U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


                  For the Quarterly Period Ended June 30, 2004


                          Commission File No. 000-24972



                       INKINE PHARMACEUTICAL COMPANY, INC.
             (Exact name of Registrant as specified in its charter)


            New York                                     13-3754005
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


                            1787 Sentry Parkway West
                             Building 18, Suite 440
                               Blue Bell, PA 19422
                    (Address of principal executive offices)

                                  215-283-6850
                         (Registrant's telephone number)


         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
    ---    ---
Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act).
YES  X   NO
    ---    ---


         At August 5, 2004, the registrant had outstanding  48,713,111 shares of
common stock, par value $.0001 per share.


<PAGE>



                       INKINE PHARMACEUTICAL COMPANY, INC.

                                      INDEX
<TABLE>
<CAPTION>
<S>     <C>                                                                                                    <C>

                                                                                                                Page
                                                                                                                ----
PART I - FINANCIAL INFORMATION

         Item 1.  Financial Statements

                  BALANCE SHEETS - as of June 30, 2004 (unaudited) and December 31, 2003..........................3

                  STATEMENTS OF OPERATIONS (unaudited) - for the Three and Six-Months
                  Ended June 30, 2004 and 2003....................................................................4

                  STATEMENTS OF CASH FLOWS (unaudited) - for the Six-Months Ended June 30, 2004 and 2003..........5

                  NOTES TO FINANCIAL STATEMENTS (unaudited).......................................................6

         Item 2.  Management's Discussion and Analysis of Financial
                   Condition and Results of Operations............................................................9

         Item 3.  Quantitative and Qualitative Disclosures About Market Risks....................................22

         Item 4.  Controls and Procedures........................................................................22

PART II - OTHER INFORMATION......................................................................................22

         Item 1.  Legal Proceedings..............................................................................22

         Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities...............23

         Item 4.  Submission of Matters to a Vote of Security Holders............................................23

         Item 6.  Exhibits and Reports on Form 8-K...............................................................24

SIGNATURES.......................................................................................................25

EXHIBITS INDEX...................................................................................................26

</TABLE>




                                       2
<PAGE>


PART I -- FINANCIAL INFORMATION

Item 1.  Financial Statements

                       INKINE PHARMACEUTICAL COMPANY, INC.

                                 BALANCE SHEETS

               (in thousands, except share and per share amounts)
<TABLE>
<CAPTION>

<S>                                                                               <C>                     <C>
                                                                                 June 30, 2004         December 31, 2003
                                                                                 -------------           -------------
         ASSETS                                                                  (unaudited)

Current assets:

     Cash and cash equivalents........................................            $     11,154            $     10,442
     Accounts receivable..............................................                   1,752                   1,170
     Inventory........................................................                   1,503                     780
     Prepaid expenses and other current assets........................                     402                     727
                                                                                  -------------           ------------
         Total current assets.........................................                  14,811                  13,119

Fixed assets..........................................................                     359                     124
Deposits .............................................................                      57                      54
                                                                                  -------------           ------------

         Total assets.................................................            $     15,227            $     13,297
                                                                                  ============            ============

         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable.................................................            $      1,358            $        805
     Accrued expenses.................................................                   1,965                   1,863
                                                                                  ------------            ------------
              Total current liabilities...............................                   3,323                   2,668

Shareholders' equity:
     Preferred stock, $0.0001 par value; authorized 5,000,000
         shares; none issued and outstanding .........................                     ---                     ---
     Common stock, $0.0001 par value; authorized 75,000,000
         shares; issued 48,729,626 shares.............................                       5                       5
     Less common stock held in treasury (16,515 shares)...............                     (37)                    (37)
     Additional paid-in capital.......................................                  82,877                  82,587
     Deferred compensation............................................                     (16)                    ---
     Accumulated deficit..............................................                 (70,925)                (71,926)
                                                                                  -------------           -------------

         Total shareholders' equity ..................................                   11,904                  10,629
                                                                                  -------------           -------------

         Total liabilities and shareholders' equity...................            $      15,227           $      13,297
                                                                                  =============           =============


            See accompanying notes to unaudited financial statements.

</TABLE>


                                       3
<PAGE>

<TABLE>
<CAPTION>

                       INKINE PHARMACEUTICAL COMPANY, INC.

                            STATEMENTS OF OPERATIONS
                                   (unaudited)

                    (in thousands, except per share amounts)

<S>                                                                   <C>           <C>                     <C>           <C>
                                                                   Three-Months Ended June 30,           Six-Months Ended June 30,
                                                                   ---------------------------           -------------------------
                                                                       2004          2003                    2004          2003
                                                                      ------        ------                  ------        ------


Product revenue..........................................             $4,891       $ 3,339                  $9,241      $  5,875
Other revenue............................................                375            49                     658            49
                                                                      ------       -------                  ------      --------
   Revenue...............................................              5,266         3,388                   9,899         5,924

Cost of goods sold.......................................               (652)         (472)                 (1,143)         (861)
                                                                      ------       -------                  ------      --------
   Gross profit..........................................              4,614         2,916                   8,756         5,063

Cost and expenses:
   Research and development..............................              1,036           448                   1,958           789
   Sales and marketing...................................              2,160         1,475                   4,109         2,895
   General and administrative............................                692           735                   1,477         1,248
   Withdrawn public offering and litigation..............               (338)          ---                     229           ---
                                                                      ------       -------                  ------      --------
     Operating expenses..................................              3,550         2,658                   7,773         4,932
                                                                      ------        ------                  ------      --------
   Income from operations................................              1,064           258                     983           131

Interest income..........................................                 26            16                      36            30
Interest expense.........................................                (11)         (293)                    (18)         (644)
Debt conversion inducement, non-cash accretion and
   non-cash premium......................................                ---        (2,355)                    ---        (2,822)
                                                                      ------       -------                  ------      --------
   Net income (loss).....................................             $1,079       $(2,374)                 $1,001      $ (3,305)
                                                                      ======       =======                  ======      ========

   Income (loss) per share- basic and diluted............             $ 0.02       $ (0.06)                 $ 0.02      $  (0.09)
                                                                      ======       =======                  ======      ========
    Weighted average shares outstanding:
      Basic .............................................             48,676         38,323                 48,611        38,050
      Diluted ...........................................             53,504         38,323                 53,737        38,050


</TABLE>


            See accompanying notes to unaudited financial statements.



                                       4
<PAGE>

<TABLE>
<CAPTION>

                       INKINE PHARMACEUTICAL COMPANY, INC.

                            STATEMENTS OF CASH FLOWS
                                   (unaudited)

                                 (in thousands)

                                                                                       Six-Months Ended June 30,
                                                                                       -------------------------
                                                                                        2004               2003
                                                                                       ------             ------

<S>                                                                                    <C>               <C>
Operating activities:

   Net income (loss) .................................................                 $1,001            $(3,305)
   Adjustments to reconcile net income (loss) to net cash provided by
     (used in) operating activities:
     Depreciation.....................................................                     72                 78
     Amortization of deferred compensation............................                     16                 35
     Non-cash accretion and premium...................................                    ---              2,047
   Changes in operating assets and liabilities:
     (Increase) in accounts receivable................................                   (582)              (418)
     (Increase) in inventory .........................................                   (723)              (295)
     (Increase) decrease in prepaid expenses and other assets ........                    322               (318)
     Increase (decrease) in accounts payable and accrued expenses ....                    655               (785)
                                                                                      -------             -------
Net cash provided by (used in) operating activities...................                    761             (2,961)

Investing activities:
     Capital expenditures.............................................                   (307)                ---
                                                                                      -------             -------
Net cash used in investing activities.................................                   (307)                ---

Financing activities:
     Proceeds from exercise of options and warrants - net of expenses                     258               1,723
     Borrowings, net of repayments on line of credit .................                    ---                 (17)
                                                                                      -------             -------
Net cash provided by financing activities ............................                    258               1,706

Net increase (decrease) in cash and cash equivalents .................                    712              (1,255)

Cash and cash equivalents - beginning of period ......................                 10,442              12,151
                                                                                      -------             -------
Cash and cash equivalents - end of period ............................                $11,154             $10,896
                                                                                      =======             =======

</TABLE>


            See accompanying notes to unaudited financial statements.



                                       5
<PAGE>

                       INKINE PHARMACEUTICAL COMPANY, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (unaudited)

         In this  Quarterly  Report,  "InKine,"  "we,"  "us" and "our"  refer to
InKine Pharmaceutical Company, Inc. and "Common Stock" refers to InKine's common
stock, par value $0.0001 per share.

1.  Organization and Business Activities

         We  are  a  specialty  pharmaceutical  company  focused  on  acquiring,
developing and commercializing  pharmaceutical  products for use to diagnose and
treat gastrointestinal  disorders.  Our development strategy has been to acquire
late-stage drug candidates with short expected time lines to  commercialization.
We currently market and sell three pharmaceutical products, Visicol(R), VSL#3(R)
and  IB-Stat(R).   We  are  also  studying   Visicol(R)  for  the  treatment  of
constipation  and for  use  prior  to  certain  pre-operative  gastrointestinal,
gynecological and urological  surgical  procedures.  In addition to our marketed
products,  we are studying  INKP-102 as a new generation  purgative  product and
Colirest(TM)  for the  treatment of patients  with  Inflammatory  Bowel  Disease
(IBD).

2.  Basis of Presentation

         The  accompanying  financial  statements  are  unaudited  and have been
prepared by us in accordance with accounting  principles  generally  accepted in
the United States of America.

         Certain information and footnote  disclosures  normally included in our
audited  annual  financial  statements  have been  condensed  or  omitted in our
interim financial  statements.  We believe that the interim financial statements
reflect all adjustments  (consisting of normal recurring  adjustments) necessary
for a fair representation of the results for the interim periods presented.

