<PAGE>


                     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 March 31, 2003


                           Commission File No. 0-24972



                       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 _____ NO __X__


         At May 5, 2003, the registrant had outstanding 37,779,428 shares of
common stock, par value $.0001 per share.


<PAGE>




                       INKINE PHARMACEUTICAL COMPANY, INC.

                                      INDEX

<TABLE>
<CAPTION>


                                                                                                                   Page
<S>                                                                                                              <C>
PART I - FINANCIAL INFORMATION

         Item 1.  Financial Statements

                  BALANCE SHEETS - as of March 31, 2003 (unaudited) and
                  December 31, 2002..............................................................................    3

                  STATEMENTS OF OPERATIONS (unaudited) - for the Three-Months
                  Ended March 31, 2003 and 2002..................................................................    4

                  STATEMENTS OF CASH FLOWS (unaudited) - for the Three-Months Ended March 31, 2003 and
                  2002...........................................................................................    5

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

         Item 2.  Management's Discussion and Analysis of Financial
                   Condition and Results of Operations...........................................................    8

         Item 3.  Quantitative and Qualitative Disclosures About Market Risks....................................   18

         Item 4.  Controls and Procedures........................................................................   18

PART II - OTHER INFORMATION......................................................................................   19

         Item 6.  Exhibits and Reports on Form 8-K...............................................................   19

SIGNATURES.......................................................................................................   20

CERTIFICATIONS...................................................................................................   21

EXHIBITS INDEX...................................................................................................   23

</TABLE>




<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>

                                                                                March 31, 2003       December 31, 2002
                                                                                --------------       -----------------
         ASSETS                                                                   (unaudited)

Current assets:
<S>                                                                                <C>                    <C>
     Cash and cash equivalents .................................................   $ 10,685               $ 12,151
     Accounts receivable .......................................................      1,492                    856
     Inventory .................................................................        702                    677
     Prepaid expenses and other current assets .................................        439                     87
                                                                                   --------               --------
         Total current assets ..................................................     13,318                 13,771

Deposits .......................................................................         34                     34
Fixed assets ...................................................................        233                    274
                                                                                   --------               --------

         Total assets ..........................................................   $ 13,585               $ 14,079
                                                                                   ========               ========

         LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
     Accounts payable ..........................................................   $  1,610               $    967
     Accrued expenses ..........................................................      2,559                  3,222
       Line of credit ..........................................................      4,434                  4,444
                                                                                   --------               --------
              Total current liabilities ........................................      8,603                  8,633

Convertible subordinated notes (face value $13,000) ............................     12,124                 11,657
                                                                                   --------               --------

         Total liabilities .....................................................     20,727                 20,290

Shareholders' deficit:
     Preferred stock, $.0001 par value; authorized 5,000,000
         shares; none issued and outstanding ...................................       --                     --
     Common stock, $.0001 par value; authorized 75,000,000
         shares; issued 37,795,943 shares ......................................          4                      4
     Less common stock held in treasury (16,515 shares) ........................        (37)                   (37)
     Additional paid-in capital ................................................     64,222                 64,222
     Accumulated deficit .......................................................    (71,331)               (70,400)
                                                                                   --------               --------

         Total shareholders' deficit ...........................................     (7,142)                (6,211)
                                                                                   --------               --------

         Total liabilities and shareholders' deficit ...........................   $ 13,585               $ 14,079
                                                                                   ========               ========
</TABLE>

--------------------------------------------------------------------------------
See accompanying notes to unaudited financial statements.

                                       3

<PAGE>


                       INKINE PHARMACEUTICAL COMPANY, INC.

                            STATEMENTS OF OPERATIONS
                                   (unaudited)

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


                                                                     Three-Months Ended March 31,
                                                                       2003               2002
                                                                     --------           --------

<S>                                                                  <C>                <C>
Product revenue ...........................................          $  2,536           $    958
Other revenue .............................................              --                   19
                                                                     --------           --------
   Revenue ................................................             2,536                977

Cost of goods sold ........................................              (389)              (285)
                                                                     --------           --------
   Gross profit ...........................................             2,147                692

Cost and expenses:
   Research and development ...............................               341              1,602
   Sales and marketing ....................................             1,420              1,030
   General and administrative .............................               513                593
                                                                     --------           --------
     Operating expenses ...................................             2,274              3,225
                                                                     --------           --------

   Loss from operations ...................................              (127)            (2,533)

Interest income ...........................................                14                 31
Interest and other expense ................................              (351)              (241)
Non-cash accretion and cash premium .......................              (467)               (34)
                                                                     --------           --------

   Net loss ...............................................          $   (931)          $ (2,777)
                                                                     ========           ========

   Net loss per share - basic and diluted .................          $  (0.02)          $  (0.08)
                                                                     ========           ========

    Weighted average shares outstanding - basic and diluted            37,796             34,835


===================================================================================================================
</TABLE>

See accompanying notes to unaudited financial statements.

                                       4
<PAGE>


                       INKINE PHARMACEUTICAL COMPANY, INC.

