products
          and drug delivery devices, including those through the acquisition of other
          pharmaceutical companies. One such example is our acquisition of a lipid-binding
          matrix for delivering incompatible or unstable drug substances. We plan
          to use
          this technology to develop our own proprietary metered dose inhalers (“MDIs”)
          for the treatment of asthma and other respiratory diseases, as well as
          across a
          broad-spectrum of other inhalation-therapy treatments, including acute
          and
          chronic pain management.
  We
          have
          not yet commercialized any of our own proprietary products, although we
          do have
          a number of aerosol pharmaceutical products already under development or
          in late
          planning stages that we expect to commence commercializing during 2007.
          These
          consist of single molecule and combination HFA respiratory inhalants, non-CFC
          propelled oral sprays for cardiovascular ailments, wound irrigation and
          cleansing sprays utilizing novel barrier technologies, and anti-inflammatory
          nasal pumps. Our initial two proprietary products, a wound-care spray and
          an
          anti-inflammatory nasal pump, are expected to be ready for commercial marketing
          in the first half of 2007.
  **General
          and Administrative Expenses**
  Our
          general and administrative expenses include management and staff compensation;
          corporate overhead costs; administrative support; business and corporate
          development expenses including travel costs; property, business and liability
          insurance; and business support costs incurred by Company.
  General
          and administrative expenses for the three months ended September 30, 2006,
          amounted to approximately $10.4 million, or 72% of our operating expenses
          and
          58% of our net revenues for the period. In comparison, for the three months
          ended September 30, 2005, our general and administrative expenses amounted
          to
          approximately $5.8 million, or 70% of our operating expenses and 45% of
          our net
          revenues for the comparable period. On a pro forma basis, general and
          administrative expenses for the three months ended September 30, 2005 amounted
          to approximately $6.4 million, or 65% of our pro forma operating expenses
          and
          34% of pro forma net revenues.
  29
  General
          and administrative expenses for the nine months ended September 30, 2006,
          amounted to approximately $25.7 million, or 67% of our operating expenses
          and
          43% of net revenues. In comparison, general and administrative expenses
          for the
          nine months ended September 30, 2005, were approximately $12.2 million,
          or 72%
          of operating expenses and 51% of our net revenues for the comparative period.
          On
          a pro forma basis, general and administrative expenses for the nine months
          ended
          September 30, 2005, amounted to approximately $15.5 million, or 61% of
          our pro
          forma operating expenses and 28% of pro forma net revenues.
  The
          increase in our general and administrative expenses for the three and nine
          months ended September 30, 2006, as compared to the same periods in 2005
          is
          primarily due to the larger scope of our business as a result of the addition
          of
          the Inyx USA, Ashton and Exaeris operations. As a result, we are incurring
          additional salary, employee benefit and administrative support costs, including
          those due to the addition of senior business and financial executives to
          our
          management team in order to help manage our operations and business integration
          activities. For the three months ended September 30, 2006, we incurred
          approximately $3.4 million for salaries and benefits. Other general and
          administrative costs for the three months ended September 30, 2006 included
          insurance costs of approximately $772,000, travel expenses of approximately
          $1.1
          million, building and rent expenses of approximately $830,000, and legal,
          audit
          and outside consulting expenses of approximately $1.0 million.
  In
          addition, for the three and nine months ended September 30, 2006, we have
          been
          involved in a number of corporate and business development activities in
          Europe,
          the Gulf region and the U.S. that have resulted in an increase in general
          and administrative costs. These costs include travel, due diligence and
          other
          non-recurring charges relating to acquisitions, which amounted to approximately
          $2.3 million for the three months ended September 30, 2006.
  Although
          we have been incurring additional general and administrative costs as a
          result
          of our continuing focus on growing and expanding our business, we believe
          that
          once we begin to introduce our own proprietary products and acquired products,
          we can continue to improve our revenue stream and subsequent gross profit
          margins, and that such improved margins will thereby offset any incremental
          general and administrative costs that we may have to incur as a result
          of our
          strategic development plans and business growth strategies.
  **Selling
          Expenses**
  Selling
          expenses consist primarily of salaries, commissions and marketing costs,
          including those associated with Exaeris, our commercial and marketing operation.
  Selling
          expenses for the three months ended September 30, 2006, amounted to
          approximately $1.3 million, or 10% of our operating expenses and 7% of
          our net
          revenues for the period. In comparison, for the three months ended September
          30,
          2005, our selling expenses amounted to approximately $181,000, or 2% of
          our
          operating expenses and 1% of our net revenues for the comparable period.
          On a
          pro forma basis, selling expenses for the three months ended September
          30, 2005,
          amounted to approximately $157,000 or 2% of pro forma operating expenses
          and 1%
          of pro forma net revenues.
  Selling
          expenses for the nine months ended September 30, 2006, were approximately
          $4.6
          million, or 12% of our operating expenses and 8% of net revenues. In comparison,
          selling expenses for the nine months ended September 30, 2005, were
          approximately $355,000, or 2% of operating expenses and 1% of net revenues
          for
          the comparable period. On a pro forma basis, selling expenses for the nine
          months ended September 30, 2005, amounted to approximately $1.0 million,
          or 4%
          of pro forma operating expenses and 2% of pro forma net revenues.
  30
  The
          increase in selling expenses is primarily attributable to the commencement
          of
          our Exaeris operation, and enhanced sales and marketing activities across
          all of
          our operations as we continue to increase our business and revenue base.
          We also
          expect our selling expenses to increase concomitantly with expected revenue
          increases as we continue to ramp-up our business development and commercial
          activities.
  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. Our sales and marketing functions have, therefore, been primarily
          focused on expanding our pharmaceutical manufacturing and development business
          with existing or potential clients, although we do expect to commence marketing
          a number of proprietary eye care products that we have recently acquired
          during
          the fourth quarter of 2006 plus other proprietary products that we are
          currently
          developing during 2007.
  Under
          Exaeris, we continue to build a sales force through a contract services
          organization. Although part of this cost will be offset as a result of
          our
          collaboration agreement with King Pharmaceuticals, a larger sales force
          is
          adding to our selling expenses in 2006. We expect that it will take until
          2007
          before Exaeris’ current revenue stream will totally offset its administrative
          and selling costs. We believe that we can also offset such costs by the
          new
          revenue streams that Exaeris is expected to generate, including through
          expected
          revenues from product acquisitions and in-licensing opportunities that
          we have
          completed or are still actively pursuing.
  **Depreciation**
  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
          expenses for the three months ended September 30, 2006, amounted to
          approximately $1.6 million, or 12% of our operating expenses. In comparison,
          for
          the three months ended September 30, 2005, depreciation expenses amounted
          to
          approximately $903,000 or 11% of operating expenses for the comparable
          period in
          the prior year. On a pro forma basis, depreciation expenses for the pro
          forma
          three months ended September 30, 2005, amounted to approximately $1.7 million,
          or 17% of pro forma operating expenses.
  Depreciation
          expenses for the nine months ended September 30, 2006, were approximately
          $4.7
          million, or approximately 13% of operating expenses. In comparison, depreciation
          expenses for the nine months ended September 30, 2005, were approximately
          $1.6
          or approximately 10% of operating expenses for the comparable period in
          the
          prior year. On a pro forma basis, depreciation expenses for the pro forma
          nine
          months ended September 30, 2005, amounted to approximately $4.8 million
          or 19%
          of pro forma operating expenses.
  The
          increase in depreciation expenses for the three months ended September
          30, 2006,
          is primarily attributable to depreciation expenses of approximately $700,000
          relating to the addition of the Ashton facility to our operations. This
          primarily consists of building and machinery and equipment in the amount
          of $4.8
          million and $18.1 million, respectively. In addition, depreciation expense
          increased between the comparative periods as a result of additional office
          furniture and fixtures acquired to accommodate our growth.
  The
          increase in depreciation expenses for the nine months ended September 30,
          2006,
          is primarily attributable to the depreciation expense of approximately
          $3.1
          million relating to addition of the Inyx USA and Ashton facilities to our
          operations. This primarily consists of building and machinery and equipment
          in
          the amounts of approximately $8.6 million and $24.8 million, respectively.
          The
          increase also consists of a depreciation expense relating to HFA manufacturing
          equipment held for use that has now been placed in service during the current
          nine-month period to commercially manufacture products for two of our larger
          customers at our Inyx Pharma site. In addition, depreciation expense increased
          between the comparative nine-month periods as a result of additional office
          furniture and fixtures acquired to accommodate our growth.
  31
  **Amortization
          of Intangible Assets**
  The
          fair
          values assigned to the intangible assets acquired are based on estimates
          and
          assumptions provided and other information compiled by management, including
          independent valuations that utilize established valuation techniques appropriate
          for the industry in which our Company operates. Amortization expenses for
          intangible assets relate to acquired intangible assets, which include trade
          marks, trade names, customer relationships, customer contracts, customer
          lists,
          product licenses, manufacturing know-how and formula and a technology patent
          acquired by our Company.
  The
          amortization expense for intangible assets for the three months ended September
          30, 2006, was approximately $448,000, or 3% of operating expenses for the