         The results of operations for the interim  periods may not  necessarily
be  indicative of the results of  operations  expected for the full year.  These
interim  financial  statements  should be read in  conjunction  with the audited
financial  statements for the year ended December 31, 2003,  which are contained
in our most recent Annual Report on Form 10-K.

3.  Use of Estimates

         The  preparation  of  the  financial   statements  in  conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires us to make estimates and assumptions  that affect the reported  amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date(s) of the financial statements and the reported amounts of revenues and
expenses during the reporting period(s).  Actual results could differ from those
estimates.

4.  Allowance for Sales Returns

         We maintain an  allowance  for  potential  future sales  returns.  This
allowance is evaluated  on a quarterly  basis based on product  characteristics,
wholesaler stocking patterns and prescription trends. At June 30, 2004, we had a
sales returns allowance of $159,000 that was included in accrued expenses on the
balance sheet.  The following is an analysis of the sales returns  allowance for
the six-month period ended June 30, 2004:

         Allowance at December 31, 2003                 $126,000
         Provision for estimated sales returns            95,000
         Actual sales returns                            (62,000)
                                                        --------
                  Allowance at June 30, 2004            $159,000
                                                        ========


                                       6
<PAGE>
5.  Deferred Revenue

         For IB-Stat(R),  we recognize revenue based on prescription  data. This
practice will continue until such time as data becomes  available that indicates
that the product has achieved adequate market acceptance and that future product
returns can be reasonably  estimated.  As a result,  we have  recorded  deferred
revenue of $236,000  that was included in accrued  expenses on the balance sheet
as of June 30, 2004.

6.  Line of Credit

         We maintain a $7,500,000  line of credit with a financial  institution,
which expires  January 31, 2005.  Monthly  interest-only  payments are made at a
variable per annum rate of 2.20% plus the 30-day Dealer  Commercial  Paper Rate.
There was no outstanding balance on this line of credit at June 30, 2004.

7.  Withdrawn Public Offering and Litigation

         On March 15, 2004, we withdrew a public  offering of six million shares
of our common stock. The decision to withdraw the offering was made when it came
to our  attention  that our  certificate  of  incorporation  did not contain any
provision  exempting us from  providing  preemptive  rights in  connection  with
certain  securities  offerings.  On March 19,  2004,  a purported  class  action
lawsuit was filed in the Court of Common Pleas,  Philadelphia  County, on behalf
of a putative class of holders of InKine equity shares who have purportedly been
denied certain claimed  preemptive rights during the last six years. The lawsuit
names us as the defendant and seeks  unspecified  compensatory  damages.  In our
statement of  operations,  we have included the $341,000 in expenses  related to
the withdrawn  offering and $388,000 in legal costs related to preemptive rights
and the lawsuit offset by a $500,000 payment from a third-party as reimbursement
for these costs in the line item "Withdrawn  public offering and litigation." Of
the legal costs  related to  preemptive  rights and the  lawsuit,  $188,000  was
reimbursed as part of the $500,000 payment from the  third-party.  An additional
$200,000  was  expensed  for  unreimbursed  legal  costs  up  to  our  insurance
deductible.  We believe  that we will  continue to be entitled to  reimbursement
from  third-parties  for  any  costs,   expenses  and  liabilities  incurred  in
connection with the purported class action lawsuit. However, no assurance can be
given that we will obtain such  additional  reimbursement  or that any liability
from the lawsuit will not be material.

8.  Stock-Based Compensation

         We  apply  the  intrinsic  method  of  accounting  for all  stock-based
employee  compensation  in  accordance  with APB No. 25,  "Accounting  for Stock
Issued  to  Employees,"   and  related   interpretations.   We  record  deferred
compensation for option grants to employees for the amount, if any, by which the
market price per share on the grant date  exceeds the exercise  price per share.
We generally  grant our stock options with exercise  prices equal to fair market
value on the grant date.

         We have elected to adopt the  disclosure  only  provisions  of SFAS No.
123,  "Accounting  for Stock-Based  Compensation"  (SFAS No. 123), as amended by
SFAS  No.  148,  "Accounting  for  Stock-Based  Compensation  -  Transition  and
Disclosure"  (SFAS No. 148). The following  table  illustrates the effect on our
net  income  (loss)  and basic and  diluted  income  (loss)  per share if we had
recorded  compensation  expense for the estimated fair value of our  stock-based
employee compensation, consistent with SFAS No. 123:


<TABLE>
<CAPTION>
<S>                                                           <C>             <C>                <C>            <C>
                                                                 Three-Months Ended                 Six-Months Ended
                                                              June 30,        June 30,          June 30,        June 30,
                                                                2004            2003              2004            2003
                                                              -------          ------            -------        -------

Net income (loss) - as reported.........................      $ 1,079         $(2,374)           $ 1,001        $ (3,305)

Deduct: Total stock-based employee compensation.........         (728)           (774)            (1,464)         (1,583)
                                                              -------         -------            -------         -------
Net income (loss) - pro forma...........................      $   351         $(3,148)           $  (463)        $(4,888)
                                                              =======         =======            =======         =======

Income (loss) per share:
Basis and diluted - as reported.........................       $ 0.02          $(0.06)            $ 0.02          $(0.09)
                                                               ======          ======             ======          ======
Basis and diluted - pro forma...........................       $ 0.01          $(0.08)            $(0.01)         $(0.13)
                                                               ======          ======             ======          ======
</TABLE>

                                       7
<PAGE>

9.  Related Party

         Robert  A.  Vukovich,  Ph.D.,  one of our  former  directors  is  Chief
Executive  Officer,   Chairman  of  the  Board  and  sole  owner  of  Wellspring
Pharmaceutical  Corporation  ("Wellspring").  During 2003,  we received an offer
from  Wellspring  to enter into an agreement  whereby  Wellspring  would provide
manufacturing  services for us. On January 28, 2004, we accepted the offer.  Our
audit  committee  completed a review of the terms of the  agreement,  determined
that the agreement is in our and our  shareholders  best  interests and approved
the  agreement.  Dr.  Vukovich  did not stand for  re-election  at the June 2004
Annual Meeting in light of this new agreement.  During the six-months ended June
30, 2004, we paid Wellspring  approximately  $400,000 for services and equipment
in connection with this agreement.



                                       8
<PAGE>


Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

         You should read the following  discussion in conjunction  with "Certain
Risks Related to Our Business" and our unaudited condensed financial  statements
included  elsewhere  in this report.  Some of the  statements  in the  following
discussion  are   forward-looking   statements.   See  "Special  Note  Regarding
Forward-Looking Statements."

General

         We  are  a  specialty  pharmaceutical  company  focused  on  acquiring,
developing and commercializing  pharmaceutical  products for use to diagnose and
treat gastrointestinal  disorders.  Our development strategy has been to acquire
late-stage drug candidates with short expected time lines to  commercialization.
We currently market and sell three pharmaceutical products, Visicol(R), VSL#3(R)
and  IB-Stat(R).   We  are  also  studying   Visicol(R)  for  the  treatment  of
constipation  and for  use  prior  to  certain  pre-operative  gastrointestinal,
gynecological and urological  surgical  procedures.  In addition to our marketed
products,  we are studying  INKP-102 as a new generation  purgative  product and
Colirest(TM)  for the  treatment of patients  with  Inflammatory  Bowel  Disease
(IBD).

         The following table outlines our current product pipeline,  on which we
have  focused the majority of our  research,  development,  marketing  and sales
efforts  since  inception.  The table  also sets forth the  current  development
status of our  products  and product  candidates  in each  targeted  therapeutic
indication:
<TABLE>
<CAPTION>
<S>                            <C>                                              <C>

           Product                     Therapeutic Indications                          Development Status
           -------                     -----------------------                          ------------------

 Visicol                       o    Colon cleansing prior to                    FDA approved; marketed product
                                    colonoscopy

                               o    Constipation                                Post-marketing study completed
                                                                                Phase IV completed

                               o    Pre-operative colonic surgical              Phase IV expected to commence
                                    procedures                                  during 2004

 INKP-102                      o    Colon cleansing prior to                    Phase II completed
(next generation purgative)         colonoscopy                                 Phase III expected to commence
                                                                                during 2004

IB-Stat                        o    Symptoms associated with Irritable          Marketed product
                                    Bowel Syndrome (IBS)
                               o    Reduction of bowel motility during
                                    certain diagnostic procedures

Colirest                       o    Crohn's  disease  and ulcerative            Phase II  Crohn's disease complete
                                    colitis, collectively IBD                   Phase II ulcerative colitis complete
                                                                                Phase IIb  Crohn's disease on-going

</TABLE>


         In September 2000, we received  notification that our flagship product,
Visicol, was approved for marketing as a preparation for colonoscopy.  Following
this notification,  we immediately  commenced marketing and sales efforts and in
January  2001,  we  began  shipping  Visicol  to  our  customers.  During  2001,
gastroenterologists  reported the  visualization of  microcrystalline  cellulose
(MCC) in some patients receiving Visicol tablets. MCC is a commonly used, inert,
but  highly  insoluble  substance  that  binds and fills  Visicol  tablets.  The
presence of MCC may lengthen the  colonoscopy  procedure and therefore  deterred
some  gastroenterologists  from prescribing  Visicol. As a result, 2001 revenues
were adversely affected.

