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

                                    FORM 10-K

                                   (Mark One)

                   |X| ANNUAL REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

  For the fiscal years ended..................................October 31, 2006

                 |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

         For the transition period from ______________ to ______________

                         COMMISSION FILE NUMBER 0-22011

                        ________________________________

                         SYNOVICS PHARMACEUTICALS, INC.

             (Exact name of the Company as specified in its charter)

                        ________________________________


          Nevada                                                 86-0760991
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)


2575 East Camelback Road, Suite 450, Phoenix, AZ                    85016
(Address of principal executive offices)                          (zip code)

              The Company's telephone number, including area code:
                                 (602) 508-0112


                        ________________________________

         Securities registered under Section 12(b) of the Exchange Act:

                                      None.

         Securities registered under Section 12(g) of the Exchange Act:

                    Common Stock, $0.001 par value per share
                          -----------------------------
                                (Title of Class)

Indicate by check mark whether the Company is a well-known seasoned issuer, as
defined by Rule 405 of the Securities Act. Yes [ ] No [ X ].

<PAGE>

Indicate by check mark if the Company is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act. Yes [ ] No [ X ].

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

Indicate by check mark whether the Company is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
file and larger accelerated filer" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]

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

The aggregate market value of the voting common equity held by non-affiliates of
the registrant as of April 30, 2006 was approximately $23,008,979.40 based upon
the closing price of the registrant's Common Stock on the OTC Bulletin Board, on
April 30, 2006. (For purposes of determining this amount, only directors,
executive officers, and, based on Schedule 13(d) filings on April 30, 2006 10%
or greater stockholders and their respective affiliates have been deemed
affiliates).

As of January 15, 2007, there were 26,044,630 shares of common stock
outstanding.


                      DOCUMENTS INCORPORATED BY REFERENCE:

                                      NONE

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<PAGE>

                           FORWARD-LOOKING STATEMENTS

         Certain  statements  made in  this  Annual  Report  on  Form  10-K  are
"forward-looking  statements"  (within  the  meaning of the  Private  Securities
Litigation  Reform Act of 1995) regarding the plans and objectives of management
for  future  operations.  Such  statements  involve  known  and  unknown  risks,
uncertainties  and other factors that may cause actual  results,  performance or
achievements of Synovics,  Inc., a Nevada  corporation  (the  "Company"),  to be
materially  different  from any  future  results,  performance  or  achievements
expressed or implied by such  forward-looking  statements.  The  forward-looking
statements  included  herein  are based on  current  expectations  that  involve
numerous risks and uncertainties.  The Company's plans and objectives are based,
in  part,  on  assumptions   involving  the  continued  expansion  of  business.
Assumptions  relating to the foregoing  involve judgments with respect to, among
other things,  future  economic,  competitive  and market  conditions and future
business  decisions,  all of  which  are  difficult  or  impossible  to  predict
accurately and many of which are beyond the control of the Company. Although the
Company believes its assumptions  underlying the forward-looking  statements are
reasonable,  any of the assumptions could prove inaccurate and, therefore, there
can be no assurance the forward-looking  statements included in this Report will
prove to be accurate. In light of the significant  uncertainties inherent in the
forward-looking  statements  included herein,  the inclusion of such information
should not be regarded as a  representation  by the Company or any other  person
that the objectives and plans of the Company will be achieved.

                                       3
<PAGE>


                                TABLE OF CONTENTS

                                 Form 10-K Index

                                     PART I
                                                                            PAGE
Item 1.     Business.......................................................1
Item 2.     Properties....................................................42
Item 3.     Legal Proceedings.............................................43
Item 4.     Submission of Matters to a Vote of Security Holders...........44

                                     PART II

Item 5.     Market for the Registrant's Common Equity and
                  Related Stockholder Matters.............................45

Item 6.     Management's Discussion and Analysis of Financial.............46
Item 7.     Financial Statements and Supplementary Data...................58
Item 8.     Changes in and Disagreements with Accountants
                  on Accounting and Financial Disclosure..................83
Item 8A.    Controls and Procedures.......................................84
Item 8B     Other Information.............................................85

                                    PART III

Item 9.     Directors and Executive Officers of the Registrant............86
Item 10.    Executive Compensation........................................92
Item 11.    Security Ownership of Certain Beneficial Owners
                  and Management and Related Stockholder Matters..........99
Item 12.    Certain Relationships and Related Transactions...............104
Item 13.    Exhibits.....................................................106


                                       4
<PAGE>


                                     PART I

ITEM 1.  BUSINESS.

GENERAL

         Synovics  Pharmaceuticals,  Inc. was  incorporated on December 22, 1990
under the laws of the State of  Nevada.  On April 11,  2006,  we  completed  the
process of changing our corporate name from Bionutrics Inc. to our current name.

         In May 2006, the Company acquired Kirk Pharmaceuticals,  LLC ("Kirk") a
Florida   limited   liability   company  and  its   affiliate,   Andapharm   LLC
("Andapharm"),  a Florida limited liability  company.  The Company  subsequently
transferred  Kirk and  Andapharm to Kirk  Pharmaceuticals,  Inc. and  Andapharm,
Inc.,  respectively,  both of which are wholly owned Nevada  corporations of the
Company.

         We also  have six  other  subsidiaries,  LipoGenics,  Inc.,  Bionutrics
Health Products, Inc., Synovics Laboratories,  Inc. ("Synovics Labs"), Nutrition
Technology Corporation, InCon International Ltd. and Cosmedics, Inc. The Company
and its subsidiaries are referred to herein, collectively,  as "Synovics", "we",
"us", "our" and the "Company".

         The Company  maintains  its  principal  offices at 2575 East  Camelback
Road, Suite 450, Phoenix,  Arizona 85016; its telephone number is (602) 508-0112
and its fax number is (602) 508-0115.

         We file  periodic  and  current  reports,  proxy  statements  and other
materials with the Securities and Exchange Commission. You may read and copy any
materials  we file  with the SEC at the  SEC's  Public  Reference  Room at 100 F
Street,  NE, Washington DC 20549. You may obtain information on the operation of
the  Public  Reference  Room  by  calling  the  SEC at  1-800-SEC-0330.  The SEC
maintains a web site at www.sec.gov that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC, including our filings.

BUSINESS OVERVIEW

         We are a specialty  pharmaceutical  company focusing on the development
of oral controlled-release drug formulations utilizing proprietary licensed drug
formulations and delivery technologies and since the acquisition of Kirk and its
affiliate,  Andapharm in May 2006, the manufacture  and  distribution of private
label over-the-counter drugs and prescription drugs.

         Since the  acquisition  of Kirk and  Andapharm,  a cash  flow  positive
business employing approximately 120 employees, the focal point of the Company's
operations has been the manufacture and distribution of private over the counter
drugs  and  prescription  drugs  combined  with a  strategy  of  developing  and
acquiring technology and products for both over-the-counter and prescription for
manufacture and distribution by Kirk and Andapharm.

                                       5
<PAGE>

NOSTRUM DISPUTE

         The Company's  primary  technology under  development was acquired from
Nostrum  Pharmaceuticals  Inc. ("Nostrum") pursuant to a Product Development and
License  Agreement  dated  dated  as of June 16,  2004  which  was  subsequently
replaced in its entirety by a Technology License Agreement dated as of March 16,
2005, as amended (the "Technology  Agreement"),  and an ANDA Ownership  Transfer
and Product License Agreement, dated May 17, 2006 (the "ANDA Agreement").

         The Technology  Agreement grants the Company an exclusive license under
Nostrum's oral controlled release  proprietary  technology to develop,  make and
sell  exclusively  and worldwide,  ten generic and ten 505(b)(2) drugs (improved
formulations  of previously  approved drugs) which drugs are to be designated by
the Company. The ANDA Agreement transferred ownership of an abbreviated new drug
application ("ANDA") to an AB rated, generic 500mg equivalent  (Metformin ER) of
the branded product Glucophage-XR (the "Metformin Drug") and additionally grants
the Company an exclusive license under Nostrum's technology to develop, make and
sell the Metformin Drug and an additional strength version of the Metformin Drug
in the United States.

         To date, the Company designated four drugs for development  pursuant to
the  Technology  Agreement,  namely  SNG1001a,  SNG1002a,  SNG1003a,b,c  and the
SNG1004a,b,c,  and had intended to invest the  majority of its  resources in the
development  and  commercialization  of these and other  drugs to be  designated
under the Technology Agreement during the next few years.

         However, in September, October and November, 2006, the Company received
a series of written  notices from Nostrum (which owns  approximately  40% of the
Company's  outstanding shares, which shares were acquired in connection with the
Technology  Agreement and whose sole stockholder,  Nirmal V. Mulye, PhD resigned
from his positions with the Company as a Director in September 2006 and as Chief
Scientific  Officer in January 2007) purporting to terminate:  (i) the Company's
rights to four drugs  designated by the Company under the Technology  Agreement,
and (ii) the ANDA  Agreement.  Each notice  purports to be  effective  as of the
sixtieth (60th) day from the date of the Company's  receipt of such notice.  The
notices also  purported to terminate five other drugs  allegedly  covered by the
Technology Agreement.

         The Company  believes  that these  termination  notices  are  factually
incorrect and are contrary to the terms of the Technology Agreement and the ANDA
Agreement.  Although labeled a "termination" by Nostrum and inclusion by Nostrum
of a request to  terminate  the ANDA  Agreement,  the  letters  received  by the
Company are, in effect,  a notice under the  agreement of a dispute  between the
parties and requires the parties to, upon  completion of the exchange of certain
notices, enter into arbitration with respect to such dispute.

         On November 17, 2006, the Company  commenced an action against  Nostrum
in the United States District Court for the Southern District of New York and on
November 20, 2006,  the Court granted a temporary  restraining  order  enjoining
Nostrum from terminating the Technology Agreement. On

                                       6
<PAGE>

December 6, 2006, the Court extended the order  enjoining the termination of the
Technology  Agreement but only with respect to the four drugs  designated by the
Company for development pursuant to the Technology Agreement. The injunction was
conditioned  upon the Company  having posted a bond in the amount of $100,000 no
later than December 13, 2006, which was posted. The Court held a further hearing
in the matter on January 31,  2007,  at which time the  parties  reported to the
Court on the status of the  arbitration  and on the status of the Company's work
with respect to the four  products that are the subject of the  injunction;  the
Court has reserved decision and extended the preliminary  injunction pending the
conduct of limited discovery.

         On December 4, 2006,  the Company filed a demand for  arbitration  with
the American  Arbitration  Association,  pursuant to the terms of the Technology
Agreement, challenging the propriety of the purported terminations. The Company,
on  January  11,  2007,  amended  its  statement  of  claim  with  the  American
Arbitration Association to include the claims related to the improper attempt to
terminate the ANDA Agreement, and to add Synovics Laboratories,  a subsidiary of
the Company, as a party.

         Synovics Laboratories,  on January 12, 2007, filed a complaint with the
United States  District  Court for the Southern  District of New York seeking to
enjoin  Nostrum  from  terminating  the ANDA  Agreement.  That  action  has been
consolidated  with  the  previously-filed  action  relating  to  the  Technology
Agreement.  On January 23, 2007,  Synovics  Laboratories moved for a preliminary
injunction and the Court reserved decision  ordering  preservation of the status
quo pending that decision.

         The Company intends to pursue  vigorously and  aggressively all further
avenues  necessary  and  remedies  available  to protect  its  rights  under the
Technology  Agreement and the ANDA Agreement,  the assets of the Company and the
reflective  value for the Company's  shareholders.  However,  we cannot make any
representations  as to when the  disputes  with Nostrum will be resolved and the
effect  such  resolution,  if any,  and the  resignation  of Dr.  Mulye as Chief
Scientific Officer will have on the Company's technology plans.

         Each  of  Dr.  Mulye  and  Nostrum  is a  guarantor  of  the  Company's
obligations  under a Credit  Agreement,  dated as of May 22,  2006  between  the
Company and the Bank of India for a credit facility of up to $10,500,000.

RESEARCH AND DEVELOPMENT

         Our research and development  efforts are focused on developing generic
drugs employing our licensed  controlled-release  drug delivery technology.  Our
licensed delivery systems are based on proprietary oral delivery  polymeric unit
formulations  that are  designed  to allow  precise  multi-hour  delivery  of an
incorporated  drug.  Controlled-release  drug delivery  technologies can provide
more   consistent  and  appropriate   drug  levels  in  the   bloodstream   than
immediate-release  dosage  forms and may improve  drug  efficacy and reduce side
effects by releasing drug dosages at specific times and in specific locations in
the body.  This  technology  also allows the  development of  "patient-friendly"
dosage  forms,  which reduce  frequency of drug  administration  thus  improving
patient compliance,  can eliminate  offensive tastes and mitigate  "food-effect"
that may cause potentially significant variations of the drugs availability to a

                                       7
<PAGE>

patient.  Controlled-release  pharmaceuticals  can be especially  beneficial for
certain  patient  populations,  such as the elderly,  who often require  several
medications with differing dosing regimens.

TECHNOLOGY LICENSE AGREEMENT

         The Company  acquired  its rights to the ten generic and ten  505(b)(2)
drugs employing  controlled-release  drug delivery technologies by entering into
the Technology  Agreement with Nostrum and issuing to Nostrum  12,000,000 shares
of its common stock  (6,000,000  shares for its  505(b)(2)  rights and 6,000,000
shares for its generic  rights).  The Technology  Agreement  contains no further
milestone  payments or product  development  fees,  which are typically found in
industry license agreements (other than reimbursing Nostrum for costs associated
with formulation and pre-clinical studies conducted in India). The Company does,
however,  have the obligation to pay for development  costs of these drugs,  and
with  generic  drugs only,  with  Nostrum to receive a 50% royalty of net profit
(less cost of goods and other customary charge backs and certain general, sales,
and  administrative  costs).  As the date  hereof,  there have been no  material
revenues earned under the Technology Agreement.