          period. In comparison, for the three months ended September 30, 2005, the
          amortization expense for intangible assets amounted to approximately $436,000
          or
          5% of operating expenses for the comparable period in the prior year. On
          a pro
          forma basis, such amortization expense amounted to approximately $694,000,
          or 7%
          of pro forma operating expenses for the three months ended September 30,
          2005.
  The
          amortization expense for intangible assets for the nine months ended September
          30, 2006, was approximately $1.3 million, or 4% of our operating expenses.
          In
          comparison, the amortization expense for the nine months ended September
          30,
          2005, was approximately $845,000 or 5% of operating expenses for the comparable
          nine month period in the prior year. On a pro forma basis, such amortization
          expense amounted to approximately $2.2 million, or 9% of pro forma operating
          expenses for the nine months ended September 30, 2005.
  The
          increase in amortization expenses for the three months ended September
          30, 2006,
          is attributable to amortization expense of approximately $128,000 relating
          to
          the addition of the Ashton facility to our operations. This primarily consists
          of customer relationships and product licenses in the amounts of approximately
          $5.7million and $1.2 million, respectively.
  The
          increase in amortization expense for the nine months ended September 30,
          2006,
          is primarily attributable to the amortization expense of approximately
          $474,000
          relating to the addition of the Inyx USA and Ashton facilities to our
          operations. This primarily consists of customer contracts, customer
          relationships and product licenses in the amounts of approximately $1.4
          million,
          $10.8 million and $1.2 million, respectively. The balance of the increase
          relates to the commencement of the amortization of the intangible assets
          related
          to newly acquired eye care product licenses and manufacturing
          know-how.
  Intangible
          assets are amortized on a straight line basis over their estimated remaining
          useful lives in proportion to the underlying cash flows that were used
          in
          determining the acquired value.
  **INTEREST
          AND FINANCING COSTS**
  Interest
          and financing costs consist of interest expense related to borrowings under
          working capital lines of credit and long term debt.
  For
          the
          three months ended September 30, 2006, interest and financing costs were
          approximately $2.7 million as compared to approximately $1.8 million for
          the
          three months ended September 30, 2005. For the pro forma three months ended
          September 30, 2005, pro forma interest and financing costs amounted to
          approximately $2.3 million.
  32
  For
          the
          nine months ended September 30, 2006, interest and financing costs were
          approximately $7.4 million as compared to approximately $7.9 million for
          the
          nine months ended September 30, 2005. For the pro forma nine months ended
          September 30, 2005, pro forma interest and financing costs amounted to
          approximately $6.9 million.
  Interest
          and financing costs for the three months ended September 30, 2006, included
          approximately $2.4 million in interest payments to Westernbank and approximately
          $194,000 in amortization of deferred financing charges.
  Interest
          and financing costs for the nine months ended September 30, 2006, included
          approximately $6.7 million in interest payments to Westernbank and approximately
          $526,000 in amortization of deferred financing charges. During the nine
          months
          ended September 30, 2005, our Company also incurred interest on debt, debt
          discount, beneficial conversion feature relating to a convertible debt,
          and
          amortization of interest costs in the amounts of approximately $2.3 million,
          $1.4 million, $1.7 million and $716,000 relating to the repayment of debt,
          respectively.
  The
          higher interest and financing costs for the three months ended September
          30,
          2006, are related to the asset-based funding that Westernbank has provided
          under
          our First and Second Credit Facilities. During the nine month period ended
          September 30, 2006, the aggregate increase to our loan limits under these
          facilities increased from $92.5 million to $110.0 million. As of
          September 30, 2006, the weighted average interest rate on outstanding loans
          during the period amounted to approximately 10.15%.
  **EXTRAORDINARY
          GAIN**
  On
          March
          31, 2005, Sanofi-Aventis advanced our Company, on a one time basis, $3.5
          million
          for manufacturing, product support and business transition services to
          be
          provided from our Puerto Rico site. For the nine months ended September
          30,
          2005, our Company recorded extraordinary income, net of costs and accrued
          interest, of approximately $917,000 for the services provided under the
          advance.
          As of September 30, 2005, approximately $1.2 million of the advance remained
          deferred and was subsequently repaid.
  **NET
          LOSS**
  The
          net
          loss for the three months ended September 30, 2006, was approximately $9.7
          million as compared to a net loss of approximately $4.9 million for the
          three
          months ended September 30, 2005. For the pro forma three months ended September
          30, 2005, the pro forma net loss was approximately $5.2 million.
  The
          net
          loss for the nine months ended September 30, 2006, was approximately $22.2
          million as compared to a net loss of $16.1 million for the nine months
          ended
          September 30, 2005. For the pro forma nine months ended September 30, 2005,
          the
          pro forma net loss was approximately $15.1 million.
  Although
          our net revenues and gross profits continue to grow, the increase in our
          net
          loss for the three and nine months ended September 30, 2006 is the result
          of our
          increased operating expenses as compared to the same periods in 2005 due
          to the
          recent addition and integration of the Inyx USA and Ashton facilities and
          operations into our business, the addition of Exaeris’ administrative and
          selling costs on our overall business, and our ongoing corporate and business
          development activities as we continue to grow our business.
  33
  Subsequently,
          we do expect to continue benefiting from our recent acquisitions as a result
          of
          the diverse client base, commercial collaborations and business development
          opportunities that we believe these business assets are starting to provide
          to
          our overall operations in 2006, and that we
          believe should contribute increasingly in future years.
          We believe that once we fully integrate these new acquisitions and continue
          to
          ramp-up our business and marketing efforts, we can obtain new contracts
          and
          purchase orders from existing and new customers. This should allow us to
          continue to improve the capacity utilization of our facilities, thereby
          improving our profitability and allowing us to absorb more of our fixed
          expenses, overhead costs, and interest and financing charges.
  We
          also
          expect our profitability opportunities to improve once we have commercialized
          for sale our own proprietary products that we are currently developing
          or
          acquiring, or those through collaborative or in-licensing agreements with
          other
          pharmaceutical companies. We believe that we can continue to enhance our
          competitive position through the acquisition of additional regulatory-approved
          pharmaceutical products and drug-delivery devices for respiratory,
          dermatological, topical and cardiovascular applications or such products
          in
          development, including those through the acquisition of other pharmaceutical
          companies.
  **LIQUIDITY
          AND CAPITAL RESOURCES**
  **General**
  We
          have
          been financing our operations primarily through our credit facilities with
          our
          lenders, including with our primary lender, Westernbank of Puerto Rico,
          Puerto
          Rico's second largest bank and a wholly-owned subsidiary of W Holding Company,
          Inc. (“Westernbank”); revenues from multi-year and short-term contract
          manufacturing and product development contracts and purchase orders; and
          as may
          be required, the sale of equity securities, proceeds from option and warrant
          exercises, stockholder advances, loans and financial guarantees, and capital
          lease financing.
  As
          of
          September 30, 2006, we had approximately $119.4 million in loan obligations
          including approximately $108.2 million relating to our credit facilities
          with
          Westernbank, with the balance of the obligations, amounting to approximately
          $11.2 million, relating to money we owe to UCB Pharma as a result of our
          purchase of the Ashton business from them.
  The
          Westernbank credit facilities, consisting of both short term and long term
          debt,
          are due through 2008 and are automatically renewable on maturity in March
          2008,
          on a year-to-year basis, unless terminated by Westernbank or the Company.
          On
          November 21, 2006, the Company informed Westernbank that it intends to pay
          off the loan amounts owed to Westernbank by December 31, 2006. As
          a result, on
          its
          September 30, 2006 balance sheet,the Company has classified as current
liabilitiesthe amounts due under its credit facilities with the bank. As of
          November
          21, 2006, the Company owed Westernbank approximately $120.0 million.
 On
            November 20, 2006, the Company reported that a group comprised of Inyx
            senior
            management, including Chairman and CEO, Dr. Jack Kachkar, and other
            strategic outside investors had approached the Company’s Board of Directors
            about taking the Company private in a transaction that the group said
            would be
            in “the best interests of all of the Company’s shareholders.” On the same day,
            the Inyx board formed a Special Committee comprised of three independent
            directors, which will evaluate any specific proposal. The committee will
            retain
            an independent investment-banking firm to review the fairness of any
            proposed
            offer made by the group. Dr. Jack Kachkar then informed the Special Committee
            that, before the group tries to finalize financing for any going-private
            offer,
            he will work to secure new debt financing to replace the Westernbank
            facilities
            by December 31, 2006. Dr. Kachkar and his spouse also have provided a
            personal
            guarantee to Westernbank for up to $10.0 million of the amount owed by
            the
            Company to the bank. Westernbank
            has requested that the Company provide a further personal guarantee from
            the
            Chairman and CEO and his spouse.
 Until
          such time that the Company is refinanced, we intend to
          fund our operations through cash generated from our
          operations, our existing Westernbank credit facilities, the
          exercise of stockholder warrants and when necessary, the use of
          stockholder loans and advances. The
          Company also continues to be in a position to issue new equity or debt
          securities to assist funding its operations and growth plans although there
          can
          be no assurances that the Company’s intentions will be achieved or that
          additional financing will be obtained.
  34
  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 or reduce in scope, commercialization
          and
          marketing programs if we are unable to continue to obtain the necessary
          capital
          to fund these operations.
 