         We  adopted  three   strategies   for   overcoming  the  issue  of  MCC
visualization during a colonoscopy. First, in October 2001, we conducted a Phase
IV clinical  study,  which showed that  Visicol's  efficacy at a reduced  dosing
regimen (20% and 30% less tablets and clear liquid volume) was comparable to the
labeled dose, with significantly  reduced MCC visualization.  Secondly, in March
2002, the FDA approved a supplemental  new drug  application  (SNDA),  for a new
formulation of Visicol  containing  approximately  50% less MCC. In May 2002, we
began shipping this new  formulation to customers,  and since that time, we have
become the fastest  growing  bowel  preparation  for use in patients  undergoing
colonoscopy.  Finally,  during 2003, we developed and filed a provisional patent
application  with the U.S.  Patent  and  Trademark  office for an  MCC-free  new
generation purgative tablet (INKP-102).

                                       9
<PAGE>

Special Note Regarding Forward-Looking Statements

This report contains  forward-looking  statements  within the meaning of Section
27A of the Securities Act,  Section 21E of the Securities  Exchange Act of 1934,
as amended and the  Private  Securities  Litigation  Reform Act of 1995 that are
subject to risks and uncertainties. You should not place undue reliance on those
statements  because  they are  subject to  numerous  uncertainties  and  factors
relating to our operations and business environment,  all of which are difficult
to predict and many of which are beyond our control.  Forward-looking statements
included in this report relate to our beliefs regarding litigation exposure, the
timing and types of clinical trials we will need to conduct for our products and
product candidates,  our expectation for gross profits for Visicol for 2004, the
adequacy of our financial  resources,  our capital  expenditures  for 2004,  our
product development expenses, our investment portfolio, market risk exposure and
other  statements  regarding  matters  that  are  not  historical  facts.  These
statements often include words such as "may," "believe," "expect," "anticipate,"
"intend," "plan," "estimate" or similar expressions.  These statements are based
on assumptions that we have made in light of our industry  experience as well as
our  perceptions  of historical  trends,  current  conditions,  expected  future
developments   and  other   factors  we  believe  are   appropriate   under  the
circumstances.  As you read and consider this report, you should understand that
these  statements are not  guarantees of  performance  or results.  They involve
risks,   uncertainties   and   assumptions.   Although  we  believe  that  these
forward-looking  statements are based on reasonable  assumptions,  you should be
aware that many factors could affect our actual financial  results or results of
operations and could cause actual results to differ materially from those in the
forward-looking statements. These factors include but are not limited to:
     o    our limited history of profitability;
     o    our dependence on Visicol;
     o    our ability to manage rapid growth;
     o    our limited sales and marketing experience;
     o    the high cost and uncertainties relating to clinical trials;
     o    market conditions and technological innovation;
     o    the  unpredictability  of the duration and results of clinical  trials
          and regulatory review;
     o    other risks and  uncertainties  discussed  under the caption  "Certain
          Risks Related to Our Business" and elsewhere in this report; and
     o    other risks and  uncertainties as may be detailed from time to time in
          our public announcements and SEC filings.

You should keep in mind that any  forward-looking  statement  made by us in this
report speak only as of the date of this  report.  Actual  results  could differ
materially from those currently  anticipated as a result of a number of factors,
including,  but not limited to, the risks and uncertainties  discussed under the
caption  "Certain Risks Related to Our  Business."  New risks and  uncertainties
come up from time to time,  and it is impossible  for us to predict these events
or how they may affect  us. We have no duty to, and do not intend to,  update or
revise the  forward-looking  statements  in this  report  after the date of this
report. In light of these risks and uncertainties,  you should keep in mind that
any forward-looking statement made in this report or elsewhere might not occur.

Certain Risks Related to Our Business

Risks related to our business
-----------------------------

We have  achieved  profitability  for three of  the last four quarters  and were
profitable  for the first half of 2004. If we do not maintain our  profitability
or if we incur losses in the future,  the price of our common stock is likely to
fall.

         Our first sale of Visicol  occurred in January 2001,  our first sale of
IB-Stat  occurred in June 2002,  and we entered into a promotion  agreement with
Sigma-Tau  Pharmaceuticals  in February 2004. We have a significant  accumulated
deficit and have incurred  losses and negative cash flow from operations in each
year since our inception on July 1, 1993. We achieved profitability and positive
cash flow from  operations  each of the quarters in the second half of 2003,  as
well as for the six-months ended June 30, 2004. Visicol,  INKP-102,  IB-Stat and
Colirest  are  in  various  stages  of  marketing  or  development  and  require
significant research,  development and testing.  Visicol provides  substantially
all of our revenues.  Our continued success and growth is primarily dependent on
the  performance  of Visicol.  If we are  unsuccessful  in  achieving  increased
revenues  through the sale of Visicol or through  the sale of newly  acquired or
developed  products  or if we  incur  material  costs  related  to  our  ongoing
litigation,  we will not be able to operate profitably in the future. Our common
stock is likely to decrease in value if we fail to achieve and maintain  profits
or if the market believes that we are unable to achieve and maintain profits.

                                       10
<PAGE>

Our success and revenue  currently  depend on Visicol;  if we do not continue to
successfully  market Visicol,  our revenue might not grow, which could cause our
stock price to decline.

         We market sodium phosphate tablets in the United States under the brand
name  Visicol,  and if  approved by the FDA,  we intend to market  INKP-102  and
co-market  Colirest in the United  States.  Our prospects over the next three to
five years are substantially  dependent on the successful  commercialization  of
our  products  and  product  candidates.   We  expect  to  engage  in  expensive
advertising, educational programs and other means to market our future products.
The degree of market  acceptance  of our products  among  physicians,  patients,
healthcare payors and the medical community will depend upon a number of factors
including:

     o    demonstration of their clinical efficacy and safety;

     o    successful introduction for new indications;

     o    their cost effectiveness;

     o    their potential advantages over alternative treatment methods;

     o    the marketing and distribution support they receive; and

     o    reimbursement policies of government and third-party payors.

         Virtually all of our revenue to date has come from Visicol. Our ability
to  increase  revenue  in the  future  will  depend  in part on our  success  in
in-licensing  or  acquiring  additional  pharmaceutical  products.  We currently
intend to in-license or acquire pharmaceutical products that have been developed
beyond the initial  discovery phase and for which late-stage human clinical data
is already available or that have already received  regulatory  approval.  These
kinds of  pharmaceutical  products  might not be available  to us on  attractive
terms or at all.  To the extent we acquire  rights to  additional  products,  we
might incur  significant  additional  expense in connection with the development
and, if approved by the FDA, marketing of these products.

Failure  to manage  our growth  could  increase  our  expenses  faster  than our
revenue.

         We have experienced  significant  growth in the number of our employees
and the scope of our operations. In support of the May 2002 re-launch of Visicol
in the United  States,  we have grown from 13 employees on May 31, 2002 to 64 on
June 30, 2004. This growth has placed a significant strain on our management and
operations.  Our continued  growth might place further strains on our management
and operations.  Our ability to manage growth  effectively  will depend upon our
ability to broaden our  management  team and our  ability to  attract,  hire and
retain  skilled  employees.  Our success  will also depend on the ability of our
officers and key employees to continue to implement and improve our operational,
management  information and financial  control systems and to expand,  train and
manage our employee base.

If we make any  acquisitions,  we will incur a variety of costs and might  never
successfully integrate the acquired product or business into ours.

         We might attempt to acquire  products or businesses that we believe are
a strategic  complement  to our business  model.  We might  encounter  operating
difficulties  and  expenditures  relating to integrating an acquired  product or
business. These acquisitions might require significant management attention that
would  otherwise  be  available  for ongoing  development  of our  business.  In
addition, we might never realize the anticipated benefits of any acquisition. We
might  also  make  dilutive  issuances  of  equity  securities,  incur  debt  or
experience a decrease in cash available for our operations,  or incur contingent
liabilities  and/or  amortization   expenses  relating  to  goodwill  and  other
intangible assets, in connection with future acquisitions.

If  third-party  payors do not provide  coverage or  reimburse  patients for our
products, then some patients may be unable or unwilling to purchase our products
and we will achieve less revenue from product sales.

                                       11
<PAGE>
         Successful  sales  of our  products  in the  United  States  and  other
countries  depend  on  the  availability  of  adequate  reimbursement  from  the
government,   managed   care   organizations   and  private   insurance   plans.
Pharmaceutical  companies often rely on reimbursement  from third parties as the
basis for the sales of their products.  In the pharmaceutical  industry,  unlike
other consumer product industries,  insurance companies,  including managed care
organizations,  often pay drug stores  directly  for part of the cost of covered
pharmaceutical  products. In fact, the majority of prescription drugs prescribed
to patients are ultimately  paid for at the retail level by these  organizations
and not by the patient. These organizations provide for reimbursement only after
considering  a number of factors,  including  product  features  such as safety,
medical necessity,  cost and the experimental  nature of the product. We plan to
spend  significant  amounts of time and other resources to obtain  reimbursement
for our products.  The organizations that provide reimbursement  routinely limit
reimbursement and attempt to exert significant  pressure on medical suppliers to
provide  rebates  to help  offset the cost of covered  medication.  Visicol  and
IB-Stat  are  premium  priced  compared  to  their  competitors  and we have not
specifically  contracted  with any third party to date to give rebates for their
use. We do not know what impact,  if any at all,  this will have on the coverage
of Visicol  or IB-Stat by these  third  party  payors,  particularly  if Visicol
continues to gain market share, thus increasing the cost to third party payors.

If we do not have adequate  insurance for product liability claims,  then we may
be subject to significant expenses relating to these claims.

         We are subject to significant  product  liability risks relating to the
sale,  manufacturing  and further  testing of the products on the market and the
ones we are developing. These risks include:

     o    our products could cause undesirable side effects or injury;

     o    our product  candidates could cause undesirable side effects or injury
          during clinical trials; and

     o    we may agree to reimburse others that incur liability  relating to our
          products and product candidates.