                            STATEMENTS OF CASH FLOWS
                                   (unaudited)

                                 (in thousands)
<TABLE>
<CAPTION>


                                                                             Three-Months Ended March 31,
                                                                             ----------------------------
                                                                                 2003            2002
                                                                               --------        --------
<S>                                                                            <C>             <C>
Operating activities:
   Net loss ............................................................       $   (931)       $ (2,777)
   Adjustments to reconcile net loss to net cash used in
     operating activities:
     Depreciation ......................................................             41              41
     Amortization of deferred compensation .............................           --                29
     Amortization of beneficial conversion, warrant interest and premium
        accretion ......................................................            467              34
   Changes in operating assets and liabilities:
     (Increase) in accounts receivable .................................           (636)           (240)
     (Increase) in inventory ...........................................            (25)           (207)
     (Increase) in prepaid expenses and other assets ...................           (352)            (31)
     Increase (decrease) in accounts payable and accrued expenses ......            (20)            453
                                                                               --------        --------
Net cash used in operating activities ..................................         (1,456)         (2,698)

Investing activities:
     Proceeds from maturities and sales of  investments ................           --             4,787
                                                                               --------        --------
Net cash provided by investing activities ..............................           --             4,787

Financing activities:
     Proceeds from exercise of options and warrants - net of expenses ..           --               191
     Borrowings, net of repayments on line of credit ...................            (10)             16
                                                                               --------        --------
Net cash provided by(used in) financing activities .....................            (10)            207

Net increase (decrease) in cash and cash equivalents ...................         (1,466)          2,296

Cash and cash equivalents - beginning of period ........................         12,151           7,379
                                                                               --------        --------
Cash and cash equivalents - end of period ..............................       $ 10,685        $  9,675
                                                                               ========        ========

</TABLE>

See accompanying notes to unaudited financial statements.


                                       5
<PAGE>


                       INKINE PHARMACEUTICAL COMPANY, INC.

                          NOTES TO FINANCIAL STATEMENTS
                                   (unaudited)

1.   Organization and Business Activities

         InKine Pharmaceutical Company, Inc. (the "Company") is a
biopharmaceutical company that was incorporated in May 1993. The Company's
portfolio of product and product candidates includes Visicol(R), a
bowel-cleansing agent currently marketed for use prior to colonoscopy. The
Company's portfolio also includes IB-Stat(R), an antispasmodic product currently
marketed to gastroenterologists and others for use as an immediately available
acute care product for a variety of indications. The Company is also developing
Colirest(TM), a steroid molecule, for the treatment of inflammatory bowel
disease ("IBD"). The Company is focused on the diagnosis and treatment of cancer
and autoimmune diseases, and has the additional strategy of acquiring drug
candidates that are close to commercialization.

2.   Basis of Presentation

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

         Certain information and footnote disclosures normally included in the
Company's audited annual financial statements have been condensed or omitted in
the Company's interim financial statements. In the opinion of management, 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, 2002, which are contained
in the Company's 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 management 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.   Reclassifications

         Certain prior year amounts have been reclassified to conform to current
year presentation.

5.   Allowance for Sales Returns

         The Company maintains 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 March
31, 2003, the Company had a $172,000 returns allowance that was included in
accrued expenses on the balance sheet. The following is an analysis of the sales
returns allowance for the three-months ended March 31, 2003:

Allowance at December 31, 2002                        $149,000
Provision for estimated sales returns                   56,000
Actual sales returns                                   (33,000)
                                                      --------
     Allowance at March 31, 2003                      $172,000
                                                      ========

                                       6
<PAGE>

6.   Deferred Revenue

         For IB-Stat(R), the Company recognizes 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, the Company has
recorded deferred revenue of $518,000 that was included in accrued expenses on
the balance sheet as of March 31, 2003.

7.   Line of Credit

         The Company maintains a $7,500,000 line of credit with a financial
institution, which expires January 31, 2004. Monthly interest-only payments are
made at a variable per annum rate of 2.20% plus the 30-day Dealer Commercial
Paper Rate. Amounts outstanding under this credit line were $4,434,000 and
$4,444,000 at March 31, 2003 and December 31, 2002, respectively. Average
interest rates for the three and twelve-month periods ended March 31, 2003 and
December 31, 2002, respectively, were 3.44% and 3.88%, respectively.

8.   Convertible Subordinated Notes

         In December 2002, the Company completed a $13,000,000 private placement
of June 2005 convertible notes together with 2,459,460 warrants. Proceeds from
the placement were used to redeem the Company's then outstanding June 2003
convertible notes. The June 2005 notes are convertible into the Company's common
stock at a conversion price of $1.85 per share and the warrants, which are not
exercisable until January 2004, also have an exercise price of $1.85 per share.
The notes have redemption provisions requiring the Company to pay a 25% premium
if the notes are not converted by the maturity date and a 30% premium if an
early redemption or change in control were to occur. In accordance with APB
Opinion No. 14, the Company allocated the fair value of the proceeds to the debt
and warrants issued. The warrants were valued at $1,061,000 using the
Black-Scholes valuation methodology. The allocation was determined based upon
the relative fair values of the two securities at the time of issuance. Since
the fair value of the proceeds that were allocated to the convertible notes was
less than the fair value of the Company's common stock as of the commitment
date, in accordance with the Emerging Issues Task Force Issue No. 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios," the carrying value of the notes was
further reduced by a beneficial conversion feature of $359,000. The combination
of the maturity premium, the warrant debt discount and the beneficial conversion
feature represents potential future non-cash accretion charges and premium
accruals of $4,670,000 that is being amortized over the life of the June 2005
convertible notes on the effective interest method. The amortization of these
charges are reflected in the other income and expense section of the Company's
statement of operations. The Company has an effective registration statement for
the resale of the common stock issuable upon conversion of the notes and
exercise of the warrants. When considering the amortization of the non-cash
accretion along with the coupon interest rate associated with the June 2005
notes, the effective interest rate on this note payable is approximately 24.37%.
At March 31, 2003, notes with a face value totaling $13,000,000 were outstanding
at a carrying value of $12,124,000, which includes $379,000 of premium accretion
and is net of $938,000 and $317,000 of warrant debt discount and beneficial
conversion feature, respectively.