 Also,
          on
          September 28, 2006, the Company announced that it had executed a definitive
          agreement to acquire all of the outstanding shares of Pharmapac UK Ltd.
          (“Pharmapac”), a United Kingdom based pharmaceutical contract manufacturing and
          packaging company, from its shareholders and management team. The acquisition
          is
          scheduled to be completed on January 4, 2007. The Company has agreed to
          pay
£10.5 million sterling (approximately $20.0 million USD) to the shareholders
          of
          Pharmapac and we are still in the process of finalizing the funding for
          this
          transaction.
  The
          Company also has a pending acquisition of a German
          pharmaceutical production business. On November 20, 2006, the Company reported
          that it is reviewing this acquisition because of a recent disclosure that
          significantly reduces the mid-term operating results for the German site
          and,
          consequently, it is uncertain now if this transaction will be
          consummated.
  We
          believe that we can continue to 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 or by investing in new
          market
          opportunities in order to commercialize and distribute such products. Therefore,
          we are actively pursuing or are involved in acquisitions, investments or
          expenditures that require substantial capital resources. In the event that
          we
          continue to complete such transactions or change our capital structure,
          we may
          be required to raise funds through additional borrowings or the issuance
          of
          additional debt or equity securities.
  **Capital
          Resources**
  During
          the three and nine months ended September 30, 2006, the Company received
          approximately $3.0 million and $9.4 million, respectively, in cash proceeds
          from
          the exercise of 2,659,290 and 9,101,267 warrants, respectively, at exercise
          prices per share ranging from $0.95 to $2.84. All such proceeds were used
          for
          working capital including debt service and operating activities, capital
          expenditures and corporate development activities. In addition, for the
          three
          and nine months ended September 30, 2006, pursuant to certain cashless
          exercise
          of warrants, approximately zero and 610,461 shares of common stock were
          returned into treasury, respectively.
  We
          believe that the funding provided by our current asset-based facilities
          and
          periodic shareholder loans and advances provide us with the necessary capital
          to
          fund our core operations, including raw material and component purchases,
          research and development and business and corporate development activities,
          and
          capital expenditures and debt servicing requirements. On a short term basis,
          in
          addition to the cash proceeds from the exercise of warrants noted above,
          such
          financing have provided us with sufficient capital to fund all of our present
          operations, including our corporate and business development plans, and
          the
          acquisition or commercialization of our own proprietary products, which
          we plan
          to commence marketing during 2007.
  On
          November 21, 2006, we informed Westernbank that we intend to pay off
          the loan amounts owed to them, currently totaling approximately
          $120 million, by December 31, 2006. As a result, we have classified as
          current
          the amounts due under our credit facilities with Westernbank. We have been
          informed by our Chairman and CEO, Dr. Jack Kachkar, that he is working with
          a number of strategic investors and international banks to secure the necessary
          financing to repay the existing Westernbank debt by December 31, 2006.  We
          are still also in the process of finalizing the approximately $20.0 million
          of
          funding required to complete our acquisition of the Pharmapac business.
  35
  In
          addition to the funding requirements noted above, on a longer term basis,
          we
          will require additional funding of at least approximately $15.0 million
          annually
          to continue to implement our business and corporate development strategies,
          capital expenditure plans and the development and commercialization of
          our own
          proprietary pharmaceutical products. We intend to raise such funds through
          the
          issuance of debt or equity securities at the time we require such funding
          although no such financing plans have been formalized at this time.
  Our
          expanded business base has continued to contribute significantly to our
          revenues, cash flows and profitability opportunities as it has diversified
          and
          grown our client base, enhanced our product development, manufacturing
          and
          marketing capabilities, and enlarged our overall scope of operations. We
          expect
          to continue to meet our short term liquidity requirements through:
  1)
          Cash
          generated from our operations. The Ashton business, which was acquired
          by the
          Company through its wholly-owned subsidiary, Inyx Europe, on August 31,
          2005,
          has historically been a profitable operation and the Company expects it
          to
          continue to be so. Customer production demand at Ashton continues to be
          strong
          in both the sterile and dry powder inhaler areas, which traditionally provide
          higher margins. The Company also expects to generate positive cash flow
          from its
          Inyx Pharma manufacturing facility as that operation continues to gain
          new
          products and new customers, especially in the HFA production area which
          is now
          running close to full capacity due to increasing customer demand. The Company
          expects that the Inyx USA operation will commence to generate positive
          cash flow
          in early 2007, once the Company completes its transition of its Manatí, Puerto
          Rico site into an integrated business unit, capable of product
          commercialization, manufacturing and distribution for Inyx’s proprietary
          products. We expect that our Inyx USA facility will be profitable in 2007
          due to
          the increasing demand for respiratory, allergy and cardiovascular products
          from
          that facility, as the Montreal Protocol is implemented in the United States,
          and
          due to new contracts commencing at this facility. The Company also expects
          its
          Exaeris subsidiary, which commenced formal operations in January 2006,
          to start
          to materially contribute to its operating cash flow in 2007 as a
          result of the King Pharmaceuticals collaboration, the MD Turbo co-promotion
          agreement, and other strategic initiatives including the acquisition of
          high
          margin proprietary products and complementary profitable businesses currently
          being completed by Exaeris. For example, we believe that the marketing
          of six
          eye-care products acquired from AMO in conjunction with the four eye care
          licenses previously acquired will enhance the Company’s profitability as, based
          on customer pricing, such products offer higher profit margins.
  2)
          Our
          existing credit facilities with Westernbank. Including our revolving working
          capital lines of credit and capital expenditure loans which we have informed
          Westernbank we intend to repay by December 31, 2006. As
          of
          November 21, 2006, we owed Westernbank approximately $120.0 million,
          approximately $71.9 million of which is on a revolving basis.
 