         We currently  maintain  insurance for product  liability  claims in the
amount of $10,000,000 per occurrence and  $10,000,000 in the aggregate.  We have
no way of  knowing  if these  amounts  will be  adequate  to cover  any  product
liability  claims  filed  against us. If we do not or cannot  maintain  adequate
insurance coverage,  we may incur a significant liability if a product liability
claim arises.  Moreover,  actual or alleged undesirable side effects or injuries
related  to  our  products  or  product   candidates   may  interfere  with  the
commercialization of our products and the development of our product candidates.

If we do not develop and maintain relationships with manufacturers,  then we may
not successfully manufacture and sell our products.

         We  do  not  possess  the  capabilities,  resources  or  facilities  to
manufacture Visicol, IB-Stat and any of our product candidates. We must contract
with  manufacturers  to produce  Visicol,  IB-Stat  and our  product  candidates
according to government regulations.  The future development and delivery of our
marketed products and our product candidates  depends on the timely,  profitable
and  competitive  performance of these  manufacturers.  There are only a limited
number of manufacturers  capable of manufacturing  our marketed products and our
product candidates.  We may fail to contract with the necessary manufacturers or
we may contract with manufacturers on terms that may not be entirely  acceptable
to us. Our  manufacturers  must  obtain  FDA  approval  for their  manufacturing
processes, and we have no control over this approval process.

         We have  contracted  with  Mallinckrodt,  Inc. to supply us with active
pharmaceutical  ingredients  for Visicol.  A significant  portion of the Visicol
tablet is monobasic and dibasic  sodium  phosphate.  Mallinckrodt  has agreed to
supply these  ingredients in a manner that meets FDA  requirements.  The FDA has
approved the manufacturing  process for these active  ingredients,  but the Drug
Master File for the sodium  phosphate is only for one location at  Mallinckrodt.
If this  location  were to shut down for any reason,  a delay in the delivery of
our active pharmaceutical  ingredients would occur and could impact future sales
of Visicol.  We are currently working towards submitting a Drug Master File with
the FDA for another  Mallinckrodt  facility in order to minimize this risk,  but
there can be no assurance that this Drug Master File will be approved.

         We have contracted with Pharmaceutical Manufacturing Research Services,
Inc.  (PMRS),  a  manufacturing   development   company,  to  supply  commercial
quantities of Visicol in a manner that meets FDA requirements. Our contract with

                                       12
<PAGE>

PMRS will expire at the end of 2004,  subject to renewal for successive one year
periods   unless   terminated  by  either  party.   The  FDA  has  approved  the
manufacturing processes of PMRS. Any failure by PMRS to maintain compliance with
FDA  standards  could  result  in  its  loss  of  "approved  status"  and  could
significantly  harm our  business  because we do not have an approved  secondary
manufacturer for Visicol. We are currently working with an appropriate secondary
manufacturer of Visicol to obtain FDA approval.

         We have contracted with Cardinal Health  Packaging  Services to package
Visicol  in a manner  that meets FDA  requirements.  The FDA has  approved  this
facility  for the  packaging  of  Visicol.  In the event  that  Cardinal  Health
Packaging  Services  is  unable  to  package  Visicol  for us,  the FDA has also
approved Fisher Clinical Services, Inc. for packaging of Visicol.

If the  owners  of  technology  licensed  to us  terminate  any  of our  license
agreements,  these owners could  prevent us from  developing,  manufacturing  or
selling the product covered by this license.

         We have  acquired  the  worldwide  exclusive  right to market  Visicol,
INKP-102 and Colirest under various  license  agreements.  Each of the owners of
the technology  licensed to us may terminate the license prior to its expiration
date  under  certain  circumstances,   including  our  failure  to  comply  with
commitments  related  to  the  development  of  the  products  specified  in the
licenses.  For example,  one of our  licensing  agreements  requires us to spend
specific  amounts for research  and  development  of our  product.  If we do not
comply with the terms of this  agreement,  the owner of the licensed  technology
could demand the return of all rights to the licensed  technology,  and force us
to cease  developing,  manufacturing  or  selling  the  product  covered by that
license.

If we cannot develop and market our products as rapidly or  cost-effectively  as
our competitors, then we will not be able to achieve and maintain our operations
at a profit.

         We have  products  and product  candidates  that  compete in three very
competitive segments of the pharmaceutical  industry. These products and product
candidates include: (i) purgative and laxative agents for cleansing the colon or
relieving   constipation,    which   includes   Visicol   and   INKP-102;   (ii)
antispasmodics,  which includes IB-Stat;  and (iii) products that treat patients
with IBD,  which  includes  our  product  candidate  Colirest.  We are likely to
encounter significant competition with respect to Visicol, INKP-102, IB-Stat and
Colirest,  including,  but not  limited  to,  competition  from:  (a)  Braintree
Laboratories,  Inc., Schwarz Pharma Inc., C.B. Fleet Company,  Inc. and Novartis
Pharmaceuticals  Corporation  with respect to Visicol and INKP-102;  (b) Schwarz
Pharma  Inc.,  Eli Lily and  Company and Bedford  Laboratories  with  respect to
IB-Stat;  and (c) AstraZeneca plc, Salix  Pharmaceuticals,  IDEC Pharmaceuticals
Corporation,  Procter & Gamble  Pharmaceuticals,  Solvay  S.A.,  Centocor,  Inc.
(Johnson  &  Johnson)  and  Shire  Pharmaceuticals  Group  plc with  respect  to
Colirest.

         The financial strength of competitors is particularly  important in the
pharmaceutical  industry,  where technological  innovations occur rapidly. These
technological innovations can dramatically affect the price and effectiveness of
a product line and can render a competing product line obsolete. Our competitors
that have strong financial resources may develop  competitive  products that are
less expensive and more effective than our products.  These competitive products
may render our products unmarketable or non-competitive. Even if our competitors
do not develop better and more cost effective products, they may manufacture and
market their products more successfully than us. Therefore,  our competitors may
capture all or a large segment of our target market,  severely  restricting  our
ability to maintain a profitable level of product sales.

If we are unable to protect  our  intellectual  property,  our  competitors  may
develop similar products that could render our products obsolete.

         Our success depends,  in part, on our ability to develop and maintain a
strong  patent  position for our products  and  technologies  both in the United
States  and other  countries.  As with  most  biotechnology  and  pharmaceutical
companies,  our patent position is highly  uncertain and involves  complex legal
and  factual  questions.   Without  patent  and  other   intellectual   property

                                       13
<PAGE>

protections,  other companies could offer  substantially  identical products for
sale without  incurring the sizeable  development and testing costs that we have
incurred. Our ability to recoup these expenditures and realize profits upon sale
of our products could be diminished.

         In 1997, the U.S. Patent and Trademark  Office issued a patent covering
the use of Visicol for inducing purgation of the colon. Patents claiming the use
of Visicol  to induce  purgation  of the colon  have been  granted in Europe and
Canada.  In December 2000, the U.S.  Patent and Trademark  Office issued to us a
patent for numerous  solid-dose  colonic  purgative agents. A similar patent has
also been granted in Canada.

         In 2003,  we filed a  provisional  U.S.  patent  application  for a new
generation of purgative  products.  The invention  covers several highly soluble
colonic purgative  formulations in solid dosage forms that can be used to soften
stool, promote laxation and/or induce complete purgation.  There is no assurance
that this provisional patent will be issued.

         IB-Stat is the combination of a marketed drug (hyoscyamine sulfate) and
a widely used delivery system. IB-Stat is therefore not patentable.

         In 2003, the U.S. Patent and Trademark  Office issued a patent covering
the treatment of inflammatory bowel conditions, including ulcerative colitis and
Crohn's disease with Colirest.

         We have several  pending  foreign  patent  applications,  and intend to
apply for additional  foreign  patents.  Competitors  could challenge or develop
around the  patents,  or the scope of the patents may not be adequate to protect
the patented product from  competitors.  The commercial  success of our products
will also depend upon our ability to ensure that our products do not infringe on
patents issued to competitors.

         Our  employees and  scientific  consultants  may develop  inventions or
processes independently that may be related to our products.  These employees or
consultants  could claim ownership of these  inventions or processes,  and these
claims could succeed. We may need to enter into protracted and costly litigation
to enforce or determine the scope of our proprietary rights.

         Certain  academic  institutions  have funded the development of some of
our  patented  technologies.  Although we have  acquired  the rights to use this
technology,  these agencies or institutions may have rights to the technology or
inventions,  including  rights to the  royalty-free  use,  but not sale,  of the
invention or technology for their own purposes.

Claims by others that we infringe their intellectual property could be costly to
us.

         Our patent and other  proprietary  rights related to our products might
conflict with the current or future  intellectual  property rights of others. We
have not  conducted a search to  determine  if there are any other  patents that
could cover Visicol,  INKP-102 and Colirest.  Litigation or patent  interference
proceedings,  either of which could result in  substantial  cost to us, might be
necessary  to  defend  any  patents  to  which  we have  rights  and  our  other
proprietary  rights or to  determine  the scope and  validity of other  parties'
proprietary  rights.  The defense of patent and intellectual  property claims is
both  costly and  time-consuming,  even if the outcome is  favorable  to us. Any
adverse  outcome could subject us to  significant  liabilities to third parties,
require disputed rights to be licensed from third parties or require us to cease
selling our product. We might not be able to obtain a license to any third-party
technology  that we require to conduct our  business,  or, if  obtainable,  that
technology might not be available at a reasonable cost.


Our actual financial results might vary from what we anticipate.