         We anticipate that the  controlled-release  drug delivery  technologies
and  future  potential  drugs are and,  if the  Technology  Agreements  and ANDA
Agreements  are  sustained,  will be covered by a series of patents  owned,  and
patent  applications  submitted,  by Nostrum with respect to controlled  release
matrix  formulations,   controlled  release  tablet  formulations,  carrier  for
controlled  release  matrixes,  controlled  release  coatings  and a method  for
improved dissolution.

         Pursuant to its  Technology  Agreement  with Nostrum,  and subject to a
favorable  arbitration  determination,  we  are to  benefit  from  the  services
provided by Enem Nostrum  Remedies Pvt.  Ltd.  ("Enem"),  an Indian  corporation
affiliated  with  Nostrum.  Through  Nostrum's  relationship  with Enem,  Enem's
research  facilities  provide the Company,  by means of an "at cost" formulation
and testing contract,  distinct  competitive  advantages in terms of development
expenses  without  compromising  quality.  Enem's  operation  is  employing  the
technology  licensed by Nostrum to Synovics in  pre-clinical  study research and
development of generic and 505(b)(2) drugs at Synovics' direction to provide the
Company with preliminary  data for the selection of its drug candidates.  Enem's
research  facilities  are  state of the art and  equipped  with  technologically
advanced equipment such as LC MS MS and other chemical  analytical  equipment to
determine chemical composition and content of tested materials.  The lower costs
of  scientific  manpower  and related  expenses  would allow the Company to test
numerous iterations and variations in formulations at a cost substantially below
industry standards.  As part of this formulation and development  contract,  the
Company anticipates that all pharmacokinetics and related  "pre-studies" will be
conducted in the Indian facility under FDA prescribed guidelines.

         To satisfy the requirements for submission of ANDA filings with the FDA
for drug approval,  upon achieving  satisfactory  formulation and  bioequivalent
"fast and fed"  results,  the  Company  is to  initiate  its  requisite  pivotal
clinical trials and Chemical,  Manufacturing and Control ("CMC") development for
drug  applications  in  the  U.S.  CMC  development  includes  verification  and
validation of  manufacturing  methods,  batches  produced for pivotal trials and
stability of products  intended to provide  confirmation  of the formulation and
biostudies previously

                                       8
<PAGE>

undertaken in Enem.  Successful  completion of these efforts is  anticipated  to
result in the Company's filing of ANDAs with the FDA.

         To date, the Company has initiated the process of CMC  development  for
four  controlled-release  generic  drug  candidates,  each of which is described
below.

         SNG1001a
         --------
         In  December  2005,  the  Company   announced  the  initiation  of  CMC
development for a one dose formulation of the SNG1001a drug candidate.  SNG1001a
is a formulated  generic version of a branded drug in a treatment  category with
estimated annualized US sales in excess of $1.4 billion.

         SNG1002a
         --------
         In March 2006, the Company  announced the initiation of CMC development
for a one  dose  formulation  of the  SNG1002a  drug  candidate.  SNG1002a  is a
formulated  generic  version  of a branded  drug in a  treatment  category  with
estimated estimated annualized US sales in excess of $800 million.

         SNG1003a,b,c
         ------------
         In July 2006, the Company  announced the initiation of CMC  development
for a three dose  formulation of the SNG1003a drug candidate.  SNG1003a,b,c is a
formulated  generic  version  of a branded  drug in a  treatment  category  with
estimated annualized US sales in excess of $150 million.

         SNG1004a,b,c
         ------------
         In  November  2006,  the  Company   announced  the  initiation  of  CMC
development  for a  three  dose  formulation  of the  SNG1004a  drug  candidate.
SNG1003a,b,c  is a formulated  generic  version of a branded drug in a treatment
category with estimated annualized US sales in excess of $1.5 billion.

ANDA AGREEMENT

         As part of the ANDA Agreement,  Synovics Labs obtained ownership of the
ANDA filed with the United States Food and Drug  Administration  (the "FDA") for
the Metformin Drug and the right to develop,  market and sell the Metformin Drug
and an additional  strength version of the Metformin Drug.  Meformin is a member
of the biguanide drug class,  which  represents the current standard of care for
type-2 diabetes  management.  The U.S. market for extended release  Metformin is
estimated to be more than $150 million annually.

         The ANDA  Agreement  requires each party to work together in connection
with any follow-up work relating to the ANDA transferred pursuant thereto and to
work together with respect to any additional  strength of Metformin  formulation
to be filed at the  discretion of Synovics  Labs. In addition to Synovics  Lab's
reimbursement  of  certain  expenses  incurred  by  Nostrum  in  fulfilling  its
obligations  under the ANDA  Agreement,  the  payment of  $300,000  to  Nostrum,
Synovics  Labs is required to pay Nostrum  royalties  of 20% of the net sales of
the Metformin Drug up to $1.5 million.

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<PAGE>

         In July 2006,  the  Company  announced  that the FDA had  approved  the
Company's ANDA for the Metformin Drug.  Bristol-Myers  Squib Company markets the
therapeutically  equivalent  listed  drug,  Glucophage  (R) XR  Extended-Release
Tablets  500 mg.  Although  the FDA has  approved  the  Company's  ANDA  for the
Metformin Drug, for cost saving  reasons,  the Company wishes to manufacture the
Metformin Drug at its Andapharm facility and is required to obtain site transfer
approval  from the FDA. The Company  plans a commercial  launch of the Metformin
Drug by mid 2008 subject to FDA site transfer  approval and a favorable  outcome
in the arbitration  proceedings against Nostrum. As the date hereof,  there have
been no material revenues earned under the ANDA Agreement.

         Total research and development expenses were $1,200,000, $1,521,508 and
$250, for the fiscal years ended October 31, 2006, 2005 and 2004, respectively.

         Except  for  the  Metformin  Drug,  the  Company,  independent  of  the
operations of Kirk and  Andapharm,  presently has no drug products  approved for
manufacture or sale by the FDA and  accordingly has no product sales or revenue.
The Company,  independent of the operations of Kirk and Andapharm,  based on its
plans for development and FDA drug approval  applications,  does not foresee the
initiation of sales of  pharmaceutical  products it has developed  until, at the
earliest, 2009.

ACQUISITION OF KIRK

         Kirk, founded in 1999, is a Florida based pharmaceutical  company which
develops,  manufactures and distributes over-the-counter ("OTC") drugs. Kirk has
grown from four employees to more than 120  presently.  In May 2006, the Company
acquired  all of the  outstanding  equity  interests  in  Kirk  as  well  as its
affiliate AndaPharm (collectively,  "Kirk"). The Company paid $9,000,000 in cash
and issued a promissory note in the principal amount of $3,000,000.

         Kirk  and   Andapharm   have   approximately   48,301  square  feet  of
manufacturing space in Florida in its FDA and DEA approved facility and Schedule
II,  III,  IIIN,  IV and V  pharmaceutical  manufacturing  and List I  Chemicals
certification.

         Kirk currently  manufactures  approximately 30  over-the-counter  (OTC)
pharmaceutical  products.  Manufacturing  low cost OTC products in a streamlined
manufacturing  environment  has  proven  to be  successful,  even in the  highly
competitive  OTC market and has allowed  Kirk to establish a platform to develop
and manufacture  pharmaceutical  products under cGMP (current Good Manufacturing
Practices) guidelines.

         Andapharm was established to develop,  manufacture and distribute niche
pharmaceutical products and high volume pharmaceutical  products. In particular,
a separate hormonal suite has been setup in

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<PAGE>

Andapharm to develop and  manufacture a number of hormonal  products.  Andapharm
submitted  its first ANDA  during  August 2006 which is in the process of review
and  Andapharm  commenced  the sale of its first  hormonal  product,  esterified
estrogen,  in January  2006.  This  product is the subject  matter of an ongoing
lawsuit (See Legal Proceedings, Item 3, Part II).

         The  Company  received a letter,  dated July 28,  2006 (the  "Letter"),
summarizing  the findings of the periodic  investigation  by the FDA relating to
Kirk's  operations.  It cites a number of  deficiencies  in the quality  control
procedures and other processes of Kirk. Specifically and without limitation, the
Letter  describes   discrepancies  in  manufactured  batches  of  pharmaceutical
products, internal review and record failures, failures to follow production and
quality  control  guidelines,   inadequate  training  of  personnel,  inadequate
staffing,  and inadequate  laboratory controls and product labeling. As a result
of the Company's due  diligence  investigation  of Kirk prior the closing of the
acquisition,  the Company  generally  anticipated  the findings set forth in the
Letter and is in the process of instituting  corrective  measures to ensure that
the operations and procedures of Kirk address the deficiencies identified in the
Letter and fully comply with  relevant  FDA  requirements.  No assurance  can be
given that full compliance will be achieved to the satisfaction of the FDA.

         In  addition,  to  the  development,   manufacturing  and  distribution
activities  of Kirk,  the Company  intends to utilize Kirk and its  expertise to
complete the CMC development work with respect to certain products it elects for
development.  The use of Kirk as Synovics'  designated  manufacturer in its drug
development  program and as its  manufacturer  following FDA approval of certain
generic and  505(b)(2)  drug  applications  is a core  element to the  Company's
strategy.

PATENTS AND TRADEMARKS

         Synovics  has  licensed its  technology  from  Nostrum  pursuant to the
Technology  Agreement  which is currently  being  disputed.  The  technology  is
proprietary  and  any  derived  commercialized   products  would,  in  part,  be
potentially  protected  by one or more of a series  of issued  patents  owned by
Nostrum. The patents known to the Company are:

         PATENT NUMBER    ISSUED           SUBJECT

         6,635,680        November 2002    Controlled release pellet formulation
         6,475,493        August 2002      Controlled release oral dosage
                                           suitable for oral administration
         6,437,000        July 2002        Sustained release tablet containing
                                           hydrocolloid and cellulose ether
         6,416,786        October 2003     Controlled release pellet formulation
         6,946,146        September 2005   Coating for a sustained release
                                           pharmaceutical composition

         Synovics has  developed  technology,  independent  of its licensed drug
technology,  and has received 10 issued U.S. patents.  In addition,  the Company
acquired one U.S. patent with four  corresponding  foreign patent  applications.
These patents cover claims that the Company has ceased to actively exploit.

                                       11
<PAGE>

         Prior to the  enactment  in the  United  States  of new  laws  adopting
certain changes mandated by the General Agreement on Tariffs and Trade ("GATT"),
the  exclusive  rights  afforded by a U.S.  Patent were for a period of 17 years
measured from the date of grant. Under GATT, the term of any U.S. Patent granted
on an application filed subsequent to June 8, 1995, terminates 20 years from the
date on which the patent application was filed in the United States or the first
priority date,  whichever occurs first. Future patents granted on an application
filed before June 8, 1995,  will have a term that  terminates 20 years from such
date, or 17 years from the date of grant, whichever date is later.

         Under the Drug Price  Competition  and Patent Term  Restoration  Act, a
U.S.  product  patent or use patent may be  extended  for up to five years under
certain  circumstances to compensate the patent holder for the time required for
FDA  regulatory  review of the product.  The benefits of this Act are  available
only to the first approved use of the active  ingredient in the drug product and
may be applied  only to one patent per drug  product.  There can be no assurance
that we will be able to take advantage of this law.

         Also,  different  countries  have  different  procedures  for obtaining
patents,  and patents issued by different countries provide different degrees of
protection  against the use of a patented  invention by others.  There can be no
assurance,  therefore,  that  the  issuance  to us in one  country  of a  patent
covering an  invention  will be followed by the  issuance in other  countries of
patents covering the same invention,  or that any judicial interpretation of the
validity,  enforceability,  or scope of the  claims  in a patent  issued  in one
country will be similar to the judicial  interpretation given to a corresponding
patent  issued  in  another  country.  Furthermore,  even  if  our  patents  are
determined  to be  valid,  enforceable,  and  broad in  scope,  there  can be no
assurance  that  competitors  will not be able to design around such patents and
compete with us using the resulting alternative technology.

         We also rely upon unpatented  proprietary  and trade secret  technology
that we seek to  protect,  in  part,  by  confidentiality  agreements  with  our
collaborative    partners,    employees,    consultants,    outside   scientific
collaborators,  sponsored  researchers,  and  other  advisors.  There  can be no
assurance that these agreements provide meaningful  protection or that they will
not be breached,  that we will have  adequate  remedies for any such breach,  or
that our trade secrets,  proprietary know-how,  and technological  advances will
not  otherwise  become known to others.  In addition,  there can be no assurance
that,  despite  precautions  taken by us,  others  have not and will not  obtain
access to our proprietary technology.

GOVERNMENT REGULATION AND APPROVAL

         The design, development,  manufacturing and marketing of pharmaceutical
compounds,  on which our success depends, is subject to extensive  regulation by
the federal  government,  principally  the FDA,  and to a lesser  extent,  other
federal and state government  agencies.  The Federal Food, Drug and Cosmetic Act
(the  "FFDCA"),  the Controlled  Substances  Act and other federal  statutes and
regulations govern the development, testing, manufacture,  safety/effectiveness,
labeling,  storage, record keeping,  approval,  advertising and promotion of the
Company's  products.  Non-compliance  with applicable  regulations can result in
judicially and/or administratively  imposed sanctions,  including the initiation
of product seizures, injunction

                                       12
<PAGE>

actions,  fines and criminal prosecutions.  Administrative  enforcement measures
may involve  the recall of  products,  as well as the  refusal of an  applicable
government  authority  to enter into  supply  contracts  or to approve  new drug
applications.  The FDA also has the  authority to withdraw its approval of drugs
in accordance with regulatory due process procedures. The cost of complying with
government  regulations  substantially  increases  the  cost  of  producing  the
Company's products.