9.   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 exceeds the exercise price per share. The Company generally grants its
derivative securities at market on the grant date.

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


                                       7
<PAGE>

                                                         Three-Months Ended
                                                       March 31,      March 31,
                                                         2003           2002
                                                       ---------      ---------
Net loss - pro forma.................................  $   (931)      $ (2,777)
Deduct: Total stock based employee compensation......      (809)          (781)
                                                       --------       --------
Net loss - pro forma.................................  $ (1,740)      $ (3,558)
                                                       ========       ========

Basis and diluted loss per share - as reported.......  $  (0.02)      $  (0.08)
                                                       ========       ========
Basis and diluted loss per share - pro forma.........  $  (0.05)      $  (0.10)
                                                       ========       ========


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

         In addition to historical facts or statements of current condition,
this report contains some forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
provide our current expectations or forecasts of future events. These may
include statements regarding anticipated scientific progress on our research
programs, development of potential pharmaceutical products, interpretation of
clinical results, prospects for regulatory approval, manufacturing development
and capabilities, market prospects for our products, sales and earnings
projections, and other statements regarding matters that are not historical
facts. You may identify some of these forward-looking statements by the use of
words in the statements such as "anticipate," "estimate," "expect," "project,"
"intend," "plan," "believe" or other words and terms of similar meaning. Our
performance and financial results could differ materially from those reflected
in these forward-looking statements due to general financial, economic,
regulatory and political conditions affecting the biotechnology and
pharmaceutical industries as well as more specific risks and uncertainties such
as those listed below under "Certain Risks Related to Our Business." Given these
risks and uncertainties, any or all of these forward-looking statements may
prove to be incorrect. Therefore, you should not rely on any such factors or
forward-looking statements. Furthermore, we do not intend (and we are not
obligated) to update publicly any forward-looking statements.

General

         We are a biopharmaceutical company focused on the diagnosis and
treatment of gastrointestinal disorders, including: colon cancer, irritable
bowel syndrome, or IBS, and inflammatory bowel disease, or IBD. Our development
strategy has been to acquire late-stage drug candidates with short time lines to
commercialization. We currently market and sell two pharmaceutical products,
Visicol(R) and IB-Stat(R). In addition to our marketed products, we have
identified two product candidates, Colirest(TM) and Hematrol(TM).

         The following table outlines our product pipeline from which we intend
to focus the majority of our research, development, marketing and sales efforts
at least through calendar year 2003 and also sets forth the current development
status of our products and product candidates in each targeted therapeutic
indication:

         PRODUCT  THERAPEUTIC INDICATIONS   DEVELOPMENT STATUS
<TABLE>
<CAPTION>
<S>                          <C>                                                   <C>
---------------------------|------------------------------------------------------|-------------------------------------
Visicol(R)                 |   o      Cleansing of colon prior to colonoscopy     |FDA approved; marketed product
                           |                                                      |FDA    approved    SNDA    for   new
                           |                                                      |formulation
---------------------------|------------------------------------------------------|-------------------------------------
                           |   o      Constipation                                |Post marketing study commenced
                           |                                                      |Phase IV will commence in 2003
---------------------------|------------------------------------------------------|-------------------------------------
                           |   o      Pre-operative colonic surgical procedures   |Phase IV will commence in 2003
---------------------------|------------------------------------------------------|-------------------------------------
IB-Stat(R)                 |   o      Acute antispasmodic product immediately     |Marketed product
                           |          available for a variety of indications,     |
                           |          including spasm of the colon                |
---------------------------|------------------------------------------------------|-------------------------------------
Colirest(TM)               |   o      Crohn's and Ulcerative Colitis,             |Phase II Crohn's disease complete
                           |          collectively IBD                            |Phase II ulcerative colitis complete
                           |                                                      |Phase IIb Crohn's disease ongoing
---------------------------|------------------------------------------------------|-------------------------------------
Hematrol(TM)               |   o      Idiopathic Thrombocytopenic Purpura, or ITP |Phase II complete
                           |                                                      |Phase III on hold
---------------------------|------------------------------------------------------|-------------------------------------
</TABLE>

                                       8
<PAGE>

         We began generating sales revenue in January 2001 with the commercial
introduction of our lead product, Visicol(R). During the quarter ended June 30,
2002, we launched a new Visicol(R) formulation and IB-Stat(R), our second
commercial product. Operations were previously funded primarily from the
proceeds of public and private placements of securities. We have incurred
operating losses in each year since our inception. Prospectively, we expect that
losses will decline each quarter over the next year and that operating profits
may be realized in 2003. At March 31, 2003, our accumulated deficit was
approximately $71,331,000.