         Our actual  financial  results might vary from what we anticipate,  and
these  variations  could be material.  Our annual and quarterly  reports contain
various forecasts.  These forecasts reflect numerous assumptions  concerning our
anticipated  future  performance  and with respect to the prevailing  market and
economic  conditions that are beyond our control and which might not turn out to
have been  correct.  Although we believe  that the  assumptions  underlying  the
projections are reasonable,  actual results could be materially  different.  Our
                                       14
<PAGE>
revenues and expenses are subject to numerous risks and uncertainties. Financial
results that are weaker than  expectations  may cause a  significant  and sudden
decline in our stock price.

Risks related to regulatory matters
-----------------------------------

Regulatory approval of our products is time-consuming,  expensive and uncertain,
and could result in unexpectedly high expenses and delay our ability to sell our
products.

         Development, manufacturing and marketing of our products are subject to
extensive regulation by governmental  authorities in the United States and other
countries.  This  regulation  could require us to incur  significant  unexpected
expenses  or delay or limit  our  ability  to sell our  products.  Our  clinical
studies of Visicol  for  constipation,  INKP-102  for colon  cleansing  prior to
colonoscopy,  Colirest  for the  treatment  IBD or any  other  product  might be
delayed or halted for various reasons, including:

     o    the drug is not effective;

     o    patients experience severe side effects during treatment;

     o    patients do not enroll in the studies at the rate we expect;

     o    drug supplies are not sufficient to treat the patients in the studies;

     o    we decide to modify the drug during testing; or

     o    we do not have adequate funds to continue the testing.

         If the FDA approves new indications  for Visicol,  its approval will be
limited to those indications for which the product has been shown to be safe and
effective,  as demonstrated to the FDA's satisfaction  through clinical studies.
Approval might entail ongoing requirements for post-marketing  studies.  Even if
we obtain regulatory approval,  labeling and promotional  activities are subject
to  continual  scrutiny by the FDA and state  regulatory  agencies  and, in some
circumstances,  the Federal Trade Commission.  FDA enforcement  policy prohibits
the marketing of approved products for unapproved, or off-label, uses. Marketing
an approved product for a new use requires a separate approval by the FDA. These
regulations  and the FDA's  interpretation  of them might  impair our ability to
effectively market our products.

         If we do not maintain required  approvals from the government,  then we
may not successfully manufacture, market or sell our marketed products.

FDA manufacturing approval

         The  FDA  requires   pharmaceutical   companies  to  include   detailed
manufacturing  information in a New Drug Application (NDA). The FDA has mandated
that all manufacturing  facilities and processes comply with good  manufacturing
practices,  commonly known as GMP's. GMP's are a body of federal regulations and
guidelines that govern the manufacture of drugs for human use. For example,  all
manufacturers must pass  manufacturing  plant inspections and provide records of
detailed  manufacturing  processes.  Among other things, drug manufacturers must
demonstrate that:

     o    the drug product can be consistently  manufactured at the same quality
          standard;

     o    the drug product is stable over time; and

     o    the  level  of  chemical  impurities  in the drug  product  is under a
          designated level.

         The FDA has  inspected  the  manufacturing  facilities  for Visicol and
IB-Stat.  The FDA may  still,  however,  prevent  us from  continuing  to market
Visicol or IB-Stat if we:

     o    do not continue to  consistently  manufacture  appropriate  amounts of
          Visicol and IB-Stat; or

     o    cannot   continue  to  repeat  the   manufacturing   process  used  to
          manufacture the validation batches of Visicol.

                                       15
<PAGE>

         We  currently  have only one approved  manufacturer  of Visicol and one
manufacturer for IB-Stat.  We have,  however,  initiated the process to obtain a
qualified secondary manufacturer of Visicol.

FDA oversight after product approval

         After the FDA  approves a product,  the FDA  continues  to regulate the
product.  In  particular,   the  FDA  may  require  post-marketing  testing  and
surveillance to monitor the effects of our marketed products or may require drug
label changes, which could hinder the marketability of our marketed products. In
addition,  the FDA may place  conditions  on our  marketed  products  that could
restrict the sale or use of our products.

         Both  Visicol  and  IB-Stat  are  products  used in highly  competitive
diagnostic and disease indications where substitution of competitive products is
common.  Although  both  products  have a good safety  profile and history,  any
negative change in our safety  labeling could  adversely  affect the sale of our
products.

The FDA could prevent us from marketing IB-Stat.

         IB-Stat is the combination of a marketed drug (hyoscyamine sulfate) and
a widely used delivery system.  Hyoscyamine sulfate was a marketed product prior
to 1962. Although we have not obtained FDA approval for IB-Stat,  the FDA allows
products that were marketed prior to 1962 to continue to be marketed  without an
approved  NDA.  There  is no  guarantee  that  the FDA  will  continue  to allow
hyoscyamine  sulfate or many other pre-1962  marketed products to continue to be
marketed.  In addition,  the FDA could  determine  that  hyoscyamine  sulfate is
unsafe or that  additional  data  needs to be  submitted  to the FDA in order to
determine  the drug's  safety and efficacy.  The FDA could also  determine  that
IB-Stat is not similar enough to the pre-1962 marketed  hyoscyamine sulfate, and
as a result cannot be marketed without an FDA approved NDA.

If we do not obtain  required  approvals  from the  government,  then we may not
successfully market or sell our product candidates.

         The FDA requires multiple stages of tests, known as Phase I, II and III
clinical trials,  on most  pharmaceutical  products.  In addition,  the FDA must
confirm that drug manufacturers comply with applicable federal regulations.  The
process to obtain  government  approvals of a pharmaceutical  product takes many
years and requires substantial resources.

         The FDA may  delay  or halt the  clinical  development  of our  product
candidates at any stage, or may deny us approval to market a product. If the FDA
takes any of these adverse  actions,  we may delay or stop the  development of a
product or may be unable to sell the  product.  We do not believe we are subject
to risks  that are  materially  different  than other  pharmaceutical  companies
seeking  FDA  approval.  The process of  obtaining  FDA  approval is  expensive,
time-consuming  and often  filled with  unexpected  hurdles.  Even if we receive
approval of a product  candidate,  the FDA may limit and restrict the drug's use
and may subject our products to continuous review. If we fail to comply with any
applicable  regulatory  requirement,  the  FDA  could  impose  penalties  on us,
including:

     o    warning letters;

     o    fines;

     o    withdrawal of regulatory approval;

     o    product recalls and suspensions;

     o    operating restrictions;

     o    injunctions; and

     o    civil penalties and criminal prosecution.

         Certain of the  foregoing  penalties  could have an immediate  negative
financial impact on our business,  harm our reputation,  have a material adverse
effect on our business operations and reduce our future sales and profits.

         We are developing  INKP-102 as a compound for colon  cleansing prior to
colonoscopy.  We have completed our Phase II study. We have reached an agreement
with the FDA on the  design of our Phase III  study.  If results of the Phase II

                                       16
<PAGE>

study are  supportive,  then only one Phase III study would be required  for the
approval of INKP-102. We may never receive FDA approval for INKP-102 and without
FDA approval, we cannot market or sell INKP-102.

         We are developing  Colirest as a compound for the treatment of IBD. IBD
is an autoimmune  disease that causes  inflammation and ulceration of the bowel.
IBD includes both Crohn's disease and ulcerative  colitis. In September 2000, we
announced  positive  results  of our Phase II study on  Crohn's  disease  and in
December 2000, we announced positive results of our Phase II study in ulcerative
colitis.  We have  reached  an  agreement  with the FDA for the  advancement  of
Colirest to a pivotal Phase IIb dose ranging study for Crohn's  disease.  We are
currently  enrolling  patients in this study.  We may never receive FDA approval
for Colirest and without FDA approval, we cannot market or sell Colirest.

Risks related to our common stock outstanding
---------------------------------------------

If the  holders  of our  outstanding  options  and  warrants  exercise  them and
subsequently sell the common stock they receive upon exercise,  the market price
of our common stock may drop.

         At June 30, 2004, we had  approximately  8,755,000 options and warrants
outstanding.  Options and warrants give the holder the right to purchase  shares
of our common stock in the future for a predetermined price which may or may not
be below the current  market value of our common stock at the time the option or
warrant is  exercised.  In addition,  as of June 30, 2004,  we had an additional
2,686,000 options available for issuance to employees and consultants,  pursuant
to our  option  plans.  To date,  option  and  warrant  holders  have  exercised
approximately 10,501,000 options and warrants in the aggregate at prices ranging
from $.50 to $5.56. The exercise of these  outstanding  warrants and options and
the sale of the  related  shares may cause our common  stock  price to drop.  In
addition,  the exercising of these options and warrants will increase the number
of shares outstanding and cause dilution to existing shareholders.

If our common stock continues to be volatile and thinly traded, our shareholders
may not be able to sell their shares when desired.

         The  market  price  of  our  common  stock,  similar  to  other  public
pharmaceutical  or  biotechnology  companies,  has been  volatile and may remain
volatile for the foreseeable  future.  Our  shareholders may not be able to sell
their shares when they desire because the stock price is highly volatile and the
stock is not widely traded. For example,  as of June 30, 2004, the number of our
shares  theoretically  available  for  sale in any  one  day  was  approximately
48,713,000  shares and our average  daily  trading  volume for the  twelve-month
period  ended  June 30,  2004 was  approximately  462,000  shares.  If our stock
continues to trade thinly, our shareholders may not be able to sell their shares
when desired.

If the purported  class action  lawsuit for  violation of  preemptive  rights is
settled or reaches a judgment for damages, and our claims against  third-parties
or to our insurance  carriers for reimbursement are unsuccessful or insufficient
to cover the amount of any settlement payment or judgment for damages,  then the
market price of our common stock may drop.