         FDA approval is required  before any new drug can be marketed.  The FDA
requires  extensive testing of new  pharmaceutical  products to demonstrate that
such products are both safe and effective in treating the  indications for which
approval  is  sought.  Testing  in humans may not be  commenced  until  after an
investigational  new drug application ("IND") exemption is granted by the FDA. A
New Drug  Application  ("NDA") or supplemental  NDA must be submitted to the FDA
both for new drugs that have not been previously approved by the FDA and for new
combinations  of, new  indications  for, or new delivery  methods for previously
approved drugs. FDA approval of an ANDA is required before a generic  equivalent
of an existing or  referenced  brand drug can be  marketed.  The ANDA process is
abbreviated  in that the FDA  waives  the  requirement  of  conducting  complete
preclinical and clinical studies and, instead,  relies on bioequivalence studies
which compare the  applicant's  drug with an already  approved  reference  drug.
These ANDA filings  allow a company to avoid the  expensive  and  time-consuming
process of clinical efficacy and safety studies that are required for NDAs.

NDAS AND NDAS UNDER SECTION 505(B) OF THE DRUG PRICE ACT

         The FDA approval  procedure for an NDA is generally a two-step process.
During the Initial Product  Development  stage, an IND for each product is filed
with the FDA. A 30-day  waiting  period after the filing of each IND is required
by the FDA prior to the  commencement of initial  clinical  testing.  If the FDA
does not comment on or  question  the IND within  such  30-day  period,  initial
clinical studies may begin. If, however, the FDA has comments or questions, they
must be answered to the  satisfaction of the FDA before initial clinical testing
can begin. In some instances this process could result in substantial  delay and
expense.  These initial clinical studies generally constitute Phase I of the NDA
process  and are  conducted  to  demonstrate  the product  tolerance/safety  and
pharmacokinetic in healthy subjects.

         After  Phase I  testing,  extensive  chemical  testing  in the  form of
efficacy and safety studies in patients must be conducted.  After  completion of
the required  clinical  testing,  an NDA is filed,  and its  approval,  which is
required  for  marketing  in the United  States,  involves an  extensive  review
process by the FDA. The NDA itself is a complicated and detailed application and
must include the results of extensive  clinical and other  testing,  the cost of
which is  substantial.  However,  the NDA filings  contemplated by us on already
marketed drugs would be made under Sections 505 (b)(1) or 505 (b)(2) of the Drug
Price  Act,  which do not  require  certain  studies  that  would  otherwise  be
necessary;  accordingly,  the development timetable should be shorter. While the
FDA is required to review  applications within a certain timeframe in the review
process,  the FDA frequently requests that additional  information be submitted.
The effect of such request and subsequent  submission can  significantly  extend
the time for the NDA review process.  Until an NDA is actually  approved,  there
can be no  assurance  that  the  information  requested  and  submitted  will be
considered adequate by the FDA to justify approval. The packaging and

                                       13
<PAGE>

labeling of our  developed  products are also subject to FDA  regulation.  It is
impossible  to  anticipate  the amount of time that will be needed to obtain FDA
approval to market any product.

         Whether or not FDA approval has been obtained,  approval of the product
by comparable  regulatory  authorities  in any foreign  country must be obtained
prior to the  commencement  of  marketing  of the product in that  country.  The
Company's current strategy is to conduct marketing in territories other than the
United   States  by  means  of  marketing  and  sales   agreements   with  other
pharmaceutical companies based in those countries. The approval procedure varies
from country to country,  can involve additional testing,  and the time required
may  differ  from  that  required  for FDA  approval.  Although  there  are some
procedures for unified filings for certain European  countries,  in general each
country  has  its own  procedures  and  requirements,  many of  which  are  time
consuming and  expensive.  Thus,  there can be  substantial  delays in obtaining
required  approvals from both the FDA and foreign  regulatory  authorities after
the relevant applications are filed. After such approvals are obtained,  further
delays may be encountered before the products become commercially available.

ANDAs

         In  our  generic  operations,   we  apply  our  proprietary  technology
processes and  formulations  to develop a product that will  reproduce the brand
product's physiological characteristics (i.e., the rate and extent of absorption
into the bloodstream),  but not infringe the patents of the brand owner or other
innovator of the NDA. In  connection  with this process,  we conduct  studies to
establish that our product is  bioequivalent  to the brand  product,  and obtain
legal  advice  that  our  product  does  not  infringe  the NDA  owner's  or the
innovator's  patents or that such  patents  are  invalid or  unenforceable.  FDA
approval is required before a generic  version of a previously  approved drug or
certain new dosage forms of an existing drug can be marketed.  Approval for such
products generally is sought using an ANDA. In most cases,  bioavailability  and
bioequivalence  studies  must be  conducted  in support of the ANDA and clinical
studies are not required.  Bioavailability  indicates the rate of absorption and
levels of concentration of a drug in the blood stream.  Bioequivalence  compares
the  bioavailability  of one drug product with  another and,  when  established,
indicates  that the rate of absorption and levels of  concentration  in the body
are substantially  equivalent to the previously  approved reference listed drug.
An  ANDA  may  be  submitted  for  a  drug  product  on  the  basis  that  it is
bioequivalent  to a  previously  approved  drug product or, in the case of a new
dosage form, that it is suitable for use for the indications  specified  without
the need to conduct additional safety or efficacy testing.

         The Drug Price Competition and Patent Restoration Act of 1984, known as
the  Hatch-Waxman,  require  that we submit an ANDA to the FDA for each  generic
product we seek to market. The ANDA contains a substantial amount of information
about  the  proposed   product's   formulation,   ingredients,   chemistry   and
manufacturing  controls,  stability and the  bioavailability  and bioequivalence
studies conducted on such product,  all of which is reviewed by the FDA's Office
of Generic  Drugs (OGD).  In addition,  the ANDA is required to contain the ANDA
applicant's  certification  concerning  each patent that has been listed for the
reference  brand product in the Orange Book. If there is no patent listed in the
Orange Book, the ANDA applicant so states by submitting what is referred to as a
Paragraph I certification.  If the patent listed in the Orange Book has expired,
the ANDA applicant so states by submitting what is referred to as a Paragraph II
certification. If the ANDA applicant intends to wait until the expiration of the
patent  listed in the Orange Book before it intends to market its  product,  the
ANDA applicant so states by submitting what is referred to as a

                                       14
<PAGE>

Paragraph III certification. And, if the ANDA applicant believes that the listed
patent is invalid or  unenforceable,  or that its product does not infringe such
patent(s),  the ANDA applicant so states by submitting  what is referred to as a
Paragraph IV certification in its ANDA.

         If a Paragraph IV  certification  is made, the ANDA applicant must also
send a notice containing its factual basis for its Paragraph IV certification to
the NDA owner and any  patent  holder.  The NDA owner or patent  holder may then
initiate a legal challenge  against the ANDA applicant for patent  infringement.
Before the December 2003  Amendments to  Hatch-Waxman  were enacted,  if the NDA
owner or  patent  holder  asserted  a patent  challenge  within 45 days of their
receipt of notice of the ANDA applicant's  Paragraph IV  certification,  the FDA
was  prevented  from  approving  that ANDA until the  earlier of 30 months,  the
expiration of the patent,  or when the  infringement  case  concerning each such
patent was favorably  decided in an ANDA  applicant's  favor, or such shorter or
longer  period as may be  ordered  by a court.  This  prohibition  is  generally
referred to as the 30-month  stay. In some cases,  NDA owners and patent holders
obtained additional patents for their products after an ANDA had been filed, but
before that ANDA received  final  marketing  approval,  and then initiated a new
patent challenge, which resulted in more than one 30-month stay.

         The December 2003 Amendments to Hatch-Waxman were intended to eliminate
certain  unfair   advantages  of  patent  holders  in  the   implementation   of
Hatch-Waxman. As a result of those amendments, the NDA owner remains entitled to
an automatic 30-month stay if they initiate a patent infringement lawsuit within
45 days of their receipt of notice of the Paragraph IV  certification,  but only
if their patent infringement  lawsuit is directed to patents that were listed in
the Orange Book before the ANDA was filed.  Where there are no patents listed in
the Orange Book at the time the applicant files its ANDA,  there is no automatic
30-month stay of regulatory  approval.  If patents are listed in the Orange Book
after the ANDA has been  filed,  the NDA owner may still sue the ANDA  applicant
for that  patent,  but the ANDA  will not be  subject  to an  automatic  stay of
regulatory  approval.  An ANDA  applicant  is  permitted to take legal action to
enjoin or prohibit the listing of certain patents in the Orange Book.

         An FDA regulation  effective  August 2003 further  defines the types of
patents that may be listed in the Orange Book and requires increased  disclosure
requirements  for  listed  patents  in an  effort  to  decrease  the  number  of
improperly  listed  patents.  While most of these  changes  should help  prevent
improperly  listed patents,  the long-term  effectiveness of this regulation and
the December 2003 amendments is unclear.

         If an ANDA  applicant  is the first to file an ANDA with a Paragraph IV
certification  and  provides  appropriate  notice  to the  NDA  holder  and  all
patentees  for a particular  generic  product,  the  applicant  may be awarded a
180-day   period  of  marketing   exclusivity   against  other   companies  that
subsequently  file ANDAs containing  Paragraph IV  certifications  for that same
product.  We  believe  this  period of  marketing  exclusivity  can  provide  an
opportunity for the successful  patent  challenger to build its market share, to
recoup the expense of patent  litigation and to realize  greater profit margins,
and in some cases, to gain value by relinquishing or transferring this

                                       15
<PAGE>

marketing exclusivity right to others. In addition, once that exclusivity period
has lapsed, we believe that the marketer of the first commercialized product may
more effectively  defend its market share position  against future  competition.
However,  an ANDA applicant's  ability to secure the benefit of this exclusivity
period, and the actual benefit it gains from the exclusivity period,  depends on
a variety of factors, some of which are beyond the applicant's control, such as:
the  timing  of  FDA  approval,   whether  other  ANDA  applicants   share  that
exclusivity, patent litigation related to the product and competitors' products,
raw material  availability,  and whether the brand product will also be marketed
as a generic (sometimes referred to as an authorized generic).  Court decisions,
FDA  interpretations,  legislative changes and the date of filing of an ANDA all
affect, among other things, how this exclusivity period is to be awarded, how it
is affected by other ANDA  applicants,  and the  benefit,  if any,  which may be
obtained from the 180-day marketing exclusivity period.

         The December  2003  Amendments  to  Hatch-Waxman  also modify the rules
governing when generic products are eligible for 180-day exclusivity periods and
when the 180-day  exclusivity  period is triggered or forfeited.  The Amendments
retroactively  apply a final and  non-appealable  court decision trigger for all
ANDAs filed before  December 8, 2003. As for ANDAs filed after December 8, 2003,
exclusivity is only triggered  upon the first  commercial  marketing of the ANDA
product. However, that exclusivity may be forfeited under certain circumstances,
including among other things,  if the ANDA is not marketed by the first-filer or
another  ANDA  applicant   within  a  certain   timeframe   after  a  final  and
non-appealable  court decision,  or if the FDA does not tentatively  approve the
first-filer's ANDA within 30 months.

         Certain ANDA procedures for generic  controlled-release drugs and other
products  are  presently  the  subject  of  petitions  filed by brand  name drug
manufacturers,  which seek  changes  from the FDA in the  approval  process  for
generic  drugs.  We cannot  predict at this time  whether  the FDA will make any
changes  to  the  ANDA  procedures  as  a  result  of  such  petitions,  ongoing
rulemakings or  litigation,  or the effect that such changes may have on us. Any
changes in FDA regulations,  policies or procedures may make ANDA approvals more
difficult to obtain or may otherwise  have a significant  adverse  effect on our
business.

         Under the Generic Drug  Enforcement  Act of 1992, the FDA is allowed to
impose  debarment and other  penalties on individuals  and companies that commit
certain  illegal acts  relating to the generic drug  approval  process.  In some
situations,  the Generic Drug  Enforcement Act requires the FDA to not accept or
review  ANDAs  for a  designated  period  of  time  that  from a  company  or an
individual that has committed certain violations. It also provides for temporary
denial  of  approval  of  applications   during  the  investigation  of  certain
violations that could lead to debarment and also, in more limited circumstances,
provides for the  suspension of the marketing of approved  drugs by the affected
company.  The Generic Drug  Enforcement  Act also allows for civil penalties and
withdrawal of previously approved applications.

CONTROLLED SUBSTANCES

         We are also  subject  to  federal,  state,  and local  laws of  general
applicability, such as laws relating to working conditions. We are also licensed
by,  registered  with, and subject to periodic  inspection and regulation by the
Drug Enforcement Agency (DEA) and various state agencies,

                                       16
<PAGE>

pursuant  to federal  and state  legislation  relating  to drugs and  narcotics.
Certain  drugs that we  currently  develop  or may  develop in the future may be
subject to regulations under the Controlled Substances Act and related statutes.
As we manufacture such products,  we may become subject to the Prescription Drug
Marketing Act, which regulates wholesale distributors of prescription drugs.