Certain Risks Related to Our Business

Risks Related To Our Operations

We have generated significant losses to date. If we continue to incur
substantial losses, then the value of our common stock is likely to be reduced.
Also, we may never achieve a profitable level of operations.

         Our first sale of Visicol(R) occurred in January 2001 and our first
shipment of IB-Stat(R) occurred in June 2002. We have not generated significant
revenue from product sales or royalties. We have a significant accumulated
deficit and have incurred losses in each year since our inception on July 1,
1993.

         Visicol(R), IB-Stat(R) and our product candidates are in various stages
of marketing or development and require significant research, development and
testing.

         If our sales, marketing, and research spending in the foreseeable
future is greater than product sales, we may never conduct our operations at a
profit. Our common stock is likely to decrease in value if we fail to generate
profits or if the market believes that we are unable to generate profits.

         We have granted or committed to grant shares to a founding scientist
and others when we achieve agreed upon product development goals for
Colirest(TM) and Hematrol(TM). These goals relate to our filing applications
with the FDA and achieving agreed upon sales targets. As a result, our potential
earnings per share will decrease because of the necessary accounting treatment
of these shares and options.

We have conducted our commercial operations through our internal sales,
marketing and distribution infrastructure for a limited time. We may not be able
to perform certain previously outsourced functions as well as our former vendors
and as a result we may not successfully sell our products.

         In the past, we had traditionally relied on sales, marketing and
distribution arrangements with third parties for Visicol(R) and other products
we were developing. Prior to May 31, 2002, we solely utilized Procter & Gamble
Pharmaceuticals to sell and promote Visicol(R). As of December 31, 2002, our
agreement with Procter & Gamble expired. As a result we are currently solely
utilizing our internal sales and marketing personnel to sell and market
Visicol(R).

         Prior to May 2002, we relied on Integrated Commercialization Solutions
to act as our exclusive outsourcing supplier for warehousing and distribution of
Visicol(R). Since May 2002, our agreement with Integrated Commercialization
Solutions expired and we have been satisfying our distribution responsibilities
by using in-house personnel to handle the following matters related to
Visicol(R) and IB-Stat(R): invoicing, accounts receivable, customer service, and
order process management. We have been performing these functions internally at
InKine for a limited period of time. If we cannot perform these roles as well as
our former partners, including Procter & Gamble and Integrated Commercialization
Solutions, we may not successfully sell our products. We conduct our sales,
marketing and distribution operations with limited resources. As a result we
face a number of risks, including:

     o  we may not be able to build sales, marketing and distribution operations
        effectively;
     o  the costs to operate these functions may not be justifiable in light of
        product revenues; and
     o  we may not be able to successfully manage internal sales, marketing and
        distribution functions.

If we do not receive adequate reimbursement from the government, managed care
organizations and private insurance plans, then some patients may be unable or
unwilling to purchase our products and we will achieve less revenue from product
sales.

                                       9
<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 pharmaceutical products. In
fact, pharmaceutical companies make a majority of their sales to covered
individuals of health insurance companies and not to consumers. 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 will 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 lower their
prices. Visicol(R) is premium priced compared to its competitors and we have not
specifically contracted with any third party to date to give rebates for its
use. We do not know what impact, if any at all, this will have on the coverage
of Visicol(R) by these third party payers.

Visicol(R) and IB-Stat(R) may not be accepted by doctors, hospitals, insurers or
patients.

         If Visicol(R) and IB-Stat(R) fail to achieve market acceptance, our
ability to become profitable in the future will be adversely affected. We
believe that market acceptance will depend on our ability to provide acceptable
evidence of safety, efficacy and cost effectiveness. In addition, market
acceptance depends on the effectiveness of our marketing strategy and the
availability of reimbursement for such products.

If we do not have adequate insurance for product liability claims, 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 when sold;
     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
        product 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.

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(R), IB-Stat(R) and any of our product candidates. We must
contract with manufacturers to produce Visicol(R), IB-Stat(R) and our product
candidates according to government regulations. Our future development and

delivery of our marketed products and our product candidates depends on the
timely, profitable and competitive performance of these manufacturers. A limited
number of manufacturers exist which are 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.

         We have contracted with Mallinckrodt, Inc. to supply us with active
pharmaceutical ingredients for Visicol(R). A significant portion of the
Visicol(R) tablet is monobasic and dibasic sodium phosphate. Mallinckrodt has
agreed to supply these ingredients in a manner which 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(R). We are currently working towards submitting a Drug
Master File with the FDA for another Mallinckrodt facility in order to minimize
this risk.


                                       10
<PAGE>

         We have contracted with Pharmaceutical Manufacturing Research Services,
Inc., a manufacturing development company, to supply commercial quantities of
Visicol(R) and Morton Grove Pharmaceutical, a generic drug manufacturer, to
supply IB-Stat(R) in a manner that meets FDA requirements. The FDA has approved
the manufacturing processes of Pharmaceutical Manufacturing Research Services
and Morton Grove. Pharmaceutical Manufacturing Research Services and Morton
Grove must maintain compliance with FDA standards regarding the manufacturing of
Visicol(R) and IB-Stat(R) at all times. The failure to maintain compliance with
FDA standards could result in the loss of "approved status" at Pharmaceutical
Manufacturing Research Services and Morton Grove. Any such loss would have a
significant negative impact on us since we do not have an approved secondary
manufacturer for Visicol(R) or IB-Stat(R). We are currently working with an
appropriate secondary manufacturer of Visicol(R), which has not yet been
approved by the FDA.