         On March 15, 2004, we withdrew a public  offering of six million shares
of our common stock. The decision to withdraw the offering was made when it came
to our  attention  that our  certificate  of  incorporation  did not contain any
provision  exempting us from  providing  preemptive  rights in  connection  with
certain  securities  offerings.  On March 19,  2004,  a purported  class  action
lawsuit was filed in the Court of Common Pleas,  Philadelphia  County, on behalf
of a putative class of holders of InKine equity shares who have purportedly been
denied certain claimed  preemptive rights during the last six years. The lawsuit
names us as the defendant and seeks  unspecified  compensatory  damages.  In our
statement of  operations,  we have included the $341,000 in expenses  related to
the withdrawn  offering and $388,000 in legal costs related to preemptive rights
and the lawsuit offset by a $500,000 payment from a third-party as reimbursement
for these costs in the line item "Withdrawn  public offering and litigation." Of
the legal costs  related to  preemptive  rights and the  lawsuit,  $188,000  was


                                       17
<PAGE>

reimbursed as part of the $500,000 payment from the  third-party.  An additional
$200,000  was  expensed  for  unreimbursed  legal  costs  up  to  our  insurance
deductible.  We believe  that we will  continue to be entitled to  reimbursement
from  third-parties  for  any  costs,   expenses  and  liabilities  incurred  in
connection with the purported class action lawsuit. However, no assurance can be
given that we will obtain such  additional  reimbursement  or that any liability
from the lawsuit will not be material.

Critical Accounting Policies and Practices

         In "Cautionary Advice Regarding  Disclosures about Critical  Accounting
Policies" (SEC Release No.33-8040, December 12, 2001), the SEC advised companies
to provide more information about a company's most critical accounting policies,
i.e., the specific  accounting policies that have the most impact on a company's
results and require  the most  difficult,  subjective  or complex  judgments  by
management.  We have  identified  the  following  accounting  policies  that may
constitute  "critical  accounting  policies," under the guidance provided by the
release:

     o    Revenue recognition. Revenue from sales of Visicol is recognized when,
          pursuant to Staff Accounting Bulletin No. 104, "Revenue  Recognition,"
          all four of the  following  criteria are met:  (i) we have  persuasive
          evidence  that an  arrangement  exists,  (ii) the  price is fixed  and
          determinable, (iii) title has passed and (iv) collection is reasonably
          assured.  Product demand from our customers  during a given period may
          not correlate with prescription demand for the product in that period.
          As a result,  we  periodically  evaluate  inventory  positions  in the
          distribution channel. If we believe these levels are too high based on
          prescription demand, we may not accept purchase orders from or may not
          ship  additional  product  to our  customers  until  these  levels are
          reduced.   Provisions   for  sales   discounts,   and   estimates  for
          chargebacks,   rebates  and  product  returns  are  established  as  a
          reduction  of product  sales  revenues at the time such  revenues  are
          recognized. We establish these revenue reductions as our best estimate
          at the  time of sale  based  on  historical  experience,  adjusted  to
          reflect  known changes in the factors that impact such  reserves.  For
          IB-Stat,  we recognize  revenue  based on  prescription  data,  net of
          estimated cash discounts.  This practice will continue until such time
          data becomes  available  that  indicates that the product has achieved
          adequate   market   acceptance  and  future  product  returns  can  be
          reasonably estimated.

     o    Stock-based  compensation.  It is our policy, which is consistent with
          most public company  policies,  to apply  Accounting  Principles Board
          Opinion No. 25, "Accounting for Stock Issued to Employees," to account
          for  our  stock  option  plans  rather  than  Statement  of  Financial
          Accounting Standards No. 148, "Accounting for Stock-Based Compensation
          -  Transition  and  Disclosure."  Had we applied SFAS No. 148, our net
          income for the three and  six-month  periods ended June 30, 2004 would
          have been less and our net loss for the  three and  six-month  periods
          ended June 30, 2003 would have been greater.

     o    Product returns.  It is our policy to estimate and record an allowance
          for future product returns in connection with our sales of Visicol. We
          have applied a return rate to our unit sales to provide this allowance
          under our product return policy.  This return rate is calculated based
          on  actual  return  experience  and  our  monitoring  of  distribution
          channels  taking into account the  expiration  dating of Visicol.  The
          product  return  rate  is  periodically   updated  to  reflect  actual
          experience  and  changes to other  factors  affecting  future  product
          returns.

     o    Deferred taxes. In assessing the realizability of deferred tax assets,
          we consider  whether it is more  likely than not that some  portion or
          all of the  deferred  tax assets will not be  realized.  The  ultimate
          realization   of  the  deferred  tax  assets  is  dependent  upon  the
          generation of future  taxable  income during the period in which those
          temporary  differences  become  deductible.  We consider the scheduled
          reversal of deferred tax liabilities,  projected future taxable income
          and  projections  for future  taxable income over the periods in which
          the  deferred  tax asset items are  deductible.  The Tax Reform Act of
          1986 contains  provisions  that may limit the net operating loss (NOL)
          and research and experimentation credit carryforwards  available to be
          used  in any  given  year  upon  the  occurrence  of  certain  events,
          including  significant  changes in ownership  interest.  Generally,  a
          change  in  ownership  of a  company  of  greater  than  50%  within a
          three-year  period  results in an annual  limitation on that company's
          ability to utilize its NOL  carryforwards and tax credits from the tax
          periods prior to the  ownership  change.  The rules  providing for the
          definition  of an  ownership  change are complex and we must perform a
          study to  determine  if we have  undergone a change in  ownership.  We

                                       18
<PAGE>

          believe that we have undergone an ownership  change and are subject to
          an annual limitation on the use of our NOL  carryforwards  pursuant to
          these  provisions.  At June 30, 2004,  we have  concluded  that a full
          valuation allowance is necessary for deferred tax assets given that we
          have only been profitable for three of the last four quarters.

     o    Contingencies. During the three and six-months ended June 30, 2004, we
          have  incurred  costs  and  received   reimbursement  related  to  our
          withdrawn  public  offering and our ongoing  litigation (See Note 7 of
          accompanying financial  statements).  We believe that we will continue
          to be  entitled to  reimbursement  from  third-parties  for any costs,
          expenses and  liabilities  incurred in  connection  with the withdrawn
          public offering and our ongoing litigation.  We recognize  liabilities
          for loss  contingencies  in  accordance  with  Statement  on Financial
          Accounting  Standards  No. 5,  "Accounting  for  Contingencies."  This
          statement  requires accrual by a charge to income (and disclosure) for
          an estimated  loss from a loss  contingency if two conditions are met:
          (a)   information   available  prior  to  issuance  of  the  financial
          statements  indicates  that it is  probable  that an  asset  had  been
          impaired or a liability had been incurred at the date of the financial
          statements,  and (b) the amount of loss can be  reasonably  estimated.
          Gain  contingencies  (third-party  reimbursement)  are recognized when
          realized in  accordance  with  Accounting  Research  Bulletin  No. 50,
          "Contingencies."

Results of Operations

         We generated net income of $1,079,000 or $0.02 per share and $1,001,000
or $0.02 per share for the three and  six-month  periods  ended  June 30,  2004,
compared  to losses of  ($2,374,000)  or ($0.06) per share and  ($3,305,000)  or
($0.09) per share for the same periods a year ago.

         Product  revenue  was  $4,891,000  and  $9,241,000  for the  three  and
six-month periods ended June 30, 2004, compared to $3,339,000 and $5,875,000 for
the three and six-month periods ended June 30, 2003. Our retail distribution and
prescription  levels  continue to increase,  resulting in increased  orders from
wholesalers  and large  retail  chains.  We believe the  increased  prescription
levels have been driven by increased market awareness and acceptance of Visicol.
Approximately 118,000 prescriptions were filled for Visicol(R) during the second
quarter of 2004, compared to approximately  105,000,  99,000, 96,000, and 89,000
during the four  preceding  quarters.  In addition to our  product  revenue,  we
realized  $375,000 and $658,000 in other  revenue,  for the three and  six-month
periods  ended June 30, 2004,  which was mostly  attributable  to our  promotion
agreement with Sigma-Tau Pharmaceuticals.

         Our  gross  profit  was  $4,614,000  and  $8,756,000  for the three and
six-month  periods ended June 30, 2004 compared to $2,916,000 and $5,063,000 for
the same period a year ago.  Gross profit as a  percentage  of sales for product
revenue was 87% and 88% for the three and six-month periods ended June 30, 2004,
compared  to 86% and 85% for the same  periods  a year ago.  Increases  in gross
profit  and gross  profit as a percent  of sales for  product  revenue  were the
result of  increased  order  volume,  driven by increased  prescription  levels,
increased  sales  price  per  unit,  decreased  manufacturing  cost per unit and
decreased  distribution  costs for Visicol(R).  We expect that gross profit as a
percent of product revenue will be approximately 85% to 86% for the 2004 year.

         We  incurred  research  and  development  expenses  of  $1,036,000  and
$1,958,000 for the three and six-month periods ended June 30, 2004,  compared to
$448,000  and  $789,000  for the same period a year ago.  The  increase  was the
result of higher  development  costs associated with the MCC-free new generation
purgative  tablet  (INKP-102),  along with  higher  personnel  costs  related to
managing an increased scale of development activity.

         Sales and marketing  costs of $2,160,000 and  $4,109,000  were incurred
for the three and six-month periods ended June 30, 2004,  compared to $1,475,000
and  $2,895,000  for the same period a year ago. The increases  were a result of
continued  growth in the size of our internal sales force,  along with increased
marketing  campaigns related to Visicol. As of June 30, 2004, our internal sales
force  covered  45  territories  with four  district  managers,  compared  to 36
territories and three district managers as of June 30, 2003.