 3)
          As of
          September 30, 2006, we had approximately 7 million warrants issued and
          outstanding with an average exercise price of $1.26,
          which
          if exercised by ourstockholders
          will provide additional funds to the Company.
 
 4)
          The
          use of shareholder advances to continue to assist funding its operations
          and
          strategic growth plans including its planned product and business acquisitions.
          For the nine months ended September 30, 2006, the Company’s Chairman and CEO,
          Dr. Jack Kachkar, provided the Company approximately $8.5 million in the
          form of
          shareholder advances. Additionally, the Company's Dr. Kachkar and his spouse
          also provided Westernbank a personal guarantee of up to $10.0 million
          for additional working capital funding from the bank. Westernbank
          has requested that the Company provide a further personal guarantee from
          the
          Chairman and CEO and his spouse.
  5)
          We
          also expect to achieve profitability and improve our operating cash flow
          by
          continuing to intensify our sales and marketing efforts to increase the
          number
          of customer purchase orders and contracts for our development and manufacturing
          services, especially as our recent acquisitions have significantly strengthened
          and enlarged our Company’s operating scope. Additionally, these acquisitions
          have led to new and profitable multi-year exclusive manufacturing contracts
          with
          large pharmaceutical clients.
  36
  On
          a
          short-term basis, we believe that these sources of cash will continue to
          help to
          meet our Company’s operating needs, planned capital expenditures and business
          and corporate development strategies as we may require from time to time.
          We
          cannot predict exactly if, or when, additional funds will be needed. We
          may
          obtain funds through 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 raise additional funds through additional
          borrowings or the issuance of additional debt or equity securities.
  Therefore,
          until that time, we will continue to depend on our Westernbank credit
          facilities, contract manufacturing and product support customer revenues,
          shareholder loans and advances, and any required placements of equity and
          debt
          securities to assist us with our working capital requirements and the
          implementation of our business development strategies, capital expenditure
          plans, and proprietary product development and commercialization initiatives.
  **Analysis
          of Cash Flows**
  At
          September 30, 2006, we had cash of approximately $1.5 million as compared
          to
          cash of $4.2 million at September 30, 2005.
  ***Cash
          Flows from Operating Activities for the*** ***Nine
          Months Ended September 30, 2006 and 2005***
  The
          net
          cash used in operating activities for nine months ended September 30, 2006,
          was
          approximately $9.3 million compared to approximately $7.0 million for the
          nine
          months ended September 30, 2005.
  Our
          net
          cash used in operations was primarily the result of a $22.2 million net
          loss,
          adjusted by non-cash charges including amortization of financing costs
          and debt
          discount of approximately $526,000, depreciation expenses of approximately
          $4.7
          million, a reversal of reserve for bad debts of approximately $1.6 million
          and
          provision for obsolete inventory amounting to approximately $437,000,
          amortization of intangible assets of approximately $1.3 million and compensation
          expense on stock options issued to employees of approximately $752,000.
          Working
          capital changes reducing cash flow from operations were due to increases
          to our
          accounts receivables amounting to approximately $8.7 million, an increase
          to our
          prepaid deposits and other current assets amounting to approximately $801,000,
          and an increase in inventory amounting to approximately $2.1 million. Working
          capital changes increasing cash flow from operations were due primarily
          to an
          increase in accounts payable of approximately $3.0 million, an increase
          in
          accrued expenses and other liabilities of approximately $3.4 million and
          an
          increase in deferred revenue of approximately $5.9 million.
  ***Cash
          Flows from Investing Activities for the Nine Months Ended September 30,
          2006 and
          2005***
  The
          net
          cash used in investing activities for the nine months ended September 30,
          2006,
          amounted to approximately $20.4 million compared to approximately $52.0
          million
          for the comparative period in 2005.
  Investing
          activities during the nine month period ended September 30, 2006, included
          deposits and advances for a new hydrocarbon aerosol line scheduled to be
          completed by the fourth quarter of 2007 amounting to approximately $1.4
          million; capital
          expenditures of approximately $3.1 million consisting of approximately
          $2.3
          million for production machinery and equipment including construction in
          progress costs and approximately $794,000 for office furniture, computer
          hardware and building and leasehold improvements; direct transaction costs
          amounting to $3.4 million relating to the strategic acquisitions that the
          Company is currently working on; and a
          deposit
          of approximately $2.2 million which is refundable pending receipt of certain
          building permits for the acquisition of a building to be used for office
          space,
          and meeting and training facilities in Miami, Florida, expected to close
          by
          December 31, 2006.
  37
  During
          the nine months ended September 30, 2006, the Company also made a minority
          investment amounting to $5.6 million in a new limited liability company
          headquartered in Dubai, U.A.E., which is also currently establishing operations
          in Qatar. The limited liability company is working in partnership with
          the
          respective governments of Dubai and Qatar as well as selected companies
          in the
          private sector to manufacture and distribute Inyx products in the Gulf
          region.
  In
          addition, during the nine month period ended September 30, 2006, the Company
          completed the acquisition of a number of eye-care product licenses and
          related
          manufacturing know-how (i.e. purchase of intangible assets) for a total
          cost,
          including transaction related expenses, of approximately $4.6 million.
          The
          Company expects to market these products in North America through its Exaeris
          subsidiary, in Europe through its Inyx Pharma subsidiary, in Latin America
          through is Inyx USA subsidiary and in the Middle East and the Asian-Pacific
          market through its investment vehicle in Dubai, once that company receives
          its
          required trade licenses.
  ***Cash
          Flows from Financing Activities for the Nine Months Ended September 30,
          2006 and
          2005***
  For
          the
          nine months ended September 30, 2006, the net cash provided by financing
          activities approximated $31.6 million compared to approximately $63.6 million
          for the nine months ended September 30, 2005.
  The
          cash
          provided by financing activities for the nine months ended September 30,
          2006,
          included net proceeds from the exercise of warrants and stock options of
          approximately $9.4 million, net proceeds from borrowings under working
          capital
          lines of credit of approximately $28.3 million, net proceeds of approximately
          $843,000 from the issuance of long term debt under our capital expenditure
          facility with Westernbank, and proceeds of approximately $5,000 from the
          exercise of stock options. These proceeds were offset by payments of principal
          of approximately $6.9 million on our Westernbank term loans, an increase
          in
          deferred financing costs of approximately $455,000, repayment of a seller
          financing amount due to UCB Pharma of approximately $2.8 million and repayment
          of capital lease obligations amounting to approximately $94,000.
  **External
          Sources of Liquidity**
  As
          of
          September 30, 2006, our total indebtedness outstanding was approximately
          $119.4
          million, consisting of approximately $108.2 million under our two major
          credit
          facilities with Westernbank related to two acquisitions we made in 2005,
          and
          $11.2 million related to our acquisition of Ashton (f/k/a Celltech Manufacturing
          Services Limited). The sum owed to UCB Pharma is comprised of a non-interest
          bearing amount of approximately $6.3 million (€5.0 million) relating to deferred
          purchase price, plus approximately $4.8 million (£2.6 million) in indebtedness
          related to the additional net current assets acquired but not considered
          when
          the purchase price was negotiated.
  38
  As
          of
          September 30, 2006, our annual debt service requirements are approximately
          $14.4
          million (which includes approximately $4.9 million of interest). Such debt
          is
          collateralized by all the existing and future assets of our Company and
          its
          subsidiaries.
  ***Financing
          Activities***
  On
          March
          31, 2005, we obtained a non-dilutive asset based secured credit facility
          from
          Westernbank Business Credit Division of Westernbank Puerto Rico, originally
          totaling $46.0 million (the “First Westernbank Credit Facility"). The First
          Westernbank Credit Facility was originally obtained for the purpose of
          refinancing the indebtedness to Laurus Funds, in order to finance the purchase
          of certain business assets of Aventis Pharmaceuticals Puerto Rico Inc.
          (“Aventis
          PR”) from the Sanofi-aventis Group through our wholly owned subsidiary, Inyx
          USA, and to provide funding for the Company’s operations including for working
          capital, business and corporate development activities and for capital
          expenditure purposes.
  Initially,
          in addition to a revolving working capital line of credit of approximately
          $10.0
          million with a reserve of $500,000, the First Westernbank Credit Facility
          consisted of a capital expenditure loan (Term Note “A”) of up to $5.0 million,
          for the purpose of funding ongoing equipment construction and acquisition
          costs;
          two term loans, respectively, amounting to approximately $14.2 million
          (Term
          Note “B”) relating to real estate-secured financing and approximately $11.8
          million (Term Note “C”) relating to equipment-secured financing; and $5.0
          million (Term Note “D”) in the form of a higher interest rate mezzanine loan,
          with all such notes secured by all the assets of the Company and its
          subsidiaries.
  On
          September 1, 2005, Westernbank increased the aggregate limit of the First
          Westernbank Credit Facility to approximately $51.0 million as a result
          of the
          increase of the limit of the revolving working capital line of credit from
          $10
          million to $15 million. On November 22, 2005, Westernbank increased the
          aggregate limit of the First Westernbank Credit Facility to $56.0 million
          as a
          result of a new revolving $5.0 million Secured Over Formula Advance (“SOFA”)
          facility which was utilized by the Company to fund prepayment of inventory
          purchases. During the nine months ended September 30, 2006, Westernbank
          increased the aggregate limit of the First Westernbank Credit Facility to
          approximately $60.3 million as a result of increases to the limit of the
          revolving working capital line of credit by $12.2 million from a $15.0
          million
          limit to a $27.2 million limit.
  As
          of
          September 30, 2006, the total loan balance under the First Westernbank
          Credit
          Facility approximated $59.6 million. Under the First Westernbank Credit
          Facility, the revolving working capital line of credit has a three-year
          term and
          bears interest at the Westernbank prime rate (8.25% as at September 30,
          2006)
          plus 1.0%. The availability on such revolving line of credit is based on
          a
          percentage of our accounts receivable, unbilled finished goods inventory
          and raw
          and in-process inventory at our Inyx USA and Inyx Pharma subsidiaries.
          The three
          Term Notes (Term Notes “A”, “B” and “C”) bear interest at the Westernbank prime
          rate (8.25% as at September 30, 2006) plus 2.0% with monthly payments having
          commenced on July 1, 2005. The mezzanine term loan (Term Note “D”) bears an
          annual interest rate of 15.0% with monthly principal payments having commenced
          on July 1, 2005. All of the Term Notes mature on August 31, 2008 and are
          automatically renewed on a year-to-year basis unless terminated by our
          Company
          or Westernbank. Payment of the amounts due under the Term Notes accelerates
          upon
          the occurrence of an event of default.
  On
          August
          31, 2005, through our wholly-owned subsidiary Inyx Europe Limited, we obtained
          an additional non-dilutive asset based secured credit facility from Westernbank
          totaling $36.5 million (“the Second Westernbank Credit Facility”) to help fund
          our acquisition of the shares of Ashton Pharmaceuticals (f/k/a Celltech
          Manufacturing Services Ltd.), and to provide additional funding for the
          Company’s operations including for working capital, business and corporate
          development activities and for capital expenditure purposes.
  39
  Initially,
          in addition to a revolving working capital line of credit of approximately
          $11.7
          million with a reserve of $500,000, the Second Westernbank Credit Facility
          consisted of four term loans, in aggregate totaling approximately $24.8
          million,
          with all such notes secured by all the assets of the Company and its
          subsidiaries. Under the Second Westernbank Credit Facility Term Loan “A” amounts
          to approximately $3.0 million and relates to the financing of our Ashton
          real
          estate; Term Loan “B” amounts to approximately $9.8 million and relates to the
          financing of our machinery and equipment at the Ashton facility; Term Loan
“C”
amounts to approximately $3.0 million and relates to the financing of our
          Ashton
          product licenses; and Term Loan “D” is a higher interest mezzanine loan
          amounting to approximately $9.0 million. During the nine months ended September
          30, 2006, the Company also obtained a term promissory note (“Term Promissory
          Note 1”) amounting to approximately $556,000 for the purpose of funding capital
          improvements to our Ashton facility as an initial capital expenditure line
          was
          not provided under the Second Westernbank Credit Facility. The principal
          payments of Term Notes “A”, “B”, “C” and “D” commenced on December 1, 2005. The
          principal payment of Term Promissory Note 1 shall commence on April 1,
          2007.
  During
          the nine months ended September 30, 2006, the net limit available under
          the
          revolving loan was increased to a $27.0 million limit from an $11.7 million
          limit, thus increasing total availability under the Second Westernbank
          Credit
          Facility to $49.7 million. $2.1 million of such increase was a result of
          moving
          availability from the Second Westernbank Credit Facility term loans to
          the
          revolving loan.
  As
          of
          September 30, 2006, the total loan balance under the Second Westernbank
          Credit Facility approximated $48.6 million. Under the Second Westernbank
          Credit
          Facility, the revolving working capital line of credit has a three-year
          term and
          bears interest at the Westernbank prime rate (8.25% as at September 30,
          2006)
          plus 1.0%. The availability on such revolving line of credit is based on
          a
          percentage of our accounts receivable, unbilled finished goods inventory
          and raw
          and in-process inventory at our Ashton Pharmaceuticals subsidiary. All
          of the
          Term Notes, including the Term Promissory Note, mature on March 31, 2008,
          and
          are automatically renewed on a year-to-year basis unless terminated by
          the
          Company or Westernbank. Term Notes “A”, “B” and “C” and Term Promissory Note 1
          bear interest at Westernbank prime rate + 2% (8.25% at September 30, 2006).
          Term
          Note “D” bears interest at the rate of 15.0% per annum, and principal payments
          based on an agreed-upon formula, commenced January 1, 2006. Payment of
          the
          amounts due under the Term Notes accelerates upon the occurrence of an
          Event of
          Default.
  As
          of
          September 30, 2006, we were in violation of certain financial covenants
          pursuant
          to our Westernbank loan and security agreements. As it has previously done,
          Westernbank has waived certain requirements such that our non-compliance
          of such
          covenants has not resulted in an event of default under our loan agreements
          with
          the bank. On November 21, 2006, we informed Westernbank that we intended
          to pay
          off the amounts due under our credit facilities with the bank by December
          31,
          2006; this debt now totals approximately $120.0 million as of the date
          of this
          filing. We are currently working to secure new financing to repay the
          Westernbank debt. The Company's Chairman and CEO and his spouse have also
          provided Westernbank with a personal guarantee of up to $10.0 million of
          the amounts due under our credit facilities with the bank. Westernbank
          has requested that the Company provide a further personal guarantee from
          the
          Chairman and CEO and his spouse.
 