GMP

         All facilities and manufacturing techniques used for the manufacture of
products for clinical use or for sale must be operated in conformity  with FDA's
current Good Manufacturing Practices ("cGMP") regulations issued by the FDA. The
FDA advised  Kirk by letter  dated  February  28, 2006 of certain  deficiencies,
which the Company is in the process of having Kirk correct. See "Manufacturing".
If the Company hires an independent contractor to perform contract manufacturing
for us, we also must ensure  that our  contractor's  facilities  conform to cGMP
regulations.

         The  Company  intends  to and have Kirk  engage in  manufacturing  on a
commercial  basis for  distribution of products,  and operates its facilities in
accordance with cGMP regulations

COMPLIANCE WITH ENVIRONMENTAL LAWS

         We are subject to comprehensive  federal, state and local environmental
laws and regulations that govern,  among other things, air polluting  emissions,
waste water discharges,  solid and hazardous waste disposal, and the remediation
of  contamination  associated  with  current  or past  generation  handling  and
disposal activities, including the past practices of corporations as to which we
are the successor  legally or in  possession.  We do not expect that  compliance
with  such  environmental  laws  will  have a  material  effect  on our  capital
expenditures,  earnings or competitive position in the foreseeable future. There
can be no  assurance,  however,  that future  changes in  environmental  laws or
regulations,  administrative  actions or  enforcement  actions,  or  remediation
obligations  arising under  environmental  laws will not have a material adverse
effect on our capital expenditures, earnings or competitive position.

SOURCES AND AVAILABILITY OF RAW MATERIALS AND SUPPLIERS

         The active pharmaceutical  ingredients and other materials and supplies
used  in  Kirk's  manufacturing  operation  and  to be  used  in  the  Company's
pharmaceutical  manufacturing  operations are generally  available and purchased
from many different foreign and domestic suppliers.  However, in some cases, the
raw materials used to manufacture  pharmaceutical products may be only available
from a single  FDA-approved  supplier.  Any change in a supplier not  previously
approved must then be submitted  through a formal approval process with the FDA.
A delay of six  months  or more in the  manufacture  and  marketing  of the drug
involved while a new supplier becomes qualified by the FDA and its manufacturing
process is determined to meet FDA standards  could,  depending on the particular
product,  have a material adverse effect on the Company's  results of operations
and  financial  condition.  The Company will  attempt to mitigate the  potential
effects of any such situation by providing for, where economically and otherwise
feasible,  two or more suppliers of raw materials for the drugs it manufactures.
In

                                       17
<PAGE>

addition,  the Company may attempt to enter into a contract  with a raw material
supplier in an effort to ensure adequate supply for its products.

COMPETITION

         The  pharmaceutical  industry is highly  competitive.  Our  competition
varies in each of our principal  areas of  operations;  and in each such area of
operation,   our   competition   consists  of  those   companies  which  develop
controlled-release drugs and alternative drug delivery systems.

         The principal competitive factors in the generic  pharmaceutical market
include:  (i)  introduction  of other  generic drug  manufacturers'  products in
direct competition with the Company's  product,  (ii) introduction of authorized
generic products in direct competition with the Company's products, particularly
during exclusivity  periods,  (iii)  consolidation  among  distribution  outlets
through  mergers and  acquisitions  and the  formation  of buying  groups,  (iv)
ability of generic  competitors to quickly enter the market after the expiration
of patents or  exclusivity  periods,  diminishing  the  amount and  duration  of
significant products,  (v) the willingness of generic drug customers,  including
wholesale and retail customers,  to switch among  pharmaceutical  manufacturers,
(vi) pricing pressures and product  deletions by competitors,  (vii) a company's
reputation as a  manufacturer  and  distributor  of quality  products,  (viii) a
company's level of service (including  maintaining  sufficient  inventory levels
for timely deliveries), (ix) product appearance and labeling and (x) a company's
breadth of product  offerings.  The Company  believes  that these  factors  will
impact its product selection, development decisions and research plans.

         In recent years, an increasing number of pharmaceutical  companies have
become  interested  in  the  development  and   commercialization   of  products
incorporating   advanced  or  novel  drug  delivery  systems.   We  expect  that
competition  in the field of drug  delivery will  significantly  increase in the
future  since  smaller  specialized  research  and  development   companies  are
beginning  to  concentrate  on this  aspect of the  business.  Some of the major
pharmaceutical  companies have invested and are continuing to invest significant
resources in the development of their own drug delivery systems and technologies
and some have invested funds in such specialized drug delivery  companies.  Many
of these  companies have greater  financial and other  resources as well as more
experience than we do in commercializing  pharmaceutical  products.  The Company
believes  that its  principal  competitors  are those  that  have a  history  of
developing successful  controlled-release drugs, including Alpharma, Inc., Andrx
Corporation,   Mylan  Laboratories,   Inc.,  Par  Pharmaceuticals,   Inc.,  Teva
Pharmaceuticals  Industries Ltd., Biovail  Corporation,  Ethypharm S.A., Eurand,
Impax Laboratories, Inc., K-V Pharmaceutical Company and Penwest Pharmaceuticals
Company.  Each of these  companies has  developed  expertise in certain types of
drug delivery  systems,  although such expertise does not necessarily carry over
to  developing a  controlled-release  version of all drugs.  Such  companies may
develop  new  drug  formulations  and  products  or may  improve  existing  drug
formulations and products more efficiently than we can. In addition,  almost all
of our competitors  have vastly greater  resources than we do.  Furthermore,  an
adverse  determination  of our dispute with Nostrum and the  resignation  of Dr.
Mulye as Chief  Scientific  Officer could have a material  adverse effect on our
product   development   capability.   While  our  current  product   development
capabilities  and, if obtained,  patent  protection  may help us to maintain our
market position in the field of advanced

                                       18
<PAGE>

drug delivery, there can be no assurance that others will not be able to develop
such capabilities or alternative  technologies outside the scope of our patents,
if any, or that even if patent protection is obtained,  such patents will not be
successfully  challenged  in the future or that or that we will be successful in
hiring a qualified successor Chief Scientific Officer.

         Kirk's  competition  consists  of many  companies  who are  independent
pharmaceutical  drug  manufacturers  on a contractual  basis and  pharmaceutical
companies  many  of  which  have  substantially  greater  financials  and  other
resources including manufacturing capabilities and facilities.

DEPENDENCE ON ONE OR A FEW MAJOR CUSTOMERS

         Except  for the  Metformin  Drug,  the  Company  independently  of Kirk
presently has no drug products  approved for  manufacture or sale by the FDA and
accordingly has no product sales.  Based on its plans for  development,  and the
process  involved in FDA approval of drug  applications  and the delay resulting
from its dispute with  Nostrum,  the Company does not foresee the  initiation of
its sale of pharmaceutical products during fiscal year 2007 or 2008.

         No  customer  of Kirk was  responsible  for more  than 34% of its sales
revenues for the twelve months ended October 31, 2006.  Sales to four  customers
accounted in the aggregate for approximately 74% of its revenues.

EMPLOYEES

         On January 31, 2007, the Company had approximately  120 employees,  all
but one of whom,  the Chief  Executive  Officer and  President of  Synovics,  is
employed by Kirk. We intend to hire for our developmental  operations additional
personnel with experience in clinical testing, government regulation,  marketing
and business  development when the business  warrants the expense and assuming a
satisfactory  resolution  of our  dispute  with  Nostrum.  Currently,  Synovics'
developmental operations fulfill several of its management functions through the
use of independent  contractors.  These functions include legal,  accounting and
investor  relations.  The Company will need to hire a qualified  person as Chief
Scientific  Officer to replace  Dr.  Mulye who  resigned  in January  2007.  The
Company also plans to hire a Chief Financial Officer.

         We believe our relationship with employees is generally good.  However,
the  Company's  ability to achieve  its  financial  and  operational  objectives
depends  in large  part upon its  ability  to  attract,  integrate,  retain  and
motivate a qualified  person to direct our research  operations and other highly
qualified personnel, when need for such personnel arises, and upon the continued
service of our senior management and key personnel.



ITEM 1A.      RISK FACTORS

         AN  ADVERSE  DETERMINATION  OF OUR  DISPUTE  WITH  NOSTRUM  WILL HAVE A
MATERIAL ADVERSE EFFECT ON THE COMPANY AND POSSIBLY ITS FINANCIAL CONDITION.

                                       19
<PAGE>

     We are in the midst of a dispute with Nostrum which owns  approximately 40%
of the  outstanding  shares of Synovics'  Common Stock  arising from its notices
purporting to terminate  our rights to (i) four drugs which are being  developed
pursuant to the Technology Agreement dated as of March 16, 2005, as amended (the
"Technology Agreement") and (ii) the ANDA Ownership Transfer and Product License
Agreement,  dated May 17, 2006 (the "ANDA Agreement").  The Technology Agreement
and ANDA  Agreement  provide the Company with  exclusive  rights  under  certain
Nostrum  technology  for  the  development,  manufacture  and  sale  of  certain
controlled  release  drug  products as well as to  ownership  of an FDA approved
abbreviated new drug application and certain  additional  exclusive rights under
certain Nostrum  technology,  all of which are central to the Company's  product
pipeline.  The  Company  disputes  the  purported  termination  notices  and has
submitted the dispute for arbitration.

         On November  20,  2006,  the Company  obtained  from the United  States
District Court a temporary  restraining order enjoining Nostrum from terminating
the  Technology  Agreement.  On  December  6, 2006,  Nostrum  was  preliminarily
enjoined  from  terminating  the  Technology  Agreement  but only as to the four
products  designated by the Company for  development  pursuant to the Technology
Agreement  conditioned on the Company posting a $100,000 bond,  which it posted.
The Court held a further  hearing in the matter on January  31,  2007,  at which
time the parties  reported to the Court on the status of the  arbitration and on
the status of the Company's  work with respect to the four products that are the
subject of the  injunction;  the Court has  reserved  decision  and extended the
preliminary injunction pending the conduct of limited discovery.

         The Company's subsidiary,  Synovics Laboratories,  on January 12, 2007,
filed a  complaint  with the  United  States  District  Court  for the  Southern
District  of New York  seeking  to  enjoin  Nostrum  from  terminating  the ANDA
Agreement.  That action has been consolidated with the  previously-filed  action
relating  to  the  Technology  Agreement.  Synovics  Laboratories  moved  for  a
preliminary  injunction on January 23, 2007 and the Court has reserved  decision
ordering preservation of the status quo pending that decision.

         No assurance can be given that  permanent  injunctions  will be granted
and that the Company will be able to avoid a termination  of the  Technology and
ANDA  Agreements,  and  maintain  its rights as to  products  under  development
pursuant to such agreements or receive adequate restitution.

         The loss of either the  Technology  Agreement and ANDA  Agreement  will
have a material  adverse effect on the Company's  operations and possibly on its
financial condition.

         WE  HAVE  SUBSTANTIAL  INDEBTEDNESS  OUTSTANDING  AND  ARE  LATE IN THE
PAYMENT OF CERTAIN OUTSTANDING NOTES.

         In order to finance our  operations,  as of October 31,  2006,  we have
incurred   significant   indebtedness  of  $18,295,000  (not  including  accrued
interest)  including,  but not limited to, a senior secured credit facility from
the Bank of India in the  principal  amount of  $10,500,000  used to finance the
purchase  of Kirk and for  working  capital  purposes,  a note in the  principal
amount of $3,000,000  held by one of the former  owners of Kirk and  convertible
bridge notes in the

                                       20
<PAGE>

principal  amount of  $4,545,000.  As of the date of this Annual  Report on Form
10-K, we are late in the payment of interest on notes in the principal amount of
$4,545,000 and are currently in discussions with a handful of note holders in an
effort to resolve this. There can be no assurances that we will be able to reach
a  satisfactory  resolution  or that  any  such  resolution  will be upon  terms
favorable  to the  Company  and our  failure to  resolve  this may result in the
principal and all accrued and unpaid interest thereon becoming immediately which
event would have a material adverse effect on our business, prospects, financial
condition,  and  results  of  operations.  In  addition,  since we have  limited
resources,  we anticipate  repaying such indebtedness from future cash flow from
product commercialization and from the offering of equity and/or debt securities
and  there  are no  assurances  that we will  generate  such  cash flow or raise
adequate financing, if any, to service such debt.

         WE ARE  CONTINUING TO ACCRUE  PENALTIES  FOR FAILURE OF A  REGISTRATION
STATEMENT TO BE DECLARED EFFECTIVE.

         As part of a private  placement  conducted during the fiscal year ended
October 31, 2006,  the Company  committed to register the shares of Common Stock
underlying  certain  convertible  notes and placement  agent  warrants  promptly
following the closing of the offering and to cause the registration statement to
be declared  effective no later than 120 days  following  closing.  Although the
Company  subsequently filed a registration  statement,  it has not been declared
effective and as a  consequence  we are accruing a penalty of 1% of the purchase
price paid by the note holders plus the aggregate exercise price of the warrants
and  placement  agent  warrants for the first two months  increasing to 2.5% for
each  subsequent  month.  There is no cap on the maximum amount of the penalties
and the  Company has  recognized  penalties  of  $914,549  during the year ended
October 31, 2006.

         A FAILURE  TO LOCATE AND HIRE A SUITABLE  CHIEF  SCIENTIFIC  OFFICER IN
REPLACEMENT  OF DR. MULYE COULD HAVE A MATERIAL  ADVERSE EFFECT ON THE COMPANY'S
OPERATIONS AND FINANCIAL RESULTS.