         We have contracted with PCI Services to package Visicol(R) in a manner
that meets FDA requirements. The FDA has approved this facility for the
packaging of Visicol(R). In the event that PCI were unable to package Visicol(R)
for us, the FDA has also approved Fisher Clinical Services, Inc. for packaging
of Visicol(R). IB-Stat(R) is packaged at Morton Grove.

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

         We have acquired the worldwide exclusive right to market Visicol(R),
IB-Stat(R), Colirest(TM) and Hematrol(TM) 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, some of our licensing agreements require us to spend
specific amounts for research and development of our products. If we do not
comply with the terms of these agreements, the owners 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 products 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 conduct our operations at a profit.

         We have products and product candidates that compete in four very
competitive segments of the pharmaceutical industry. These include: (i)
purgative agents for cleansing the colon, which include Visicol(R); (ii)
antispasmodics, which include IB-Stat(R); and receptor based technologies which
includes product candidates (iii) Colirest(TM) and (iv) Hematrol(TM). We are
likely to encounter significant competition with respect to Visicol(R),
IB-Stat(R) and our product candidates currently under development, including,
but not limited to, competition from: (a) Braintree Laboratories, Inc., Schwarz
Pharma Inc. and C.B. Fleet Company, Inc. with respect to Visicol(R); (b) Schwarz
Pharma Inc among others with respect to IB-Stat(R); (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(TM); and (d) Immune Response
Corporation, Autoimmune, Inc. and Nabi Biopharmaceuticals with respect to
Hematrol(TM).

         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
cheaper 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 market, severely restricting our ability
to achieve a profitable level of product sales.

If we are unable to protect our intellectual property, then 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 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 product could be
diminished.



                                       11
<PAGE>


Visicol(R), IB-Stat(R) and our product candidates are in various stages of
patent protection as summarized below.

         In 1997, the U.S. Patent and Trademark Office issued a patent covering
the use of Visicol(R) as a colonic cleansing agent or as a laxative and in
December 2000, the U.S. Patent and Trademark Office issued to us a patent for
numerous solid-dose colonic cleansing agents. Similar patents have been issued
in Canada and in Europe.

         IB-Stat(R)is not patentable.

         In April 2003, the United States Patent and Trademark Office granted a
Notice of Allowance for the patent covering the treatment IBD with Colirest(TM)
and other similar compounds.

         Hematrol(TM) is not patentable for use in ITP. Instead of a patent, we
will receive protection based on the FDA designation of Orphan Drug Status for
ITP. Orphan Drug Status means the FDA has determined that the number of people
affected by the disease which the drug treats is less than 200,000, and that
having numerous companies compete for the market is unrealistic and likely to
harm, rather than help, prospective users of the product. Since we have received
this designation, we will have an exclusive right to sell Hematrol(TM) for ITP
for seven years after FDA approval if Hematrol(TM) is the first
medroxyprogesterone acetate product to be approved for this indication.

         We have also obtained the rights to foreign patents, 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 make sure the products do not infringe on
patents issued to competitors. We have not conducted a search to determine if
there are any patents similar to those covering Visicol(R) and Colirest(TM).

         Our employees or 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.

         Government agencies and academic institutions have funded the
development of some of our patented technologies. Although we have acquired the
rights to use such 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.

Risks Relating To Financing Our Business

If we are unable to meet our debt service obligations related to our outstanding
convertible notes, our operations could be adversely affected. In addition, even
if we are able to meet our debt service obligations, the amount of debt
outstanding could impede our operations and capital flexibility.

         Our outstanding convertible notes are due in June 2005 and are
convertible at a conversion price of $1.85 per share. If the future market price
of our common stock is such that it is not attractive for noteholders to convert
their notes to common stock by the time the notes become due, we are obligated
to pay the notes with cash at a 25% premium to face value at maturity or a 30%
premium if paid prior to maturity. If we are unable to generate sufficient cash
flow or otherwise obtain funds necessary to service our outstanding convertible
notes, we will be in default under the terms of the notes. Even if we are able
to meet our debt service obligations, our outstanding debt could adversely
affect us in a number of ways, including:

     o  limiting our ability to obtain any necessary financing in the future for
        working capital, capital expenditures, debt service requirements or
        other purposes;



                                       12
<PAGE>

     o  limiting our flexibility in planning for, or reacting to, changes in our
        business;
     o  placing us at a competitive disadvantage relative to our competitors
        that have lower levels of debt;
     o  making us more vulnerable to a downturn in our business, industry or the
        economy generally; and/or
     o  requiring us to use a substantial portion of our cash to pay unconverted
        debt principal, and interest instead of applying these funds to
        operations.

We may need additional capital in the future in order to continue our
operations.

         We may need additional capital to further develop, manufacture and
market Visicol(R), IB-Stat(R) and our product candidates if the future revenues
from our marketed products fall short of current assumptions. Specifically, we
will spend funds for the following:

     o  conducting additional studies of Visicol(R)to increase the utilization
        of the product into other therapeutic areas;
     o  researching and developing our product candidates, including
        participating in human clinical trials;
     o  seeking necessary approvals from the government;
     o  developing manufacturing capabilities; and
     o  funding our growth as a company.