 ***Certain
          Indebtedness and Other Matters***
  As
          of
          September 30, 2006, the amount owed to the previous owner of Ashton, UCB
          Pharma,
          was approximately $6.3 million (€5.0 million), relating to a deferred purchase
          price of that business. The Company also owes approximately $4.8 million
          (£2.6
          million) as payment due for the additional net current assets acquired
          not
          considered when the purchase price was negotiated between the parties (“excess
          working capital adjustment”). This excess working capital adjustment is
          non-interest bearing, and was settled subsequent to September 30, 2006.
          Additionally, we also agreed with UCB, to settle by December 31, 2006 any
          outstanding balances due to UCB under the deferred purchase price
          arrangement,
          including if necessary through an offset against the amounts due from UCB
          Pharma
          for trade receivables.
  40
  The
          deferred purchase price is non-interest bearing, and is payable in monthly
          installments with payments concluding in December 2006. The Company is
          also
          entitled, at any time prior to payment of the balance of the purchase price,
          to
          set-off against any unpaid claim it may have against UCB under the Ashton
          share
          purchase agreement. As collateral for the deferred portion of the purchase
          price, the Company granted UCB a secondary security position over the Company’s
          assets behind Westernbank’s current first security position, which is to be
          released upon full payment of the deferred purchase price. Westernbank
          and UCB
          have also agreed to an inter-creditor agreement to be terminated upon full
          payment of the deferred purchase price.
  In
          addition to indebtedness noted above, our stockholders have periodically
          advanced and received repayment of funds loaned to the Company. We have
          utilized
          such stockholder loans, periodically advanced on a short term basis, to
          support
          operations, settle outstanding trade accounts payable, and for general
          working
          capital purposes.
  For
          the
          three and nine months ended September 30, 2006, our interest and financing
          costs
          totaled approximately $2.7 million and $7.4 million respectively. These
          amounts
          included approximately $2.4 million and $6.7 million respectively in interest
          payments to Westernbank and approximately $194,000 and $526,000 respectively
          in
          amortization of deferred financing charges for the respective periods.
          As of
          September 30, 2006, the weighted average interest rate on outstanding loans
          during the period amounted to approximately 10.15%.
  In
          comparison, for the three and nine months ended September 30, 2005, interest
          and
          financing costs amounted to approximately $1.5 million and $6.1 million,
          respectively, which included the acceleration of deferred charges, debt
          discount, an early termination penalty and additional warrants issued totaling
          approximately $3.8 million and approximately $451,000 and $915,000,
          respectively, in fees related to our Company’s 2004 equity financing activities.
          As of September 30, 2005, the weighted average interest rate paid on the
          gross
          outstanding debt during the period was approximately 8.0%.
  ***Capital
          Expenditures***
  We
          continuously make capital improvements to our development and production
          facilities in order to improve operating efficiencies, increase automation,
          improve quality control and keep pace with regulatory requirements, and
          customer
          or market demand. We are also making capital expenditures to expand and
          diversify our manufacturing know-how and manufacturing business base in
          niche
          manufacturing technologies with high barriers to entry for our competitors.
          This
          includes investments in pharmaceutical aerosol manufacturing process and
          devices.
  For
          the
          three months ended September 30, 2006, there were capital expenditures
          of
          approximately $841,000 consisting of approximately $607,000 for production
          machinery and equipment and construction in process costs and approximately
          $234,000 for office furniture, computer hardware and building and leasehold
          improvements.
  For
          the
          nine months ended September 30, 2006, there were capital expenditures of
          approximately $3.1 million consisting of approximately $2.3 million for
          production machinery and equipment and construction in progress costs,
          and
          approximately $794,000 for office furniture, computer hardware and building
          and
          leasehold improvements. Additionally, during this period we have invested
          approximately $1.4 million for the construction, installation and
          commercialization of a new hydrocarbon aerosol line to be completed by
          the end
          of 2007 for developing markets in Europe and Asia.
  ***Future
          Commitments***
  As
          of
          September 30, 2006, 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.
  41