         The  Company  on January 5, 2007  received a letter of  resignation  as
Chief  Scientific  Officer  from Dr.  Nirmal A.  Mulye,  who had  resigned  as a
Director in November 2006 and is the beneficial owner of the outstanding  shares
of common stock of Nostrum.  No assurance  can be given that the Company will be
successful in locating and hiring a suitable new Chief Scientific Officer in the
reasonable  future.  Failure to do so will have a material adverse effect on the
research and development operations of the Company.

         SYNOVICS  HAS A LIMITED  OPERATING  HISTORY  UPON WHICH AN INVESTOR CAN
EVALUATE ITS POTENTIAL FOR FUTURE SUCCESS.

         Other than as to the recently  acquired  operations  of Kirk,  there is
limited historical financial information about the Company upon which to base an
evaluation  of the  Company's  performance  or to make a decision  regarding  an
investment in shares of the Company's common stock. The Company has generated an
accumulated  deficit of approximately  $53,000,000 through its fiscal year ended
October 31, 2006,  $44,832,000  through  October 31, 2005;  $41,921,000  through
October 31, 2004,  $40,797,000 through October 31, 2003, and $40,037,000 through
October 31, 2002. In the future, sales of products the Company may

                                       21
<PAGE>

introduce  may fail to  achieve  significant  levels of market  acceptance.  The
Company's research and development business will be subject to all the problems,
expenses,  delays and risks  inherent  in the  establishment  of an early  stage
business enterprise,  including limited capital,  delays in product development,
cost overruns due to price increases in raw products and unforeseen difficulties
in  manufacturing,  uncertain market  acceptance and the absence of an operating
history.  Therefore,  the  Company  may never  achieve  or  maintain  profitable
operations,  and the  Company may  encounter  unforeseen  difficulties  that may
deplete its capital more rapidly than anticipated.

         THE COMPANY  EXPECTS TO INCUR  SUBSTANTIAL  LOSSES FOR THE  FORESEEABLE
FUTURE AS A RESULT OF  INCREASES IN ITS  RESEARCH  AND  DEVELOPMENT  ACTIVITIES,
INCLUDING COSTS ASSOCIATED WITH CLINICAL TRIALS AND REGULATORY COMPLIANCE.

         Synovics is a development stage company and is anticipating a prolonged
period of losses  and  negative  cash  flows  while it  develops  and  commences
commercialization  of  its  planned  products.  As a  result,  its  chances  for
achieving  profitability  on a sustained basis will depend on numerous  factors,
including the following:

         o        successful  retention  of the  Technology  Agreement  and ANDA
                  Agreement or entry into a satisfactory  development  agreement
                  with a suitable research company;

         o        raising   additional   capital  to  service  debt  and sustain
                  operations;

         o        successful development and testing of product candidates;

         o        the  receipt of  required  regulatory  approvals  relating  to
                  product candidates;

         o        commercialization of our products; and

         o        gaining a competitive position in the market.

         THE COMPANY WILL REQUIRE ADDITIONAL CAPITAL,  AND IF ADDITIONAL CAPITAL
IS NOT AVAILABLE, THE COMPANY MAY HAVE TO CURTAIL OR CEASE OPERATIONS.

         To become and remain competitive,  the Company will be required to make
significant  investments in research and development on an ongoing basis and the
expansion of its recently acquired  operation of manufacturing  Over-the-Counter
(OTC) and generic  prescription  drugs.  At this time, the Company has committed
sources of financing  that the Company  believes would allow a limited number of
its products to be developed and commercialized and the manufacturing operations
to be expanded.  For the Company to be able to continue to use its technology or
if  termination  by Nostrum of the  Technology  Agreement and ANDA  Agreement is
sustained, to locate or develop technology,  or to develop future drug products,
the Company will need additional  capital beyond that committed.  It is intended
that  this  additional  capital  will be  derived  from  future  product  sales,
including products developed, manufactured and distributed by Kirk, cash derived
from product license  agreements with other  pharmaceutical  companies or future
capital raised by means of debt or equity  financing.  There can be no assurance
that additional  necessary  financing will be attainable on terms  acceptable to
the  Company  in  the  future  or at  all.  If  financing  is not  available  on
satisfactory terms, the Company may be unable to operate at its present level or
develop and expand its business,  develop new products or develop new markets at
the rate desired,  and its  operating  results may be adversely  affected.  Debt

                                       22
<PAGE>

financing increases expenses and must be repaid regardless of operating results.
The  availability  of equity  financing  is  uncertain,  and  successful  equity
financing  would result in  additional  dilution to existing  stockholders.  The
losses  incurred  to  date,  the  uncertainty  regarding  the  ability  to raise
additional  capital and questions  concerning the Company's  ability to generate
net income and positive cash flows from operations may indicate that the Company
will be unable to continue as a going  concern for a reasonable  period of time.
The Company's audit opinion,  as of and for the three fiscal years ended October
31, 2006, 2005 and 2004 also indicates that there is substantial doubt about the
Company's ability to continue as a going concern.

         MANY  OF  THE  PRODUCTS   MANUFACTURED   BY  KIRK  CONTAIN   CONTROLLED
SUBSTANCES, THE SUPPLY OF WHICH IS REGULATED.

         The  raw  materials  used  in many of the  current  Kirk  products  are
controlled   substances   and  are  regulated  by  the  U.S.  Drug   Enforcement
Administration.  Consequently, their manufacture, shipment (including import and
export),  storage,  sale and use are subject to the highest degree of regulation
and  accountability.  Failure  to comply  with  applicable  laws and  regulatory
requirements  may  result in action  such as civil  penalties,  refusal to renew
necessary  registrations,  or proceedings to revoke those  registrations and, in
certain  circumstances,   criminal  proceedings.  If  Kirk's  registration  were
revoked,  denied or suspended, it could no longer lawfully possess or distribute
controlled  substances,   thereby  having  a  material  adverse  effect  on  its
operations.

         THE COMPANY'S FAILURE TO COMPETE EFFECTIVELY MAY LIMIT ITS ABILITY TO
ACHIEVE PROFITABILITY.

         Competition in the  pharmaceutical  area is intense,  and the Company's
competitors have  substantially  greater  resources than the Company.  It may be
required to obtain  development  and/or marketing  partners to effectively enter
the drug market.

         We  expect  that  competition  in  the  field  of  drug  delivery  will
significantly  increase in the future  since  smaller  specialized  research and
development  companies  are  beginning  to  concentrate  on this  aspect  of the
business.  Some of the major  pharmaceutical  companies  have  invested  and are
continuing to invest significant  resources in the development of their own drug
delivery  systems  and  technologies  and  some  have  invested  funds  in  such
specialized  drug  delivery  companies.  Many of these  companies  have  greater
financial  and  other  resources  as  well  as  more  experience  than  we do in
commercializing pharmaceutical products. The Company believes that its principal
competitors   are  those   that  have  a  history   of   developing   successful
controlled-release  drugs.  Each of these  companies has developed  expertise in
certain  types  of drug  delivery  systems,  although  such  expertise  does not
necessarily carry over to developing a controlled-release  version of all drugs.
Such  companies  may develop new drug  formulations  and products or may improve
existing  drug  formulations  and  products  more  efficiently  than we can.  In
addition,  almost all of our competitors  have vastly greater  resources than we
do. While our product development capabilities,  if the Technology Agreement and
the ANDA Agreement are continued,  and, if patent  protection is secured to help
us to maintain our market position in the field of advanced drug delivery, there
can be no assurance that others will not be able to develop such capabilities or
alternative  technologies outside the scope of our patents, if any, or that even
if  patent  protection  is  obtained,  such  patents  will  not be  successfully
challenged in the future.

                                       23
<PAGE>

         Kirk's  competition  consists  of many  companies  who are  independent
pharmaceutical  drug manufacturers on a contractual basis and the pharmaceutical
companies which have  manufacturing  capabilities and facilities,  many of which
have substantially greater financials and other resources.

         THE COMPANY MAY FAIL TO ESTABLISH OR CULTIVATE  STRATEGIC  PARTNERSHIPS
TO EXPAND ITS BUSINESS.

         The  Company has stated its intent to develop  its  business  model and
build its business  initially  through  strategic  partnerships,  initially with
Nostrum.  The principal focus of these  relationships  is the funding of product
development  (and  regulatory  approval when  necessary),  marketing,  sales and
co-promotion of its technology/products.  Manufacturing, independent of Kirk, is
also currently intended to be achieved through partnerships, either as part of a
marketing  agreement  with  other  companies,  or  by  contract  with  companies
exclusive of marketing  and sales.  The Company may not be able to  successfully
form or manage such other  partnerships,  and if not, the  Company's  ability to
execute its business plan will be at risk.  Further,  if these  partnerships are
formed but are not successful in their  execution,  further revenue derived from
licensing payments or other such technology/product  payments to the Company may
not materialize.

         THE  COMPANY'S  ABILITY  TO  MARKET  ITS  PRODUCTS  IS  SUBJECT  TO THE
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

         The potential  505(b)(2)  products the Company currently is considering
to develop and  market,  and those that it may develop and market in the future,
may infringe  patent and other rights of third parties.  In addition,  Synovics'
competitors, many of which have substantially greater resources than the Company
and have made significant investments in competing technologies or products, may
seek to apply for and obtain patents that will prevent,  limit or interfere with
the  Company's  ability to make,  use and sell  products  either in the U.S.  or
international  markets.  Intellectual  property litigation in the pharmaceutical
industry is common, and the Company expects this to continue.

         IF SYNOVICS IS UNABLE TO FILE FOR APPROVAL  UNDER SECTION  505(B)(2) OF
THE FDCA OR IF IT IS REQUIRED TO GENERATE  ADDITIONAL DATA RELATED TO SAFETY AND
EFFICACY IN ORDER TO OBTAIN APPROVAL UNDER SECTION  505(B)(2),  IT MAY BE UNABLE
TO MEET ITS ANTICIPATED DEVELOPMENT AND COMMERCIALIZATION TIMELINES.

         The Company's current plans for filing NDAs for its product  candidates
include efforts to minimize the data the Company will be required to generate in
order to obtain  marketing  approval for its product  candidates  and  therefore
possibly obtain a shortened review period for the applications.  The Company has
not yet  discussed  or  agreed  with the FDA as to the  nature  or extent of any
studies it may be  required to conduct in order to achieve  approval  for any of
its product  candidates.  The timeline for filing and review of NDAs is based on
the  Company's  plan to submit NDAs under  Section  505(b)(2) of the FDCA,  as a
result of which the  Company  may rely in part on data in the  public  domain or
elsewhere. The Company has not yet filed an NDA

                                       24
<PAGE>

under Section 505(b)(2) for any product  candidates.  Depending on the data that
may be  required  by the FDA for  approval,  some of the data may be  related to
products  already  approved  by the FDA.  If the data  relied upon is related to
products  already  approved  by the FDA and covered by  third-party  patents the
Company  would be  required  to  certify  that it does not  infringe  the listed
patents or that such  patents are invalid or  unenforceable.  As a result of the
certification,   the  third-party  would  have  45  days  from  notification  of
certification  to initiate an action  against the Company.  In the event that an
action is brought in  response  to such a  certification,  the  approval  of the
Company's  NDA could be  subject  to a stay of up to 30 months or more while the
Company defends against such a suit. Approval of the Company's potential product
candidates  under  Section  505(b)(2)  may  therefore  be delayed  until  patent
exclusivity   expires  or  until  the  Company   successfully   challenges   the
applicability   of  those   patents  to  its   potential   product   candidates.
Alternatively,  the Company may elect to generate sufficient additional clinical
data so that it no longer relies on data which  triggers a potential stay of the
approval of its product candidates.  Even if no exclusivity periods apply to the
Company's applications under Section 505(b)(2),  the FDA has broad discretion to
require the Company to generate  additional  data on the safety and  efficacy of
its product  candidates to supplement  third-party data on which the Company may
be permitted to rely.  In either event,  the Company  could be required,  before
obtaining  marketing  approval  for any of its  product  candidates,  to conduct
substantial  new research and  development  activities  beyond those the Company
currently plans to engage in order to obtain approval of its product candidates.
Such additional new research and development activities would be costly and time
consuming.

          THE COMPANY MAY BECOME SUBJECT TO INCREASED  GOVERNMENTAL  REGULATION,
WHICH COULD  INCREASE THE COSTS OR CAUSE THE COMPANY TO REVISE  CERTAIN  PRODUCT
CLAIMS.

         The design,  development and marketing of pharmaceutical  compounds, on
which our success  depends,  is subject to extensive  regulation  by the federal
government, principally the FDA, and to a lesser extent, other federal and state
government agencies.  The FFDCA, the Controlled Substances Act and other federal
statutes  and  regulations   govern  the  development,   testing,   manufacture,
safety/effectiveness,  labeling, storage, record keeping, approval,  advertising
and  promotion  of  the  Company's  products.   Non-compliance  with  applicable
regulations can result in judicially and/or administratively  imposed sanctions,
including the  initiation of product  seizures,  injunction  actions,  fines and
criminal  prosecutions.  Administrative  enforcement  measures  may  involve the
recall of products, as well as the refusal of an applicable government authority
to enter into supply contracts or to approve new drug applications. The FDA also
has the  authority  to  withdraw  its  approval  of  drugs  in  accordance  with
regulatory  due  process  procedures.  The  cost of  complying  with  government
regulations   substantially  increases  the  cost  of  producing  the  Company's
products.