         We believe that our current capital resources will continue to fund our
operations for at least the next 12 months. The success of Visicol(R) and
IB-Stat(R) directly impacts our need for additional capital. Our future capital
requirements will depend on a variety of factors. For example, if we experience
continued progress in our research and development activities, or if we
determine that it is necessary to prosecute and enforce our patents, we may
require additional capital. In addition, our current and future marketing
activities will affect our future capital requirements. Because we have limited
experience in marketing Visicol(R) and IB-Stat(R), we have limited experience in
predicting how much capital will be necessary to successfully execute our
marketing plans. If we inaccurately predict our future capital requirements, we
may be unable to continue our operations.

         We regularly seek funding for our operations from a variety of sources,
including public and private securities offerings, loans and joint arrangements
with partners. We currently do not possess a commitment to obtain additional
funding, and we may never receive additional funding in the future. If we need
additional capital and we fail to obtain additional funding, we will delay,
scale back or eliminate our research and development activities or enter into
arrangements with others to develop and market certain product candidates that
we may otherwise have developed ourselves. For example, when Visicol(R) revenues
fell short of expectations in 2001, in order to reduce some of the shortfall we:
(i) scaled back and then eliminated our budgeted spending on the Thrombospondin
Technology; and (ii) reduced our staff by 35%.

Risks Relating to Regulatory Matters

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. The FDA has mandated that
all manufacturing facilities and processes comply with good manufacturing
practices, commonly known as GMP. GMP is 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 are under a
        designated level.



                                       13
<PAGE>
         The FDA has approved our manufacturing process for Visicol(R) and
IB-Stat(R). The FDA may still, however, prevent us from continuing to market
Visicol(R) or IB-Stat(R) if we:

     o  do not continue to consistently manufacture appropriate amounts of
        Visicol(R)and IB-Stat(R)or
     o  cannot continue to repeat the manufacturing process used to manufacture
        the validation batches of Visicol(R).

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

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.

The FDA could prevent us from marketing IB-Stat(R).

         IB-Stat(R) is the combination of an FDA approved generic drug
(hyoscyamine sulfate) and an FDA approved delivery system. Hyoscyamine sulfate
was a marketed product prior to 1962. 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(R) 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 all 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 such product. We do not believe we are subject
to risks which 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;
     o  operating restrictions; injunctions; and/or
     o  criminal prosecution.

         Our product candidates are in various stages of development and in
various stages of the FDA approval process, as set forth below:



                                       14
<PAGE>

     o  Colirest(TM). We are developing Colirest(TM) as a compound for the
        treatment of inflammatory bowel disease, commonly known as 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(TM) to a Pivotal Phase IIb
        dose ranging study for Crohn's disease. We are currently enrolling
        patients in this study.

     o  Hematrol(TM). We are developing Hematrol(TM) as a compound for the
        treatment of ITP. ITP is an autoimmune disease that causes spontaneous
        bleeding. Hematrol(TM) is currently on hold in phase III clinical trials
        for ITP.

     o  We may never receive FDA approval for any of these products and without
        FDA approval, we cannot market or sell these products.

Risks Related To Our Common Stock Outstanding

If the holders of our outstanding notes, options and warrants convert such notes
or exercise such options and warrants, then the market price of the common stock
may drop.

         We have a total of $13,000,000 in outstanding senior secured
convertible notes. The holders of the notes may convert the notes into a total
of 7,027,027 shares of our common stock at a conversion price of $1.85 per
share. To date, none of the note holders have converted their notes. The
conversion of these outstanding notes and the sale of the related shares may
cause our common stock price to drop.

         At March 31, 2003, we had approximately 12,322,000 options and warrants
outstanding. Options and warrants give the holder the right to purchase shares
of a company's stock in the future for a predetermined price which may or may
not be below the current market value of such company's stock at the time the
option or warrant is exercised. In addition, as of March 31, 2003 we had an
additional 1,450,000 options available for issuance pursuant to our option
plans. To date, option and warrant holders have exercised approximately
6,552,000 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.

If our common stock continues to be volatile and thinly traded, then 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 sell their shares
when they desire because the stock price is highly volatile and the stock is not
widely traded. For example, the number of our shares theoretically available for
sale in any one day is approximately 37,796,000 shares and our average daily
trading volume for the twelve-month period ended March 31, 2003 has been
approximately 126,000 shares. If our stock continues to trade thinly, our
shareholders may not be able to sell their shares when desired.

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
registrants 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 this release.

     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. 123, "Accounting for Stock Based Compensation." Had we
        applied SFAS No. 123, our net loss for the three-months ended March 31,
        2003 and 2002 would have been larger.



                                       15
<PAGE>

     o  Product returns. It is our policy to estimate and record an allowance
        for future product returns in connection with our sales of Visicol(R).
        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(R). 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 reliability of deferred tax assets,
        management considers 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. Management considers 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. At March 31, 2003,
        management has concluded that a full valuation allowance is necessary
        for deferred tax assets.

Results of Operations

         We incurred losses of $931,000 and $2,777,000 or $0.02 and $0.08 per
share for the three-month periods ended March 31, 2003 and 2002, respectively.
The reduced loss per share was driven by the combination of increased product
sales and ongoing cost control measures. We expect to report an operating profit
in the second quarter of 2003 and for the year ended December 31, 2003.