         General and  administrative  expenses were $692,000 and  $1,477,000 for
the three and  six-month  periods  ended June 30, 2004  compared to $735,000 and
$1,248,000 for the same period a year ago. The increase for the six-month period
is the result of higher  personnel,  patent and insurance  costs,  along with an
increase in legal and accounting fees associated with Sarbanes-Oxley compliance.

                                       19
<PAGE>

         On March 15, 2004, we withdrew a public  offering of six million shares
of our common stock. The decision to withdraw the offering was made when it came
to our  attention  that our  certificate  of  incorporation  did not contain any
provision  exempting us from  providing  preemptive  rights in  connection  with
certain  securities  offerings.  On March 19,  2004,  a purported  class  action
lawsuit was filed in the Court of Common Pleas,  Philadelphia  County, on behalf
of a putative class of holders of InKine equity shares who have purportedly been
denied certain claimed  preemptive rights during the last six years. The lawsuit
names us as the defendant and seeks  unspecified  compensatory  damages.  In our
statement of  operations,  we have included the $341,000 in expenses  related to
the withdrawn  offering and $388,000 in legal costs related to preemptive rights
and the lawsuit offset by a $500,000 payment from a third-party as reimbursement
for these costs in the line item "Withdrawn  public offering and litigation." Of
the legal costs  related to  preemptive  rights and the  lawsuit,  $188,000  was
reimbursed as part of the $500,000 payment from the  third-party.  An additional
$200,000  was  expensed  for  unreimbursed  legal  costs  up  to  our  insurance
deductible.  We believe  that we will  continue to be entitled to  reimbursement
from  third-parties  for  any  costs,   expenses  and  liabilities  incurred  in
connection with the purported class action lawsuit. However, no assurance can be
given that we will obtain such  additional  reimbursement  or that any liability
from the lawsuit will not be material.

         Interest  and other  expense was  minimal for the three and  six-months
ended June 30, 2004 due to the June 2003  conversion of our long-term  debt into
shares of our common stock. Interest and other expense was $293,000 and $644,000
for the three and six-months ended June 30, 2003.

         During the three and six-month periods ended June 30, 2003, we incurred
non-cash  charges of $2,355,000  and  $2,822,000,  respectively,  related to our
previously outstanding June 2005 convertible notes.

Liquidity and Capital Resources

         At June 30, 2004, we had cash and cash  equivalents of $11,154,000.  At
June 30, 2004, we had no balance outstanding on our line of credit.

         We believe that our financial resources are adequate for our operations
for at least the next 12 months and, if we meet our sales objectives,  we do not
anticipate requiring additional capital to fund our operations.  However, in the
future we may seek  additional  capital to fund the possible  acquisition or the
in-licensing  of additional  products;  the possible  acquisition  of businesses
related to  gastrointestinal  pharmaceuticals;  the marketing and, if necessary,
continued    development   of   acquired    products;    the   development   and
commercialization  of new  indications  for Visicol;  research  and  development
related to enhancements of existing  products;  and general corporate  purposes,
including working capital.

         Our future  short and  long-term  capital  requirements  will depend on
numerous factors, including continued marketplace acceptance of our products. To
achieve operating profits,  we, alone or with others,  must successfully  market
and sell our products.  In addition to continued  marketplace  acceptance of our
products,  other factors which cannot be quantified  and many of which we cannot
control  will  also  impact  our  short  and  long-term  capital   requirements,
including:  continued  commercial  costs of Visicol,  continued  progress in our
research and  development  activities,  progress with  pre-clinical  studies and
clinical trials,  defending  shareholder claims related to alleged violations of
preemptive  rights,  prosecuting and enforcing patent claims,  technological and
market developments,  the ability to establish product development arrangements,
the  cost of  manufacturing  development,  effective  marketing  activities  and
arrangements, and licensing or acquisition activity.

         We are currently  developing a new generation  purgative (INKP-102) for
cleansing  the  colon  prior to  colonoscopy,  conducting  a  clinical  trial of
Colirest for the  treatment of Crohn's  disease,  continuing to study the use of
Visicol  for  constipation,  commencing  a  study  for  the  use of  Visicol  in
pre-operative  colonic  surgical  procedures,  and continuing to market and sell
Visicol and IB-Stat to  distributors  and drug store  chains.  During  2004,  we
expect to spend up to  $1,600,000 on INKP-102,  $100,000 on the Visicol  studies
and Visicol product development,  $200,000 on the Colirest study, and $8,100,000
on Visicol sales and marketing  costs.  These  activities  will be funded by our
current cash balance and future  product  sales.  If product sales fall short of
current expectations or other factors negatively impact our cash balance, we may
seek to obtain additional funds through equity or debt financing,  collaborative
or other  arrangements  with  corporate  partners,  and from other  sources.  No
assurance can be given that necessary  additional financing will be available on
terms  acceptable  to us,  if at  all.  If  adequate  additional  funds  are not


                                       20
<PAGE>

available  when  required,  we may have to delay,  scale-back  or eliminate  our
research,  drug  discovery or  development  activities  or other  aspects of our
operations. Our business could be materially and adversely affected as a result.

         Net Cash Provided By (Used in) Operating Activities. Net operating cash
outflows for the six-month  period ended June 30, 2004 resulted  primarily  from
research and development  expenditures  associated with our product  candidates,
including clinical  development and manufacturing costs for INKP-102,  sales and
marketing  costs  related to Visicol,  compensation  of our  employees and other
administrative  costs and costs related to our withdrawn  public  offering and a
purported  class action  lawsuit.  Net operating  cash inflows were  principally
attributable  to  product  sales,  revenue  from  our  Sigma-Tau  Pharmaceutical
("Sigma-Tau")   promotion   of  VSL#3  and  payment  from  a   third-party   for
reimbursement  of costs related to our withdrawn public offering and legal costs
related to preemptive rights and the lawsuit.

         Net  Cash  Used  in  Investing  Activities.   Cash  used  in  investing
activities for the six-month  period ended June 30, 2004 related to the purchase
of manufacturing  equipment for use in the production of clinical and commercial
quantities  of  INKP-102.  We do not expect to make any  significant  additional
capital  expenditures  during  2004,  but we may,  from  time to time,  purchase
obligations of the U.S. Treasury, securities of federal agencies which carry the
direct or implied  guarantee of the U.S.  government  and bank  certificates  of
deposit.

         Net Cash Provided By Financing  Activities.  Cash provided by financing
activities for the six-month  period ended June 30, 2004 related to net proceeds
from the exercise of warrants  and stock  options.  We have no immediate  plans,
arrangements,  commitments or  understandings  to raise capital and issue stock.
From time to time however, we consider various methods to raise capital in light
of our expansion strategies, product opportunities and market conditions.

Research and Development Programs

         We currently have three significant research and development  projects,
relating to Visicol, INKP-102 and Colirest.

         Visicol.  We have  focused  our Visicol  research  and  development  on
cleansing of the colon prior to colonoscopy and are presently  marketing Visicol
for that indication.  In addition,  we are also developing Visicol for cleansing
the colon prior to pre-operative  colonic  surgical  procedures and for treating
constipation.  The  current  status of these  projects  is as  follows:  (i) for
cleansing of colon prior to  colonoscopy,  the FDA has approved  both our NDA as
well as our SNDA;  (ii) for cleansing the colon prior to  pre-operative  colonic
surgical  procedures,  we intend to commence a Phase IV study  during the second
half of 2004;  and (iii) for  treating  constipation,  we have  completed a post
marketing study and a Phase IV study. As of June 30, 2004 we have incurred total
costs of  approximately  $11,858,000 in connection with our Visicol research and
development. During the quarter ended June 30, 2004, we incurred an aggregate of
$1,036,000 in research and development expenses,  approximately $75,000 of which
was attributable to Visicol.

         INKP-102.  During 2003,  we developed a next  generation  purgative for
cleansing the colon prior to colonoscopy.  Clinical  batches of this new product
have been  manufactured  and  formulated  to yield  smaller  tablets that may be
easier to ingest. Additionally,  the new product does not contain any MCC, which
is a common inert, but highly insoluble  substance.  We are currently conducting
clinical  studies and intend to apply for FDA approval of this new product using
alternative  dosing regimens that utilize fewer tablets and allow for single-day
administration.  We have completed a Phase II study and plan to commence a Phase
III study during the second half of 2004.  As of June 30, 2004, we have incurred
total costs of approximately $1,223,000 in connection with our INKP-102 research
and  development.  During  the  quarter  ended June 30,  2004,  we  incurred  an
aggregate of  $1,036,000  in research and  development  expenses,  approximately
$492,000 of which was attributable to INKP-102.

         Colirest.  We are  developing  Colirest  for  treatment of IBD and have
completed a Phase II study of Colirest for the treatment of Crohn's  disease and
a Phase II study of Colirest for the  treatment of ulcerative  colitis.  In June
2001,  we began a  Colirest  clinical  Phase IIb study of  Crohn's  disease.  We
anticipate  an interim  analysis  later this year.  As of June 30, 2004, we have
incurred  total  costs  of  approximately  $6,970,000  in  connection  with  the
development of Colirest and related compounds. During the quarter ended June 30,
2004,  we incurred an  aggregate  of  $1,036,000  in  research  and  development
expenses, approximately $56,000 of which was attributable to Colirest.

                                       21
<PAGE>

         Indirect  Costs.  In  addition  to  the  direct  costs  related  to the
development  of our  products  and  product  candidates,  we  incurred  indirect
non-technology  specific overhead costs. These expenses include the salaries and
administrative  costs of managing our research and development  projects,  which
for the quarter ended June 30, 2004, equaled approximately $413,000.

Recently Issued Accounting Pronouncements

         None.