         FDA approval is required  before any new drug can be marketed.  The FDA
requires  extensive testing of new  pharmaceutical  products to demonstrate that
such products are both safe and effective in treating the  indications for which
approval is sought.  Testing in humans may not be  commenced  until after an IND
exemption is granted by the FDA. A NDA or supplemental  NDA must be submitted to
the FDA both for new drugs that have not been previously approved by the FDA and
for new  combinations  of, new  indications  for,  or new  delivery  methods for
previously  approved drugs. FDA approval of an ANDA is required before a generic
equivalent

                                       25
<PAGE>

of an existing or  referenced  brand drug can be  marketed.  The ANDA process is
abbreviated  in that the FDA  waives  the  requirement  of  conducting  complete
preclinical and clinical studies and, instead,  relies on bioequivalence studies
which compare the  applicant's  drug with an already  approved  reference  drug.
These ANDA filings  allow a company to avoid the  expensive  and  time-consuming
process of clinical efficacy and safety studies that are required for NDAs.

         The Company has received a letter,  dated July 28, 2006 (the "Letter"),
summarizing  the findings of the periodic  investigation  by the FDA relating to
Kirk, the Company's recently acquired subsidiary. The Letter relates a number of
deficiencies  in the quality  control  procedures  and other  processes of Kirk.
Specifically  and without  limitation,  the Letter  describes  discrepancies  in
manufactured  batches of  pharmaceutical  products,  internal  review and record
failures,   failures  to  follow  production  and  quality  control  guidelines,
inadequate training of personnel, inadequate staffing, and inadequate laboratory
controls  and  product  labeling.  As a result of the  Company's  due  diligence
investigation  of Kirk prior to the  closing  of the  acquisition,  the  Company
generally anticipated the findings set forth in the Letter and is in the process
of establishing corrective measures to ensure that the operations and procedures
of Kirk address the deficiencies  identified in the Letter and fully comply with
relevant FDA  requirements.  No assurance can be given that full compliance will
be achieved to the satisfaction of the FDA.

         THE  COMPANY  HAS A LIMITED  HISTORY OF  RESEARCH  AND  DEVELOPMENT  OR
COMMERCIALIZATION OF DRUG PRODUCTS.

         The Company is in the course of  developing  four generic drug products
through its  Technology  Agreement with Nostrum and acquired the ownership of an
ANDA  application,  which was subsequently  approved,  as to another through its
ANDA Agreement with Nostrum,  both of which are the subject of a dispute arising
from Nostrum's attempts to terminate the agreements.  While the Company believes
it can  successfully  accomplish the  development,  manufacturing  and launch of
products based on its licensed  technology  under the  Technology  Agreement and
ANDA Agreement,  if they are sustained, by raising additional capital to sustain
its operations and service its debt, hiring requisite  competent and experienced
management and operational  personnel,  employing its relationship  with Kirk or
teaming with other pharmaceutical  companies to create strategic partnerships at
various stages of the process, there is no assurance that any or all of this can
be accomplished to the degree  necessary to ensure a successful drug development
and commercialization operation.

         THE COMPANY FACES PRODUCT LIABILITY RISKS AND MAY NOT BE ABLE TO OBTAIN
ADEQUATE INSURANCE TO PROTECT IT AGAINST LOSSES.

         As a marketer of pharmaceutical  products and dietary  supplements that
are  intended  to be ingested by  consumers,  even if sold to the  consumer by a
third party company and/or  formulated in a third party company's  product,  the
Company may be subject to various product  liability  claims,  including,  among
others,   that  its  products   contain   contaminants  or  include   inadequate
instructions  as to use or  inadequate  warnings  concerning  side  effects  and
interactions with other substances. While no such claims have been made to date,
any future product  liability claims and the resulting  adverse  publicity could
harm the Company's business. If a successful product

                                       26
<PAGE>

liability claim or series of claims is brought against the Company for uninsured
liabilities or in excess of insured liabilities, the Company's assets may not be
sufficient to cover such claims and its business operations could be impaired.

         BECAUSE  OF THE  SPECIALIZED  NATURE  OF THE  COMPANY'S  BUSINESS,  THE
TERMINATION OF RELATIONSHIPS WITH ITS KEY MANAGEMENT AND SCIENTIFIC PERSONNEL OR
ITS  INABILITY  TO RECRUIT AND RETAIN  ADDITIONAL  PERSONNEL  COULD  PREVENT THE
COMPANY FROM DEVELOPING ITS TECHNOLOGIES AND OBTAINING FINANCING.

         The Company is dependent on its  management,  particularly  Drs. Ronald
Lane, a founder and its Chief Executive Officer,  and until he resigned as Chief
Scientific  Officer in January  2007,  Nirmal  Mulye,  for all its business' and
technology  development  activities.  The Company is dependent on its ability to
attract,  retain and motivate a suitable Chief Scientific Officer replacement as
well as a Chief Financial Officer and additional qualified  personnel.  The loss
of the services of Dr. Lane or other executive  officers and key employees could
also have a material adverse effect on the business of the Company.

         IF  THE  SUPPLIERS  AND  MANUFACTURERS  OF  THE  COMPANY'S  INGREDIENTS
ENCOUNTER DIFFICULTIES, THE COMPANY COULD EXPERIENCE PRODUCTION PROBLEMS.

         Many of the  potential  sources for Kirk's raw products or  ingredients
originate or are  accessed in the Third World.  Because of political or economic
uncertainty  associated  with Third World  countries,  there may be catastrophic
events  including acts of God that could affect the reliability or dependability
of sources so located. The Company has identified several potential suppliers of
such raw products in various Third World countries.  These potential  suppliers,
while evidencing current economical soundness and viable operations, are subject
to these same uncertainties.  There is no assurance, therefore, that in the face
of catastrophic  events in the Third World,  these potential  suppliers would be
able to meet the  product  needs of the  Company or of the  Company's  strategic
partners.

        THE COMPANY MAY EXPERIENCE DIFFICULTY IN ENTERING INTERNATIONAL MARKETS.

         The creation of strategic  partnerships  and the  marketing and sale of
the Company's  pharmaceutical  technology/products  could experience  difficulty
entering international markets due to greater regulatory barriers, the necessity
of  adapting to new  regulatory  systems and  problems  related to entering  new
markets  with  different  cultural  bases and  political  systems.  Operating in
international  markets  exposes the Company to certain risks,  including,  among
other things: (i) changes in or interpretations of foreign  regulations that may
limit the Company's  ability to sell certain  products or repatriate  profits to
the United States; (ii) exposure to currency  fluctuations;  (iii) the potential
imposition of trade or foreign exchange  restrictions or increased tariffs;  and
(iv)  political   instability.   If  the  Company  expands  into   international
operations,  these and other risks associated with international  operations are
likely  to be  encountered.  In  addition,  there can be no  assurance  that the
Company  will be able to enter  into  agreements  with  international  marketing
partners and thereby would limit the expansion of its revenue base.

                                       27
<PAGE>

         THE  COMPANY  RELIES ON PATENTS,  LICENSES  AND  INTELLECTUAL  PROPERTY
RIGHTS TO PROTECT ITS PROPRIETARY INTERESTS.

         The  Company's  success  depends  in part on its  continued  ability to
obtain  patents,  licenses and other  intellectual  property rights covering its
products.  The  Company's  current  patent  rights  are  held by its  subsidiary
LipoGenics and relate to dietary  supplement  and potential  future new chemical
entity drug development, which are not central to the Company's current business
plan. There can be no assurance that the Company's licenses,  patents and patent
applications  are  or  will  be  sufficiently  comprehensive  to  protect  these
products.  Although there can be no assurance,  the Company may be successful in
filing for patent  protection  for generic or 505(b)(2)  products it develops in
the future independent or together with the Nostrum  technology.  The process of
seeking further patent protection can be long and expensive, and there can be no
assurance that the Company will have  sufficient  capital  reserves to cover the
expense  of  patent  prosecution  for its  application  or that  all or even any
patents will issue from currently  pending or any future patent  applications or
that any of the patents when issued will be of  sufficient  scope or strength to
provide meaningful protection or any commercial advantage to the Company.  While
the  Company  believes  the  bases  on  which  patent  applications  were  filed
correspond  to the patents that have been issued for  composition  and method of
production and use and are reasonable  given the issuance of the latter patents,
there can be no  assurance  that the patents  for which it has  applied  will be
issued.  The  Company  may  be  subject  to  or  may  be  required  to  initiate
interference   proceedings  in  the  U.S.  Patent  and  Trademark  Office.  Such
proceedings could demand  significant  financial and management  resources.  The
Company may receive communications  alleging possible infringement of patents or
other intellectual  property rights of others. The Company believes that in most
cases  it could  obtain  necessary  licenses  or other  rights  on  commercially
reasonable  terms, but it may be unable to do so. In addition,  litigation could
ensue or damages for any past infringements could be assessed. Litigation, which
could result in substantial cost to and diversion of efforts by the Company, may
be necessary to enforce  patents or other  intellectual  property  rights of the
Company or to defend the Company against  claimed  infringement of the rights of
others.  The failure to obtain necessary  licenses or other rights or litigation
arising out of infringement  claims could have a material  adverse effect on the
Company.

         THE  COMPANY'S  STOCK  IS  THINLY  TRADED  AND  MAY  EXPERIENCE   PRICE
VOLATILITY,  WHICH COULD AFFECT A  STOCKHOLDER'S  ABILITY TO SELL THE  COMPANY'S
STOCK OR THE PRICE FOR WHICH IT CAN BE SOLD.

         There  has been and may  continue  to be,  at least  for the  immediate
future, a limited public market for the common stock of the Company. On July 18,
2001,  the  Company's  common  stock was delisted  from  quotation on the Nasdaq
SmallCap  Market  due  to  non-compliance   with  certain   continuing   listing
requirements.  From July 19, 2001 to February 28,  2003,  the  Company's  common
stock was quoted on the OTC  Bulletin  Board  under the symbol  "BNRX.OB."  From
March 1, 2003 to July 12,  2005,  the  Company's  common stock was quoted on the
"Pink Sheets" under the symbol "BNRX.PK".  On July 13, 2005 the Company's common
stock was approved by the NASD and appeared on the OTCBB with an unpriced quote.
Three  business  days later,  on July 18,  2005,  HDSN showed a priced quote for
BNRX.OB.  Thirty days later,  on August 15,  2005 all other  market  makers were
eligible to appear on the OTCBB with their  quotes,  and have been quoted  there
through the present.

                                       28
<PAGE>

         RIGHTS TO ACQUIRE  SHARES OF THE COMPANY'S  COMMON STOCK WILL RESULT IN
DILUTION TO OTHER HOLDERS OF ITS COMMON STOCK.

         As of February 14, 2007,  there were no options  outstanding  under the
Company's  1996 Stock  Option Plan  independent  of the Rights  granted  under a
Rights Plan  discussed  under the Risk Factor that follows this Risk Factor.  An
additional  570,000 shares of common stock are reserved for issuance pursuant to
the exercise of options that may be granted in the future under the Plan.  As of
October 31, 2006, the Company also has outstanding warrants not issued under the
1996  Plan to  purchase  up to  1,947,751  shares of  common  stock,  as well as
convertible  promissory  notes of $4,545,000  convertible  into shares of common
stock at $3.00  per  share,  unless  adjusted  by  formula  per the  convertible
promissory  note  agreements.  During the terms of such  options,  warrants  and
convertible securities,  the holders thereof will have the opportunity to profit
from an increase in the market price of the common stock with resulting dilution
in the  interests  of  holders  of common  stock.  The  existence  of such stock
options,  warrants and  convertible  notes could  adversely  affect the terms on
which the  Company  can obtain  additional  financing,  and the  holders  can be
expected to exercise  those  exercise and  conversion  rights at a time when the
Company,  in all  likelihood,  would be able to  obtain  additional  capital  by
offering  shares of its common stock on terms more favorable to the Company than
those provided by the exercise or conversions of the securities.

         The Company also has the authority to issue additional shares of common
stock and  shares of one or more  series of  convertible  preferred  stock.  The
issuance of those  shares  could  result in the  dilution of the voting power of
outstanding  shares of common stock and could have a dilutive effect on earnings
per share.

         IT MAY BE  DIFFICULT  FOR A THIRD PARTY TO GAIN CONTROL OF THE COMPANY,
EVEN IF THE  ACQUISITION  OF  CONTROL  WOULD  BE IN THE  BEST  INTERESTS  OF ITS
STOCKHOLDERS.

         The Company's Restated Articles of Incorporation and the Nevada General
Corporation  Law  contain  provisions  that may have the  effect of making  more
difficult or delaying attempts by others to obtain control of the Company,  even
when those attempts may be in the best interest of stockholders. Nevada law also
imposes conditions on certain business combination transactions with "interested
stockholders"  (as  defined  therein).  The  Restated  Articles  provide  for  a
staggered  board,  which makes it more difficult for the  stockholders to change
the majority of the Company's  directors.  In addition,  the Company's  Restated
Articles  authorize the Board of Directors,  without  stockholder  approval,  to
issue one or more  series of  preferred  stock,  which  could  have  voting  and
conversion  rights that adversely  affect the voting power of the holders of its
common stock.

         On September 8, 2006,  the Board of Directors of the Company  adopted a
Rights  Plan,  the  effect  of which is to grant  stockholders  of  record as of
September  8, 2006,  in the event of a  transaction  which is not an exchange or
tender offer to all the  stockholders and is on terms and price which a majority
of certain  members of the Board does not  determine  to be adequate  and in the
best interests of the Company,  its  stockholders and other  constituencies  the
right to acquire  during the period ended  September 8, 2011 for each share held
of record one additional share of

                                       29
<PAGE>

Common  Stock  at a price  equal  to 33 1/3%  of  the  then  market  price.  The
transaction is the acquisition by an "Acquiring  Person" or group of such shares
which would result in the person or group beneficially owing in excess of 20% of
the outstanding shares of Common Stock of the Company or the acquisition of by a
20% or more  owner or group of owners  of an  additional  1% of the  outstanding
shares of Common Stock.  The Plan also provides that in the event of a merger or
other  business  combination in which the owners of all the  outstanding  shares
prior to the  transaction  are not the  owners of all the  voting  powers of the
surviving  corporation or in the event of a sale or transfer of more than 50% of
the  Company's  assets or earning power the  stockholders  of the Company are to
receive upon payment of the Purchase Price of $1,200 per share, shares of common
stock of the  acquiring  company  having a value equal to two times the Purchase
Price.