As
      of
      September 30, 2006, we had operating lease contractual obligations totaling
      approximately **$** 2.8
      million due to various vendors providing supplies, components, and equipment
      and
      services to our Company over the next ten years.


The
          Company finances its premiums for insurance policies. As of September 30,
          2006,
          amounts due under such finance agreements amounted to approximately $1.3
          million
          relating mostly to property and liability coverage policies expiring March
          15,
          2007, and approximately $159,000 for Directors and Officers insurance policies
          expiring July 31, 2007.
  On
          September 28, 2006, the Company announced that it had executed a definitive
          agreement to acquire all of the outstanding shares of Pharmapac UK Ltd.
          (“Pharmapac”), a United Kingdom based pharmaceutical contract manufacturing and
          packaging company, from its shareholders and management team. The acquisition
          is
          scheduled to be completed on January 4, 2007. The Company has agreed to
          pay
£10.5 million sterling (approximately $20.0 million USD) to the shareholders
          of
          Pharmapac.
  The
          Company also has a pending acquisition of a German
          pharmaceutical production business. On November 20, 2006, the Company reported
          that it is reviewing this acquisition because of a recent disclosure that
          significantly reduces the mid-term operating results for the German site
          and,
          consequently, it is uncertain now if this transaction will be
          consummated.
  During
            the three-months ended September 30, 2006, the Company made a minority
            investment amounting to approximately $5.6 million in a new limited liability
            company headquartered in Dubai, U.A.E. (“Inyx UAE”), which is also in the
            process of establishing operations in Qatar. Inyx UAE is working in partnership
            with the respective governments of Dubai and Qatar as well as selected
            companies
            in the private sector to manufacture and distribute Inyx products in
            the Gulf
            region. Such products will initially include eye-care products that the
            Company
            has acquired and then respiratory, allergy, cardiovascular, pain-management
            pharmaceuticals, initially to be manufactured by Inyx at its current
            facilities
            and later expected to be commercialized and manufactured locally at new
            production and distribution facilities planned for in Dubai and Qatar,
            respectively. The Company also plans to make strategic investments in
            established pharmaceutical distributors in the geographic region in order
            to
            distribute Inyx’s and its clients’ products, thereby enhancing the utilization
            of Inyx’s manufacturing facilities. The Company has committed to invest a total
            of approximately $7.5 million into this minority investment. The Company
            owns
            49% of Inyx UAE through a wholly-owned United Kingdom subsidiary, and
            10% of the
            profits of Inyx UAE are required to be reinvested back into the company
            for
            operational expenses and future investment expenditures.
 As
          of
          September 30, 2006, our Company had invoiced approximately $37.7 million
          for
          services to be provided to our customers. The revenues are only recognized
          into
          income as services are performed and delivered to our customers.
  As
          an
          evolving specialty pharmaceutical company, we are also involved in a number
          of
          business development projects including research and development and equipment
          acquisition activities that require the use of capital resources over extended
          periods of time. Such activities may also include the use of external resources
          and third parties that require prepayment or cash deposits for supplies,
          equipment, and products or services that we may require from time to time.
          As we
          continue to grow our business and also 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. The Company is currently
          developing two new hydrocarbon aerosol manufacturing lines. Costs and expenses
          necessary to complete such lines over the next two years are estimated
          to cost
          approximately $10.0 million.
  42
  See
          below
          regarding the Company’s ongoing work to assess the effectiveness of its internal
          controls over financial reporting as of December 31, 2006 in its Form 10-K
          pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. The Company
          estimates
          it will cost approximately $650,000, prior to December 31, 2006, to design
          a
          system of evaluating the design and operating effectiveness of its internal
          controls using a suitable, recognized control framework.
  ***Internal
          Controls Over Financial Reporting***
 
 The
          Company will become an accelerated filer in the fiscal year beginning on
          January
          1, 2007, and will be required to include a written assessment on the
          effectiveness of its internal controls over financial reporting as of December
          31, 2006 in is Form 10-K pursuant to Section 404 of the Sarbanes-Oxley
          Act of
          2002. To assist the Company in making its assessment we have consulted
          with
          professional service firms in order to design a system of evaluating the
          design
          and operating effectiveness of our internal controls using a suitable,
          recognized control framework. The Company has incurred costs in designing
          such a
          system in the amounts of approximately $314,000 as of September 30, 2006.
          We
          estimate that the total costs in designing such a system will be approximately
          $650,000 and that significant management time will be required during the
          fourth
          quarter of 2006 and the first quarter of 2007.
  **Subsequent
          Events**
 
 The
          Company’s announced acquisition of Pharmapac is scheduled, by mutual agreement
          between the Company and Pharmapac, to be completed on January 4, 2007.
          The
          Company has agreed to pay £10.5 million sterling (approximately $20 million) to
          the shareholders of Pharmapac and is still in the process of finalizing
          the
          funding for this transaction.
 