Item 3.  Quantitative and Qualitative Disclosures About Market Risks

         We are exposed to market risk associated with changes in interest rates
on our line of credit  and  certain  investments.  We do not  manage the risk of
fluctuations in interest rates  associated  with the line of credit,  as it is a
short-term borrowing with a maturity date in 2005. The interest rate on our line
of credit has fluctuated from 3.17% to 3.53% over the past  three-months.  There
was no outstanding balance on this line of credit at June 30, 2004.

         Typically,  a substantial  portion of our assets are  investment  grade
debt instruments such as direct obligations of the U.S. Treasury,  securities of
federal  agencies  which  carry the  direct  or  implied  guarantee  of the U.S.
government  and  bank  certificates  of  deposit.   The  market  value  of  such
investments  fluctuates with current market interest rates. In general, as rates
increase,  the market value of a debt  instrument  is expected to decrease.  The
opposite is also true. To minimize such market risk, we have in the past and, to
the extent possible,  will continue in the future, to hold such debt instruments
to maturity at which time the debt  instrument will be redeemed at its stated or
face value. Due to the short duration and nature of these instruments, we do not
believe  that we have a material  exposure to interest  rate risk related to our
investment portfolio.

         We do not  anticipate  any material  changes in our primary market risk
exposure in 2004. We do not hold or issue any derivatives.



Item 4.  Controls and Procedures

         Evaluation of disclosure controls and procedures. Our management,  with
the  participation of our Chief Executive  Officer and Chief Financial  Officer,
evaluated the effectiveness our disclosure controls and procedures as of the end
of the  period  covered  by this  report.  Based on that  evaluation,  our Chief
Executive  Officer and Chief  Financial  Officer  concluded  that our disclosure
controls and  procedures as of the end of the period covered by this report have
been designed and are functioning  effectively to provide  reasonable  assurance
that the  information  required to be disclosed by us in reports filed under the
Securities Exchange Act of 1934 is recorded, processed,  summarized and reported
within the time periods  specified in the SEC's rules and forms. We believe that
a controls  system,  no matter how well  designed and operated,  cannot  provide
absolute  assurance that the  objectives of the controls  system are met, and no
evaluation of controls can provide  absolute  assurance  that all control issues
and instances of fraud, if any, within a company have been detected.

         Changes in internal  controls.  No change in our internal  control over
financial  reporting  occurred  during our most recent  fiscal  quarter that has
materially affected,  or is reasonably likely to materially affect, our internal
control over financial reporting.



..
PART II -- OTHER INFORMATION

Item 1.  Legal Proceedings.

         On March 15, 2004, we withdrew a public  offering of six million shares
of our common stock. The decision to withdraw the offering was made when it came
to our  attention  that our  certificate  of  incorporation  did not contain any
provision  exempting us from  providing  preemptive  rights in  connection  with
certain  securities  offerings.  On March 19,  2004,  a purported  class  action
lawsuit was filed in the Court of Common Pleas,  Philadelphia  County, on behalf
of a putative class of holders of InKine equity shares who have purportedly been

                                       22
<PAGE>

denied certain claimed  preemptive rights during the last six years. The lawsuit
names us as the defendant and seeks  unspecified  compensatory  damages.  In our
statement of  operations,  we have included the $341,000 in expenses  related to
the withdrawn  offering and $388,000 in legal costs related to preemptive rights
and the lawsuit offset by a $500,000 payment from a third-party as reimbursement
for these costs in the line item "Withdrawn  public offering and litigation." Of
the legal costs  related to  preemptive  rights and the  lawsuit,  $188,000  was
reimbursed as part of the $500,000 payment from the  third-party.  An additional
$200,000  was  expensed  for  unreimbursed  legal  costs  up  to  our  insurance
deductible.  We believe  that we will  continue to be entitled to  reimbursement
from  third-parties  for  any  costs,   expenses  and  liabilities  incurred  in
connection with the purported class action lawsuit. However, no assurance can be
given that we will obtain such  additional  reimbursement  or that any liability
from the lawsuit will not be material.

Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
         Securities.

         On  June  7,  2004,  at  our  2004  Annual  Meeting  of   Shareholders,
shareholders  voted in favor by an affirmative  vote of a majority of the shares
of  common  stock  (par  value  $0.0001  per  share)  outstanding  to amend  our
Certificate  of  Incorporation  to  remove  any and all  shareholder  preemptive
rights.  Accordingly, on June 17, 2004, we filed a certificate of amendment with
the  Department of State of New York to affect the amendment of our  certificate
of incorporation.  The amendment to our certificate of incorporation  eliminates
shareholder  rights to  participate in any and all potential  future  securities
offerings.

         During the second  quarter of 2004,  we granted an aggregate of 175,000
options to purchase our common  stock at a weighted  average  exercise  price of
4.20 per share pursuant to our 2004 Equity Compensation Plan, which was approved
by our shareholders at our annual meeting of shareholders  held on June 7, 2004.
Such options were not  registered  under the  Securities Act of 1933, as amended
(the  "Securities  Act").  All of such option  grants  were  granted at the then
current fair value of the common stock and all recipients had adequate access to
information  about us. We did not engage an underwriter  in connection  with the
option  grants.  We believe  that the  issuance  of the  options was exempt from
registration under either:

         o Section 4(2) of the Securities Act as transactions  not involving any
         public offering and such securities having been acquired for investment
         and not with a view to distribution, or

         o Rule 701 under the Securities Act as transactions  made pursuant to a
         written  compensatory  benefit  plan or pursuant to a written  contract
         relating to compensation.

Item 4.  Submission of Matters to a Vote of Security Holders.

         Our annual  meeting of  shareholders  was held on June 7, 2004. At this
meeting, our shareholders:

         (i) Approved the election of six (6) directors.

         The number of votes cast for,  and withheld  from,  each nominee is set
         forth below.
                                                For             Withheld
                                                ---             --------
         Leonard S. Jacob, M.D., Ph.D.      43,063,223         4,171,699
         Robert F. Apple                    43,059,561         4,175,361
         J.R. LeShufy                       43,030,435         4,204,487
         Steven B. Ratoff                   46,195,791         1,309,131
         Norman D. Schellenger              46,652,234           582,688
         Thomas P. Stagnaro                 46,653,734           581,188


         (ii) Amended our  certificate  of  incorporation  to remove any and all
shareholder preemptive rights.

                    For          Against      Abstain     Broker Non-Votes
                    ---          -------      -------     ----------------
                 24,995,602     2,030,622     397,441        19,811,257

                                       23
<PAGE>

         (iii)  Adopted  the InKine  Pharmaceutical  Company,  Inc.  2004 Equity
Compensation Plan.

                    For          Against      Abstain     Broker Non-Votes
                    ---          -------      -------     ----------------
                 23,504,968     3,350,119     568,578       19,811,257

         (iv) Ratified the election of KPMG, LLP as our independent auditors for
the year ending December 31, 2004.

                    For          Against      Abstain    Broker Non-Votes
                    ---          -------      -------    ----------------
                 46,672,197      298,840      263,885         263,885

Item 6.  Exhibits and Reports on Form 8-K.

(a) Exhibits.

                  3.1 Certificate of Incorporation, as amended. (Exhibit 3.1)(1)

                  3.2* Certificate of Amendment of Certificate of Incorporation

                  3.3* Certificate of Correction of Certificate of Incorporation

                  10.1* InKine Pharmaceutical Company, Inc. 2004 Equity
                  Compensation Plan

                  31.1* Chief Executive Officer  Certification  pursuant to Rule
                  13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
                  as adopted pursuant to Section 302 of the  Sarbanes-Oxley  Act
                  of 2002

                  31.2* Chief Financial Officer  Certification  pursuant to Rule
                  13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934,
                  as adopted pursuant to Section 302 of the  Sarbanes-Oxley  Act
                  of 2002

                  32.1* Chief  Executive  Officer  Certification  pursuant to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002

                  32.2* Chief  Financial  Officer  Certification  pursuant to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002

-----------------------

                  * Filed herewith.

(1)                   Filed as an Exhibit to InKine's  Quarterly  Report on Form
                      10-Q  for the  quarter  ended  June  30,  2001,  with  the
                      Securities   and   Exchange   Commission   (SEC  File  No.
                      000-25572).

         (b) Reports on Form 8-K.

                  None.



                                       24
<PAGE>


                                   Signatures


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.





                                    INKINE PHARMACEUTICAL
                                    COMPANY, INC.


Date: August 5, 2004                 By:  LEONARD S. JACOB M.D.,PH.D.
                                          ---------------------------
                                          Leonard S. Jacob, M.D., Ph.D.
                                          Chairman of the Board and
                                          Chief Executive Officer



Date: August 5, 2004                 By:  ROBERT F. APPLE
                                          --------------------------------
                                          Robert F. Apple
                                          Chief Operating and Financial Officer,
                                          (Authorized Officer and Principal
                                          Financial Officer)






                                       25
<PAGE>



                                 Exhibits Index

3.1 Certificate of Incorporation, as amended. (Exhibit 3.1)(1)

3.2* Certificate of Amendment of Certificate of Incorporation

3.3* Certificate of Correction of Certificate of Incorporation

10.1* InKine Pharmaceutical Company, Inc. 2004 Equity Compensation Plan

31.1*  Chief  Executive  Officer  Certification  pursuant to Rule  13a-14(a)  or
15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002

31.2*  Chief  Financial  Officer  Certification  pursuant to Rule  13a-14(a)  or
15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002

32.1* Chief Executive Officer Certification  pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2* Chief Financial Officer Certification  pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
-----------------------

* Filed herewith.

(1)  Filed as an  Exhibit  to  InKine's  Quarterly  Report  on Form 10-Q for the
quarter ended June 30, 2001,  with the Securities and Exchange  Commission  (SEC
File No. 000-25572).



                                       27