         The  existence  of such Plan will have the effect of making the Company
less  attractive in the market to candidates not approved by certain  members of
the Board and thus reduce the  possibility  of a transaction  being effected for
the sale of Common Stock of the Company or an asset or stock  transaction  which
would result at a higher price than if the Rights Plan did not exist.

         THE BY-LAWS OF THE COMPANY HAVE BEEN  RECENTLY  AMENDED TO RESTRICT THE
ABILITY OF  STOCKHOLDERS  TO  PARTICIPATE  IN THE ELECTION OF DIRECTORS  AND THE
PRESENTATION OF MATTERS AT STOCKHOLDER MEETINGS.

On September 8, 2006,  the By-laws of the Company were amended to provide  that:
(i) nominees for Director at the annual  meeting by  stockholders  other than by
the Board can be made only by  written  notice to the Board  delivered  within a
designated  period prior to the meeting and provided  certain  information as to
the nominee and the stockholder  making such nomination is given to the Board in
such notice,  and (ii)  business at the annual  meeting can be introduced by the
Board of Director or only by those  stockholders  who provide written notice not
less than 40 nor more than 90 days prior to the  annual  meeting,  containing  a
description of the business and reasons therefore and certain  information as to
the  stockholders.  Such  provisions  restrict  the ability of  stockholders  to
nominate Directors and to introduce business as to the Company for consideration
of the stockholders.

         FORWARD-LOOKING  STATEMENTS  SHOULD NOT BE RELIED ON  BECAUSE  THEY ARE
INHERENTLY UNCERTAIN.

         Certain  statements  and  information  contained in this 10-K regarding
matters that are not historical facts are  forward-looking  statements,  as that
term is defined under  applicable  securities  laws.  These  include  statements
concerning the Company's future,  proposed, and anticipated activities;  certain
trends with respect to its revenue,  operating results,  capital resources,  and
liquidity,  and certain  trends with respect to the markets in which the Company
competes or its industry in general.  Forward-looking  statements, by their very
nature, include risks and uncertainties,  many of which are beyond the Company's
control. Accordingly,  actual results may differ, perhaps materially, from those
anticipated in or implied by such forward-looking statements.

                                       30
<PAGE>

ITEM 2. PROPERTIES.

FACILITIES AND EQUIPMENT

         The total office rental expense for fiscal 2004,  2005 and 2006 for the
Company and its subsidiaries was $23,696, $25,967 and $91,246, respectively.

          The  Company   currently  leases  its  principal   executive   offices
consisting  of  approximately  1,561 square feet,  in Phoenix,  Arizona  under a
three-year  lease  agreement  that  expires on January  1,  2009,  with  monthly
payments of $4,659.

         In November 2005, the Company entered into a sub-leasing  agreement for
approximately  1,208 square feet of office space for its research and technology
development  staff in Edison,  New Jersey,  providing  for  monthly  payments of
$2,750. The agreement expires on September 9, 2007.

         Kirk  leases  approximately  48,301  square  feet  of  space  in  three
different  facilities  in Florida under a six year lease  expiring  December 31,
2010 with monthly payments of $41,260.99.


ITEM 3.    LEGAL PROCEEDINGS.

         Reference  is made to  "Item 1.  Business"  for  information  as to the
disputes between Synovics and Nostrum with respect to the attempts of Nostrum to
terminate the Technology Agreement and ANDA Agreement.

         The  Company,  on December 4, 2006 filed a Demand for  Arbitration,  as
subsequently  amended on January 11, 2007,  with the New York City Office of the
American  Arbitration  Association  seeking a determination  that the Technology
Agreement and ANDA Agreement have not been  effectively  terminated and continue
in  full  force  and  effect  and  a  refund  from  Nostrum  in  the  amount  of
$1,889,159.47  paid by the  Company  to it.  Synovics  Laboratories,  a  Company
subsidiary, is a co-claimant of this action.

         In addition,  on November 17, 2006, the Company instituted an action in
the United States  District Court for the Southern  District of New York seeking
to  enjoin  Nostrum  from  terminating  the  Technology  Agreement  pending  the
determination  of the  arbitration.  On November 20, 2006, the Company  obtained
from the United States  District Court a temporary  restraining  order enjoining
Nostrum from  terminating  the  Technology  Agreement.  On December 6, 2006, the
preliminarily  enjoined  Nostrum from  terminating the Technology  Agreement but
only as to the four products designated by the Company for development  pursuant
to the Technology Agreement  conditioned on the Company posting a $100,000 bond,
which it posted.  The Court held a further  hearing in the matter on January 31,
2007,  at which  time the  parties  reported  to the Court on the  status of the
arbitration  and on the status of the  Company's  work with  respect to the four
products that are the subject of the injunction; the Court has reserved decision
and  extended  the  preliminary   injunction  pending  the  conduct  of  limited
discovery.

                                       31
<PAGE>

         Synovics Laboratories,  on January 12, 2007, filed a complaint with the
United States  District  Court for the Southern  District of New York seeking to
enjoin  Nostrum  from  terminating  the ANDA  Agreement.  That  action  has been
consolidated  with  the  previously-filed  action  relating  to  the  Technology
Agreement.  Synovics Laboratories moved for a preliminary  injunction on January
23, 2007 and the Court has reserved decision ordering preservation of the status
quo pending that decision.

         Andapharm and its former controlling  person, John S. Copanos are being
sued by in action that  commenced on December 15, 2005, in the Court of the 15th
Judicial  Circuit  in  and  for  Palm  Beach  Count,  Florida.  by  Breckenridge
Pharmaceutical, Inc. ("Breckenbridge"),  a distributor not selected by Andapharm
to distribute  its  esterified  estrogen  products.  The complaint  alleges that
AndaPharm breached a distribution  contract with  Breckenridge,  misappropriated
Breckenridge's  trade  secrets  and  sought  an  injunction  against  Andapharm.
Management  believes  that  Breckenridge's  claim  is  without  merit  and  will
ultimately be dismissed or Andapharm will prevail on the merits.

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

         None.

                                       32
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
             ISSUER PURCHASES OF EQUITY SECURITIES.

         The Company's  common stock was quoted on the on the "Pink Sheets" from
March 1, 2003 to July 12, 2005. On July 13, 2005 the Company's  common stock was
approved by the NASD and  appeared on the OTCBB with an  unpriced  quote.  Three
business days later,  on July 18, 2005,  HDSN showed a priced quote for BNRX.OB.
Thirty days later,  on August 15, 2005 all other market  makers were eligible to
appear on the Nasdaq OTCBB with their quotes, and have been quoted there through
the present.


                                                 High             Low
                                                 ----             ---
Fiscal Year Ended October 31, 2006(1)

Three months ended January 31, 2006              3.50             1.90
Three months ended April 30, 2006                4.50             2.40
Three months ended July 31, 2006                 4.60             3.50
Three months ended October 31, 2006              3.70             1.60

Fiscal Year Ended October 31, 2005

Three months ended January 31, 2005              3.75             0.15
Three months ended April 30, 2005                4.50             0.70
Three months ended July 31, 2005                 2.00             0.50
Three months ended October 31, 2005              4.40             1.35

Fiscal Year Ended October 31, 2004

Three months ended January 31, 2004              0.25             0.005
Three months ended April 30, 2004                0.45             0.001
Three months ended July 31, 2004                 0.45             0.04
Three months ended October 31, 2004              1.00             0.15


     (1) Stock price  information for the years ended October 31, 2006, and 2005
         have been derived from www.siliconinvestor.com.

         Such  quotations  reflect  inter-dealer  bids,  without retail mark-up,
mark-down or commissions, and may not reflect actual transactions.

         As of  January  31,  2007,  there  were 172  holders  of  record of the
Company's  common stock.  This figure does not  represent the actual  beneficial
owners  of our  common  stock  because  shares  are  held in  "street  name"  by
securities dealers and others for the benefit of individual owners.

                                       33
<PAGE>

DIVIDEND POLICY

         The Company has not  declared or paid any cash  dividends on its common
stock and does not intend to declare or pay any cash dividend in the foreseeable
future.  We currently intend to retain our future  earnings,  if any, to finance
the further  development  of our business and execution of our long-term  goals.
The  payment of  dividends,  if any,  is within the  discretion  of the Board of
Directors  and will  depend  on the  Company's  earnings,  if any,  its  capital
requirements,  and  financial  condition  and such other factors as the Board of
Directors may consider.

         The Company's Credit Agreement with Bank of India prohibits the payment
of dividends without the consent of the Bank

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         On October 31, 1996, the Company's Board of Directors  adopted the 1996
Stock Plan authorizing  570,000 shares of Common Stock (the "Plan"),  subject to
approval by stockholders  at their next Annual Meeting.  The purpose of the Plan
is to further the interests of the Company and its  stockholders  by encouraging
key  persons  associated  with the  Company to acquire  shares of the  Company's
common stock,  thereby  acquiring a proprietary  interest in its business and an
increased personal interest in its continued success. As of January 31, 2006, no
options were outstanding under the Plan.

RECENT SALES OF UNREGISTERED SECURITIES

         The following  issuances of securities  were made without  registration
pursuant to the  exemption  from  registration  contained in Section 4(2) of the
Securities Act:

         Between October and December 2006, Kirk issued to accredited  investors
short term bridge notes in the  principal  amount of $700,000  bearing  interest
ranging from 10% to 20% per annum and in connection therewith the Company issued
warrants  to  acquire an  aggregate  of  466,664  shares of its common  stock at
initial  exercise  prices of  between  $2.00 and  $3.00  per share  (subject  to
adjustment in certain circumstances) with exercise periods ranging from three to
five years.  Of the warrants  issued,  warrants to acquire  75,000 shares of the
Company's  common stock are  exercisable  on a cashless or net  issuance  basis.
Notes in the principal amount of $450,000 were subsequently exchanged for units,
each unit consisting of one share of common stock of the Company and warrants to
purchase one share of common stock of the company, of like principal amount in a
recent private placement conducted by the Company.

         Immediately  prior to the closing of the acquisition of Kirk on May 23,
2006, the Company  consummated two financings to satisfy the cash purchase price
of $9,000,000 and its working  capital  requirements,  as follows:  (i) a credit
facility  with Bank of India,  New York Branch (the "Bank of India  Financing");
and (ii) the sale of 1,500,000  shares of Common Stock at $4.00 per share of the
Company  to  Maneesh  Pharmaceuticals  Pvt  Ltd.  ("Maneesh"),   an  India-based
accredited  investor  (as  defined  in Rule 501 (a) of  Regulation  D under  the
Securities  Act of 1933,  as  amended  (the  "Securities  Act"))  (the  "Maneesh
Investment").

                                       34
<PAGE>

         The  Bank  of  India   Financing  is  structured   as  senior   secured
indebtedness in the principal  amount of $10,500,000 (the  "Principal").  Of the
Principal,  $5,250,000  was  required to be utilized to satisfy a portion of the
cash  purchase  price and  $5,250,000  was  required to be utilized  for working
capital purposes (the "Working  Capital Loan").  Of the portion of the Principal
that  represented  the Working  Capital Loan,  the Company is entitled to borrow
from time to time an amount  equal to 70% of the value of fully  paid  inventory
and accounts  receivable  of the Company  together with 100% of cash in accounts
maintained  by the  Company  and  its  subsidiaries  at the  Bank of  India,  or
$5,250,000,  whichever is less. The Bank of India Financing  accrues interest at
the prime rate of interest as  determined by the Bank of India plus 1.0%. In the
event of any default,  such  interest  rate shall  increase to the prime rate of
interest as determined by Bank of India plus 3.0%.  Interest is payable monthly.
The  Principal is to be repaid with  payments  that  increase  over time through
December 31, 2010.

         Prepayments  will be  subject  to a fee  equal  to  1.0% of the  amount
prepaid  for  each  year  or  portion  thereof  remaining  between  the  date of
prepayment and December 31, 2010.

         The Company paid broker fees of $525,000 for services provided relative
to the Bank of India financing.  With respect to the Maneesh Investment, it paid
an  Introductions  of Services  fee of $180,000  and  300,000  warrants  with an
exercise  price of $6.00,  and paid a finder's  fee  consisting  of $180,000 and
45,000 similar warrants.

         On October 3, 2005,  the Company  completed  the  Financing.  The gross
proceeds of the Financing were $3.345  million.  Pursuant to the Financing,  the
Company issued $3.345 million of principal  amount of Convertible  Notes,  which
are convertible into an aggregate of 1,115,000 shares of Company common stock at
a price of $3.00 per share, and warrants to purchase an aggregate 557,500 shares
of Company  common  stock at $4.00 per share.  The The  conversion  and exercise
prices are subject to a potential  downward  adjustment in  accordance  with the
terms of the  agreement.  The portions of the proceeds from the  financing  were
used to meet certain  obligations under the Company's agreement with Nostrum for
reimbursement of costs pertaining to development of its oral  controlled-release
drugs.