 Subsequent
          to September 30, 2006, we obtained an additional $10.0 million aggregate
          increase in the available limit of its revolving working capital line of
          credit
          facilities with Westernbank, allowing the Company to borrow up to an aggregate
          of $67.5 million under the First and Second Westernbank Revolving Credit
          Facilities and up to $5.0 million under the SOFA line. In consideration
          of such
          increase in loan limits and for continuing to make and provide financial
          accommodations to Inyx pursuant to the Agreements, the Company’s Chairman and
          CEO and his spouse have provided a personal guarantee for payment of up
          to $10.0
          million of the amounts owed to Westernbank.
  Subsequent
          to September 30, 2006, the Company made the second monthly installment
          payment
          to UCB Pharma amounting to approximately $2.1 million regarding the deferred
          purchase price of that business. In addition, subsequent to September 30,
          2006,
          the Company settled the working capital amount due to UCB.
  On
          November 21, 2006, the Company informed Westernbank that it intended to
          pay off
          the loan amounts owed to Westernbank by December 31, 2006. This debt now
          totals
          approximately $120 million and the Company’s Chairman and CEO informed the
          Company’s Board of Directors’ Special Committee that he will work to secure new
          debt financing for Inyx before his group tries to finalize financing for
          their
          planned going-private offer.
  On
            November 20, 2006, the Company reported that a group comprised of Inyx
            senior
            management, including the Company's Chairman and
            CEO, Dr. Jack Kachkar and the Company's President, Steven
            Handley, and other strategic outside investors had approached the Company’s
            Board of Directors about taking the Company private in a transaction
            that the
            group said would be in “the best interests of all of the Company’s
            shareholders.” On the same day, the Inyx board formed a Special Committee
            comprised of three independent directors, which will evaluate any specific
            proposal. The committee will retain an independent investment-banking
            firm to
            review the fairness of any proposed offer made by the group. Dr. Jack
            Kachkar
            then informed the Special Committee that, before the group tries to finalize
            financing for any going-private offer, he will work to secure new debt
            financing
            to replace the Westernbank facilities by December 31, 2006. Dr. Kachkar
            and his
            spouse also have provided a personal guarantee to Westernbank for up
            to $10.0
            million of the amount owed by the Company to the bank. Westernbank
            has requested that the Company provide a further personal guarantee from
            the
            Chairman and CEO and his spouse.
 43


**Item
          3. Q** **UANTITATIVE
          AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
  In
          the
          ordinary course of our business, we could be subjected to a variety of
          market
          risks, examples of which include, but are not limited to, interest rate
          movements as borrowings under our credit facilities bear interest based
          on prime
          rate and foreign currency fluctuations as we have operations in the United
          Kingdom and trade in the European community. We continuously assess these
          risks
          and have established policies and procedures to protect against the adverse
          effects of these and other potential exposures. Although we do not anticipate
          any material losses in these risk areas, no assurance can be made that
          material
          losses will not be incurred in these areas in the future.
  **Foreign
          Exchange Rate Risk**
  Our
          functional currency is the U.S. dollar. The financial statements of our
          Company's operating subsidiaries with a functional currency other than
          U.S.
          dollars are translated into U.S. dollars using the current rate method.
          Accordingly, assets and liabilities are translated at period-end exchange
          rates,
          while revenues and expenses are translated at the period's average exchange
          rates. Adjustments resulting from these translations are accumulated and
          reported as a component of accumulated other comprehensive loss in stockholders'
          equity.
  We
          neither hold nor issue financial instruments for trading purposes and we
          do not
          currently engage in any hedging activities designed to stabilize the risks
          of
          foreign currency fluctuations. Such fluctuations could adversely affect
          the
          value of our revenues and the results of our operations stated in U.S.
          dollars.
          We are currently in the process of evaluating the potential benefits of
          implementing hedging strategies with a financial institution with expertise
          in
          this area.
 
 **Interest
          Rate Risk**
  The
          principal value of variable rate long term debt as of September 30, 2006,
          including current maturities approximated $ 96.9 million.
          A hypothetical increase of one percentage point in the prime interest rate
          applicable to our long term debt at September 30, 2006 would be approximately
          $ 969 ,000
          per
          year in additional interest.
  **Item
          4. 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 Principal Accounting Officer, of
      the
      effectiveness of the design and operation of our disclosure controls and
      procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the
      "Exchange Act"). Based upon that evaluation, Company’s management, including the
      Chief Executive Officer and Principal Accounting Officer, concluded that our
      disclosure controls and procedures are effective in enabling the Company to
      record, process, summarize and report information required to be included in
      the
      Company’s periodic Securities and Exchange Commission filings within the
      required time period.





There
      have been no significant changes in our internal controls or in other factors,
      which could significantly affect internal controls subsequent to the date we
      carried out our evaluation.


44


**PART
            II — OTHER INFORMATION**
  **Item
            1A. RISK FACTORS**
  In
            addition to the risk factors set forth in our Annual Report on Form 10-K
            for the
            year ended December 31, 2005, the following matters should also be
            considered:
  ***We
            continue to experience operating losses and will require additional financing
            to
            fulfill our business plan.***
  For
            the
            three and nine months ended September 30, 2006, we have experienced operating
            losses and we expect to have operating losses for the three and twelve
            months
            ended December 31, 2006. For the three months ended September 30, 2006,
            we had a
            net loss of approximately $9.7 million as compared to a net loss of
            approximately $4.9 million for the comparative three month period ended
            September 30, 2005. For the nine months ended September 30, 2006, we
            had a net
            loss of approximately $22.2 million as compared to a net loss of approximately
            $17.0 million for the comparative nine month period ended September 30,
            2006. In
            the short-term, we expect that we will continue to lose money and continue
            to
            require funding to implement our longer term business and growth strategies,
            including funding for the development of our own proprietary pharmaceutical
            products, and as such we will continue to require external financing
            to operate
            and grow our business. Following our acquisitions of Aventis PR and Ashton
            Pharmaceuticals, our financing activities with Westernbank have provided
            us
            approximately $120.0 million in funds for our operations, working capital,
            capital expenditures and investment activities. For the nine months ended
            September 30, 2006, we have also received approximately $9.2 million
            in proceeds
            from the exercise of issued warrants. On a longer term basis, over the
            next
            three years, we will require additional funding of at least approximately
            $15.0
            million annually in order to continue to implement our business development
            and
            corporatestrategies,
            growthand 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 such 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 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,
            and
            therefore may be unable to implement our business and growth
            strategies.
  ***We
            are highly leveraged and will need to generate positive cash flow and
            obtain
            additional funding to service and repay our current debt.***
  As
              of
              September 30, 2006, our total indebtedness outstanding was approximately
              $119.4
              million, consisting of approximately $108.2 million under our two major
              credit
              facilities with Westernbank related to two acquisitions we made in
              2005, and
              $11.2 million owed to UCB Pharma related to our acquisition of Ashton
              (f/k/a
              Celltech Manufacturing Services Limited). As of September 30, 2006,
              our annual
              debt service requirements are approximately $14.4 million (which includes
              approximately $4.9 million of interest). Such debt is collateralized
              by all the
              existing and future assets of the Company and its subsidiaries. All
              interest
              payments on these borrowings are due in cash. 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 and/or
              maintaining
              our existing debt.
 45
  Additionally,
            the Westernbank credit facilities, consisting of both short term and
            long term
            debt, were initially due through 2008 and were automatically renewable
            on
            maturity in March 2008, on a year-to-year basis, unless terminated by
            Westernbank or the Company. On November 21, 2006, the Company informed
            Westernbank that it intends to pay off the loan amounts
            owed to Westernbank by December 31, 2006. As a result, the Company has
            classified as current the amounts due under its credit facilities with
            the bank.
            As of November 21, 2006, the Company owed Westernbank approximately $120.0
            million. On
            November 20, 2006, the Company reported that a group comprised of Inyx
            senior
            management, including Chairman and CEO, Dr. Jack Kachkar, and other
            strategic outside investors had approached the Company’s Board of Directors
            about taking the Company private in a transaction that the group said
            would be
            in “the best interests of all of the Company’s shareholders.” Dr. Jack Kachkar
            then informed the board that, before the group tries to finalize financing
            for
            any going-private offer, he will work to secure new debt financing to
            replace
            the Westernbank facilities by December 31, 2006. Dr. Kachkar and his
            spouse also
            have provided a personal guarantee to Westernbank for up to $10.0 million
            of the
            amount owed by the Company to the bank. Westernbank
            has requested that the Company provide a further personal guarantee from
            the
            Chairman and CEO and his spouse.
  Until
            such time that the Company is refinanced, management of the Company intends
            to
            fund its operations through cash generated from its operations, its existing
            Westernbank credit facilities, and when necessary the use of shareholder
            loans
            and advances. The Company also continues to be in a position to issue
            new equity
            or debt securities to assist funding its operations and growth plans.
            There is
            currently no formal financing plan in place to repay the Westernbank
            debt or
            provide additional funding to the Company, and there can be no assurances
            that
            either senior management or the Company will be successful in achieving
            its
            financing plans or that additional financing will be obtained.
 