         Our gross profit was $2,147,000 and $692,000 for the three-months ended
March 31, 2003 and 2002, respectively. Gross profit as a percentage of sales for
product revenue was 85% and 70% for the three-month periods ended March 31, 2003
and 2002, respectively. Increases in gross profit and gross profit as a percent
of sales for product revenue were the result of increased order volume,
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 sales will remain relatively constant over the remainder of 2003 on
increasing sales.

         We incurred research and development expenses of $341,000 and
$1,602,000 for the three-months ended March 31, 2003 and 2002, respectively. The
decrease was the result of less development costs associated with Visicol(R) and
the internalized management of previously outsourced functions related to the
ongoing Colirest(TM) clinical trial. We expect that research and development
costs will remain consistent with the first quarter of 2003 for the remainder of
the year.

         Sales and marketing costs of $1,420,000 and $1,030,000 were incurred
for the three-months ended March 31, 2003 and 2002, respectively. Sales and
marketing costs for 2003 include expenses associated with our internal sales
force which currently stands at 36 sales representatives and three district
managers, along with marketing campaigns related to Visicol(R) and IB-Stat(R).
For the first quarter of 2002, sales and marketing costs included expenses
associated with our former co-promotion partner Procter and Gamble
Pharmaceuticals along with our internal management of sales and marketing
operations. We expect that sales and marketing costs will remain consistent with
the first quarter of 2003 for the remainder of the year.

         General and administrative expenses were $513,000 and $593,000 for the
three-months ended March 31, 2003 and 2002, respectively. The decrease was the
result of reduced fees paid to outside vendors and consultants and reduced
srock-based compensation. We expect that general and administrative costs will
remain consistent with the first quarter of 2003 for the remainder of the year.

         Decreased interest income was the result of significantly reduced
interest rates and decreased average cash and investment balances for the
three-months ended March 31, 2003 compared to the same period a year ago.
Increased interest expense compared to the same period a year ago was the result
of interest related to our outstanding convertible notes.

         During the quarter ended March 31, 2003, we incurred a $467,000 charge
related to the amortization of debt premium, non-cash warrant costs and non-cash
beneficial conversion feature as a result of the placement of our June 2005
convertible notes. We expect to incur comparable charges related to our June
2005 convertible notes over the next several quarters. Such charges will
decrease in the event that a portion of the convertible notes are converted to
shares of common stock.

                                       16
<PAGE>

Liquidity and Capital Resources

    At March 31, 2003, we had cash and cash equivalents of $10,685,000. The cash
and cash equivalents balance at March 31, 2003 includes net proceeds from a
private placement of common stock of $3,474,000 from the fourth quarter of 2002.

    We believe that our financial resources are adequate for our operations for
at least the next 12 months. Our future short and long-term capital requirements
will depend on numerous factors, including marketplace acceptance of our
products.

     In addition to 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(R), continued progress in our research and development activities,
progress with pre-clinical studies and clinical trials, 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 conducting a clinical trial of Colirest(TM) in Crohn's
disease, recently commenced studies for the use of Visicol(R) for constipation
and in pre-operative colonic surgical procedures, and continue to market and
sell Visicol(R) to distributors and drug store chains. During 2003, we expect to
spend approximately $250,000 on the Visicol(R) studies and Visicol(R)(TM)
product development, $500,000 on the Colirest(TM) study, and $5,000,000 on
Visicol(R) 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
available when required, we may have to delay, scale-back or eliminate certain
of our research, drug discovery or development activities or certain other
aspects of our operations and our business will be materially and adversely
affected.

     We anticipate reaching operating profits during 2003. To achieve operating
profits, we, alone or with others, must successfully market and sell our
products. In addition, revenues from product sales must be greater than the sum
of cost of goods sold, research and development costs, sales and marketing costs
and general and administrative costs. While we expect to realize operating
profits for the second quarter of 2003 and for the 2003 year, we cannot provide
any assurance the we will be able to reach and/or sustain any level of operating
profits.

Research and Development Programs

     We currently have two significant research and development projects
relating to: (i) Visicol(R)and (ii) Colirest(TM).

     Visicol(R). We have focused our Visicol(R) research and development on
cleansing of colon prior to colonoscopy and are presently marketing Visicol(R)
for that indication. In addition, we are also developing Visicol(R) for
cleansing the colon prior to pre-operative colonic surgical procedures and for
treating constipation. The current status of these projects are 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 in 2003; (iii) for
treating constipation, we have commenced a post marketing study and intend to
commence a Phase IV study during 2003. As of March 31, 2003, we have incurred
cumulative total costs of approximately $11,344,000 in connection with our
Visicol(R) research and development. During the quarter ended March 31, 2003, we
incurred an aggregate of $341,000 in research and development expenses,
approximately $44,000 of which was attributable to Visicol(R).



                                       17
<PAGE>

     Colirest(TM). We are developing Colirest(TM) for treatment of IBD and have
completed a Phase II study in Crohn's disease patients and a Phase II study in
ulcerative colitis patients. In June 2001, we began a Colirest(TM) clinical
Phase IIb study of Crohn's disease patients. We anticipate an interim analysis
by either late 2003 or early 2004. As of March 31, 2003, we have incurred
cumulative total costs of approximately $6,548,000 in connection with the
development of Colirest(TM) and related compounds. During the quarter ended
March 31, 2003, we incurred an aggregate of $341,000 in research and development
expenses, approximately $48,000 of which was attributable to Colirest(TM).