 ***We
            may be unable to obtain financing for the acquisitions that are available
            to us.***
  The
            Company’s announced acquisition of Pharmapac isexpected to be completed on January 4, 2007. The Company has agreed to
            pay £10.5 million sterling (approximately $20 million) to the shareholders
            of
            Pharmapac and is still in the process of finalizing the funding for this
            transaction.
 
 We
            will
            attempt to obtain financing for acquisition opportunities such as the
            Pharmapac
            acquisition 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 banking institutions, investment funds, private equity funds,
            high net
            worth private individuals 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. Although we have been previously
            been
            able to fund the acquisition opportunities that have been available to
            us
            through the type of financing sources noted above, there can be no assurance
            that we will be able to continue to obtain adequate financing for further
            acquisitions or that, if available, such financing will be on favorable
            terms.
            Additionally, we have previously raised capital to fund our acquisitions
            through
            asset-based secured borrowings, which have significantly increase our
            debt-service obligations in advance of receiving steady revenues, and
            which has
            placed a further strain on our limited working capital.
  46
  ***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 (“FDA”) and
            FDA-administered cGMP (“current Good Manufacturing Practices”) regulations for
            pharmaceutical manufacturers. Our products and services must also continuously
            comply with the requirements of the regulatory agencies where we distribute
            our
            products or services. 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.
  On
            June
            9, 2006, the FDA issued the Company, a Form 483 notice of inspectional
            findings
            (“483 Notice”), related to a routine, unannounced inspection of our
            manufacturing facility in Manatí Puerto Rico where a number of our clients’
products are produced. A 483 Notice is used by an FDA field investigator
            to
            record observations of noncompliance with current good manufacturing
            practices.
            While companies are not required to respond to such a notice, it is considered
            commercially prudent to do so, giving an explanation and, where necessary,
            a
            description of the proposed resolution of the observations set forth
            in the
            notice. The 483 Notice cited issues relating to the testing methodologies
            of
            three products. We continue to work with our involved customers to resolve
            any
            outstanding issues from the inspection and in order to further assure
            that the
            testing methodologies we are utilizing at our Manati facility meet the
            required
            products’ approved testing requirements. The Company with assistance from its
            involved customers responded to the FDA, and subsequently met with the
            FDA to
            discuss its response to the 483 Notice. We are currently waiting for
            a
            determination from the FDA as to whether any further action by the Company
            is
            necessary. While we remain committed to regulatory compliance at all
            of our
            manufacturing facilities and we expect a positive response to the remedial
            actions we have taken as a result of the recent FDA inspections, the
            FDA may
            take further regulatory action that may include a further inspection,
            warning
            letter, withdrawal or seizure of the affected products from the market
            which may
            lead to significant delays in our ability to manufacture such
            products.
  In
            addition to the above, the U.S. Congress, the FDA, and the pharmaceutical
            regulatory agency of any other country where we manufacture, market or
            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
            are subject to the risks of doing business in developing countries.***
  We
              are
              marketing and selling our services and products to customers and government
              entities in developing countries including those in Eastern Europe, Latin
              America, the Middle East and North Africa and the Asian-Pacific market.
              In
              addition, we have made a commitment to make considerable investments
              in such
              territories. In some instances, we may be required to utilize intermediaries
              and
              other third-party consultants in order to establish and develop our
              operations,
              help manage our business and investments and to help facilitate
              any required relationships in such geographic markets and territories.
              Accordingly, we will be subject to all the risks of doing business
              with
              such customers and parties in such countries, including dealing with:
 47
 -
              trade
              protection measures and import or export licensing requirements;
  -
              difficulties in protecting and enforcing agreements and contracts;
  -
              difficulties in protecting intellectual property;
  -
              unexpected changes in regulatory requirements;
  -
              legal
              uncertainty regarding liability, tax, tariffs and other trade barriers;
  -
              foreign
              exchange controls and other currency risks;
  -
              inflation;
  -
              challenges to credit, advance payments 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.
 ***Risks
            related to our Stock***
  On
            November 24, 2006, we announced that certain members of management had
            approached the Board of Directors regarding their intention to present
            a
            proposal to take the Company private. No such proposal has been made
            to date,
            and until a proposal is presented and a price agreed to be paid to minority
            stockholders is fixed, there may continue to be uncertainty and volatility
            in
            the price of our stock in the market. There can be no assurance that
            the price
            paid to purchase our stock in open market transactions will be less than
            the
            price paid in the going private transaction, or that the price received
            from the
            sale of our stock in the open market will be more or less than the price
            paid in
            the going private transaction.
  48


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




The
      Company’s Annual Meeting of Stockholders was held on August 24, 2006. At the
      meeting, our stockholders voted on the following three proposals, all of which
      were approved. Our stockholders cast their votes as follows:





*Proposal
      1:* ****** To
      elect
      the following nominees as directors to hold office until the next annual meeting
      of stockholders or until his successor has been duly elected and
      qualified:





**Nominee**
            
            **Votes
                For**
            
            **Votes
                Withheld**Jack
                Kachkar
            
            
            35,832,383
            
            
            2,889,766Steve
                Handley
            
            
            35,838,383
            
            
            2,883,766Colin
                Hunter
            
            
            35,838,383
            
            
            2,883,766Douglas
                Brown
            
            
            38,694,849
            
            
            27,300Joseph
                Rotmil
            
            
            38,693,849
            
            
            28,300Roger
                G. Harrison
            
            
            38,694,849
            
            
            27,300Peter
                Littmann
            
            
            38,693,849
            
            
            28,300





*Proposal
        2:* To
        Approve the 2005 Equity Incentive Plan.
  **For**
              
              **Against**
              
              **Abstain**23,008,166
              
              553,050
              
              16,625
 
  *Proposal
        3:* To
        reincorporate the Company into the State of Delaware.
  **For**
              
              **Against**
              
              **Abstain**23,442,941
              
              119,400
              
              15,500
 
 49


**Item
      6.  EXHIBITS**




31.1  Certification
      of CEO under SEC Rule 15d-14(a) as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.




31.2  Certification
      of CFO under SEC Rule 15d-14(a) as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.




32.1  Certification
      of CEO pursuant to 18 USC Section 1350 as adopted by Section 906 of the
      Sarbanes-Oxley Act of 2002.




32.2  Certification
      of CFO pursuant to 18 USC Section 1350 as adopted by Section 906 of the
      Sarbanes-Oxley Act of 2002.





**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




Date:November
              30, 2006INYX,
                INC.By:
            /s/ David ZinnDavid Zinn
              Vice
                President Finance and
              Principal
                Accounting Officer






50