     Indirect Costs. In addition to the direct costs related to the development
of our technologies, 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 March 31,
2003 amounted to approximately $249,000.

Recently Issued Accounting Pronouncements

         In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure," which amends SFAS No.
123, "Accounting for Stock-Based Compensation" to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, the statement amends the
disclosure requirement of SFAS No. 123 to require more prominent disclosures in
interim and annual financial statements. Certain of the disclosure modifications
are required for the fiscal years ending after December 15, 2002 and are
included in the notes to these financial statements.

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 2004. The interest rate on our line
of credit has fluctuated from 3.38% to 3.57% over the past three-months and the
outstanding balance at March 31, 2003 was $4,434,000.

     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 would be 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
exposures in 2003. We do not hold or issue any derivatives.

Item 4.  Controls and Procedures

         Evaluation of disclosure controls and procedures. We evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as of a date within 90 days of the filing date of this quarterly
report (the Evaluation Date). Our disclosure controls and procedures are
designed to ensure that information required to be disclosed by the us in the
reports that are filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that these controls and procedures are effective as of the Evaluation
Date.

         Changes in internal controls. There have been no significant changes in
our internal controls or in other factors that could significantly affect these
controls subsequent to the Evaluation Date, including any corrective actions
with regard to significant deficiencies or material weaknesses.


                                       18
<PAGE>

PART II -- OTHER INFORMATION

Item 1.  Legal Proceedings.

         Not applicable.

Item 2.  Changes in Securities and Use of Proceeds.

         Not applicable.

Item 3.  Defaults Upon Senior Securities.

         Not applicable.

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

         Not applicable.

Item 5.  Other Information.

         None.

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

         (a) Exhibits.

                  99.1 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

                  99.2 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

         (b) Reports on Form 8-K.

                      The following current report on Form 8-K was filed with
                  the Securities and Exchange Commission via EDGAR:

                  1.  Form 8-K filed on January 24, 2003 with respect to the
                      private sale of an aggregate of 2,469,032 shares of
                      Company common stock and warrants to purchase 964,160
                      shares of Company common stock. The earliest event covered
                      by this report occurred on December 31, 2002.




                                       19
<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: May 9, 2003                By:  Leonard S. Jacob, M.D., Ph.D.
                                      ---------------------------------
                                      Leonard S. Jacob, M.D., Ph.D.
                                      Chairman of the Board and
                                      Chief Executive Officer



Date: May 9, 2003                By:  Robert F. Apple
                                      -------------------
                                      Robert F. Apple
                                      Chief Operating and Financial Officer,
                                      (Authorized Officer and
                                      Principal Financial Officer)














                                       20
<PAGE>










                                  CERTIFICATION



         I, Leonard S. Jacob, M.D., Ph.D., certify that:

         1. I have reviewed this quarterly report on Form 10-Q of InKine
Pharmaceutical Company, Inc.;

         2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

                  (a) designed such disclosure controls and procedures to ensure
         that material information relating to the registrant is made known to
         us by others, particularly during the period in which this quarterly
         report is being prepared;

                  (b) evaluated the effectiveness of the registrant's disclosure
         controls and procedures as of a date within 90 days prior to the filing
         date of this quarterly report (the "Evaluation Date"); and

                  (c) presented in this quarterly report our conclusions about
         the effectiveness of the disclosure controls and procedures based on
         our evaluation as of the Evaluation Date;

         5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

                  (a) all significant deficiencies in the design or operation of
         internal controls which could adversely affect the registrant's ability
         to record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

                  (b) any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal controls; and

         6. The registrant's other certifying officer and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date:    May 9, 2003                        Leonard S. Jacob, M.D., Ph.D.
                                            ---------------------------------
                                            Leonard S. Jacob, M.D., Ph.D.
                                            Chairman of the Board and
                                            Chief Executive Officer


                                       21
<PAGE>



                                  CERTIFICATION



         I, Robert F. Apple, certify that:

         1. I have reviewed this quarterly report on Form 10-Q of InKine
Pharmaceutical Company, Inc.;

         2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

                  (a) designed such disclosure controls and procedures to ensure
         that material information relating to the registrant is made known to
         us by others, particularly during the period in which this quarterly
         report is being prepared;

                  (b) evaluated the effectiveness of the registrant's disclosure
         controls and procedures as of a date within 90 days prior to the filing
         date of this quarterly report (the "Evaluation Date"); and

                  (c) presented in this quarterly report our conclusions about
         the effectiveness of the disclosure controls and procedures based on
         our evaluation as of the Evaluation Date;

         5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

                  (a) all significant deficiencies in the design or operation of
         internal controls which could adversely affect the registrant's ability
         to record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

                  (b) any fraud, whether or not material, that involves
         management or other employees who have a significant role in the
         registrant's internal controls; and

         6. The registrant's other certifying officer and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date:    May 9, 2003                        Robert F. Apple
                                            -------------------
                                            Robert F. Apple
                                            Chief Operating &
                                            Financial Officer



                                       22
<PAGE>


                                 Exhibits Index

99.1          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

99.2          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






                                       23