         On September 15, 2005, the Company issued 50,000 shares of common stock
to Asia Pacific  Investment  Holdings  Limited ("Asia Pacific") for an aggregate
price of $50,000.

                                       35
<PAGE>

         On August 15, 2005, the Company issued 80,000 shares of common stock to
James  Belcher and his  designees  as payment for rights to certain  proprietary
technology  and  issued  85,000  shares of common  stock to Divine  Capital  for
consulting services.

         On August 1, 2005,  the Company issued 30,000 shares of common stock in
a private placement to Pharm Advisors for consulting services.

         In May 2005, the Company issued 159,625 shares of common stock at $1.60
per share in a private placement offering.

         On April 27, 2005,  the Company issued 25,000 shares of common stock to
an employee of the Company for services.

         On March 16, 2005, the Company issued  6,000,000 shares of common stock
to  Nostrum as payment  for the  modification  to the  licensing  agreement  for
technology  to  rights to  develop  an  additional  ten  generic  pharmaceutical
products under its license agreement with Nostrum.

         On February 28,  2005,  the Company  entered  into a private  placement
purchase  agreement  whereby for $202,500,  200,000  shares were sold and 65,000
shares issued to Landmark Financial Corporation, a warrant holder.

         In December  2004,  the Company issued 49,500 shares of common stock at
$1.00 per share to Asia Pacific upon conversion of a convertible  note issued on
February 12, 2004.

         All purchasers  represented that they acquired the securities for their
own  accounts.  A legend was placed on the stock  certificates  stating that the
securities have not been registered  under the Securities Act and cannot be sold
or  otherwise  transferred  without an  effective  registration  or an exemption
therefrom.  All  purchasers of the Company's  securities  are either  accredited
investors or employees of the Company.

ITEM 6.    SELECTED FINANCIAL DATA.

         The following  selected  financial  data should be read in  conjunction
with the Company's  consolidated  financial statements and the related notes and
with the Company's  management's  discussion and analysis of financial condition
and results of operations, provided elsewhere herein and attached to this Report
commencing on page F-1.

<TABLE>
<CAPTION>
                                                                             YEAR ENDED
                                                                             OCTOBER 31,
                                                                             -----------
                                                    2006              2005             2004            2003           2002
<S>                                              <C>                    <C>            <C>             <C>            <C>
Gross Revenues                                   $10,516,000            $8,192         $98,767         $32,005        $45,265
Net Revenues                                     $10,516,000            $8,192         $98,767         $31,978        $36,516
Cost of Sales                                     $8,158,000           $45,289         $18,269          $5,829        $14,182
Gross Profit (Loss)                               $2,358,000         ($37,097)         $80,498         $26,149        $22,334
Operating Expenses                                $5,977,000        $1,874,468        $866,913        $468,418     $1,246,583
</TABLE>

                                       36
<PAGE>

<TABLE>
<S>                                             <C>                 <C>             <C>             <C>            <C>
Other Income (Expense)                          ($3,910,000)        ($999,695)      ($337,921)      ($317,253)     ($612,026)
Net Loss                                        ($7,529,000)      ($2,911,260)    ($1,124,336)      ($759,522)   ($1,836,275)
Basic and Diluted Loss Per Share                     ($0.33)           ($0.14)         ($0.14)         ($0.17)        ($0.42)


Weighted Average Shares
   Outstanding (1)                                26,044,630        20,094,784       7,840,496       4,352,600     $4,352,600
Balance Sheet Data:
Working Capital (Deficit)                       ($5,289,000)      ($3,713,386)    ($3,079,327)    ($3,661,647)   ($3,407,218)
Total Assets                                      $38,88,650       $16,911,555      $2,875,306      $2,210,696        2714644
Total Liabilities                                $25,779,163        $5,607,804      $3,779,939      $3,707,993     $3,489,219
Stockholders equity (deficit)                    $13,103,487       $11,303,751      ($904,633)    ($1,497,297)     ($774,575)
</TABLE>

          (1)     These shares do not include 1,947,751,  620,472,  910,370, and
                  713,836 shares of common stock for the years ended October 31,
                  2006,  2005,  2004 and  2003,  and  respectively,  that may be
                  issued upon exercise of outstanding  stock  options,  warrants
                  and convertible preferred stock as they are antidilutive.

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

         THE  FOLLOWING  DISCUSSION  OF THE  COMPANY'S  FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS AS WELL AS CERTAIN STATEMENTS AND INFORMATION UNDER ITEM 1
"BUSINESS" INCLUDE CERTAIN FORWARD LOOKING STATEMENTS. WHEN USED IN THIS REPORT,
THE WORDS "EXPECTS,"  "INTENDS," "PLANS" AND "ANTICIPATES" AND SIMILAR TERMS ARE
INTENDED TO IDENTIFY  FORWARD  LOOKING  STATEMENTS  THAT RELATE TO THE COMPANY'S
FUTURE  PERFORMANCE.  SUCH  STATEMENTS  INVOLVE  RISKS  AND  UNCERTAINTIES.  THE
COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED HERE.

OVERVIEW

         Synovics is a specialty  pharmaceutical  development  company  focusing
upon the  development of difficult to formulate,  oral  controlled-release  drug
formulations  utilizing  proprietary drug formulation and delivery  technologies
and since the  acquisition of Kirk and its affiliate  Andapharm in May 2006, the
manufacture  and  distribution  of  private  label  over-the-counter  drugs  and
prescription drugs.

         The Company has licensed  proprietary oral  control-release  technology
with the  rights to develop  exclusively  and  worldwide,  ten  generic  and ten
505(B)(2)  drugs,  improved  formulations of previously  approved  drugs.  These
rights are the subject of a dispute between the Company and Nostrum,  which owns
approximately 40% of the Company's  outstanding  shares. (See Item 1, Business).
Prior to the  commencement  of the  dispute,  Synovics  intended  to invest  the
majority of its  resources in the  development  and  commercialization  of these
products during the next few years.

         Prior to 1999,  management's efforts had been primarily directed toward
conducting research and development,  applying for patent approvals,  developing
manufacturing and distribution  arrangements for its dietary  supplement product
and obtaining initial capital and financing to fund these activities.

                                       37
<PAGE>

         Synovics (formerly NutraGenics, Inc. until December 26, 1996) completed
a merger  with  LipoGenics,  Inc.,  a Delaware  corporation  ("LipoGenics"),  on
October  31,  1996,  and  LipoGenics  became a wholly  owned  subsidiary  of the
Company.  The merger with  LipoGenics was accounted for in a manner similar to a
pooling-of-interest   and  as  such  Synovics'  accounts  reflect  the  historic
operations of LipoGenics.  Synovics issued 418,549 shares in connection with the
merger.   Pursuant  to  the  merger,  Synovics  obtained  ownership  of  certain
proprietary rights related to dietary  supplements  previously licensed to it by
LipoGenics and acquired  ethical drug (a regulated  pharmaceutical),  functional
food and other dietary supplement rights owned by LipoGenics.

         On October  31,  1997,  Nutrition  Technology  Corporation  ("Nutrition
Technology"), a subsidiary of Synovics, completed a forward triangular merger of
a subsidiary of Nutrition  Technology with InCon  Technologies Inc., a specialty
chemical processing company in Illinois  ("InCon").  InCon became a wholly owned
subsidiary of Nutrition Technology. The merger with InCon was accounted for as a
purchase and Synovics  issued 280,000 shares in connection  with the merger.  In
connection with the merger,  the edible oil plant sales and consulting  business
formerly conducted by an InCon affiliate was transferred to InCon  International
Ltd., a wholly-owned  subsidiary of Synovics, and specialty vitamin E technology
relating  to  soluble  and  powder  vitamin  E owned by  another  affiliate  was
transferred to InCon.

         In  1997,  the  Company  launched  its  first  product   evolvE(R),   a
proprietary,  tocotrienol  cardiovascular  health promoting dietary  supplement,
which  attained  distribution  in 40,000  stores  nationwide.  In  addition,  it
commenced  operations at a 50,000 square foot rice bran  extraction  facility in
Louisiana.  The Company's business plan at the time provided for the infusion of
additional  capital to support the market  launch of  evolvE(R)  and growing the
infrastructure  to maintain it. Funding  delays  prompted the Company in 1998 to
revise the business plan to accommodate financial constraints. Under the revised
business plan,  management sought marketing and  manufacturing  partners for the
Company's  products and focused  efforts on the core  competency of the Company,
which is the  creation  of new  proprietary,  biologically  active  ingredients.
Consistent  with this  course of  action,  the  Company  also  decided to seek a
partner  to take over its rice bran  processing  operation  on a profit  sharing
basis.

         To  this  end,  in  1998,   the  Company   entered   into  a  strategic
manufacturing  partnership with Associated British Foods, North America/ACH Food
Companies, Inc. ("ABF"), which made a substantial investment in Synovics' stock.
The Company's  objective was to employ its  technology as a platform for (1) ABF
to manufacture  value-added  micronutrients and nutritional  commodities derived
through secondary processing of food processing  by-products,  and (2) to market
proprietary  functional  nutrition  ingredients  based on  these  micronutrients
through  strategic  partnerships.  Synovics'  goal  was  to  leverage  its  core
competency to obtain revenue from both the  manufacturing and marketing of these
value-added micronutrients and nutritional commodity product streams.

         Late in 1998, to streamline  operations and cut costs, the Company sold
its rice bran extraction operation and related technology to the ABF subsidiary,
ACH (formerly AC HUMKO), for approximately $4,500,000. Synovics also reduced its
employee  base by  one-half  as part of a  restructuring  of the way the Company
marketed its principal product, evolvE(R).

                                       38
<PAGE>

         In 1999, the Company reduced its manufacturing  exposure by merging its
molecular  separation  operation,  InCon, with ACH to create a new joint venture
company, InCon Processing.  InCon transferred substantially all of its assets to
the new entity for which it received a payment of $3,000,000 and a 50% ownership
interest.  The formation of this venture  allowed the Company more ably to avail
itself  of the  research  and  development  capacity  of  InCon  Processing  for
specialty  processing  without being  encumbered by capital  requirements of the
operation for new facilities.

         During  years 2000 and 2001,  the Company  attempted to maintain a very
modest operation as it attempted to forge product development relationships with
product marketing companies. Little effort was made to grow technology or to use
the Company's limited resources in expanding its products.

         In 2003,  the Company  conducted  several  negotiations  with marketing
oriented  companies  for the purpose of  exploiting  its  technology,  but these
efforts did not result in any agreements,  revenue or related capital  infusion.
While  the  Company  continues  to sell  evolvE(R)  as a result  of  calls  from
long-time  customers or through  orders  received  over the  Internet,  with the
Company's  limited  resources  there has been no concerted  effort to market the
product,  and the revenue generated from sales of evolvE(R) are immaterial.  The
Company continued to operate by deferring  numerous  expenses,  including salary
payments to its President and Controller.

         In 2004,  the Company began the  development  of four new  proprietary,
functional  nutrition  products that address  maintenance  of normal blood lipid
ratios.  The Company does not currently plan to pursue the  development of these
products.

         In 2004,  the Company  acquired  from Nostrum  oral  controlled-release
technology rights to be used in the development and commercialization of certain
to-be-named 505(b)(2) drug candidates in exchange for 6,000,000 shares of common
stock  evidenced  by  an  agreement  dated  June  16,  2004,  memorializing  the
transaction. As part of the Nostrum agreement, Synovics was required to (1) have
an outstanding loan of approximately $1,500,000  collateralized by the assets of
the  Company  and,  convertible  into shares of common stock at the price of not
less than $1.00 per share and (2) secure a  "lock-up"  of a total of  13,500,000
shares  of its  common  stock  (including  Nostrum's  stock)  for a period of 18
months.  The date for  accomplishing  the  conversion and stock lock-up has been
extended from October 15, 2004 several times to September 30, 2005 by successive
agreements with Nostrum.

         On August 2, 2004,  Synovics sold 1,000,000  shares of its common stock
for $1,000,000 to Asia Pacific pursuant to a stock purchase agreement, requiring
Synovics  to apply the  proceeds  to cover  expenses  (including  administrative
expenses) related to conducting the Company's audits for fiscal years 2002, 2003
and 2004 and filing its tax returns and SEC reports for those years.

         Subsequent  and  unrelated  to the Nostrum  transaction,  InCon made an
asset  distribution  to its  respective  owners of  certain  dietary  supplement
technology that Synovics had previously  contributed.  Synovics then re-acquired
the other half of the  distributed  technology from Asia Pacific in exchange for
200,000 shares of its common stock.

                                       39
<PAGE>

         On March 16, 2005,  Synovics issued 6,000,000 shares of common stock to
Nostrum  as  payment  for  the  modification  to  the  licensing  agreement  for
technology to rights to develop an  additional  ten  pharmaceutical  products as
generic drugs under its agreement with Nostrum.  The lock-up provision contained
in the previous licensing agreement was modified to 19,000,000 shares (including
the 6,000,000 shares issued to Nostrum).

         On  October 3, 2005,  the  Company  completed  a private  placement  of
convertible  notes and warrants  (the  "Financing").  The gross  proceeds of the
Financing were $3.345  million.  Pursuant to the  Financing,  the Company issued
$3.345  million of principal  amount of 9% convertible  notes (the  "Convertible
Notes"),  which are convertible into an aggregate of 1,115,000 shares of Company
common  stock at a price  of $3.00  per  share,  and  warrants  to  purchase  an
aggregate  557,500  shares of  Company  common  stock at $4.00  per  share  (the
"Private  Warrants").  The Private  Warrants  were valued at $461,245  using the
Black Scholes Model,  assuming a life of three years,  volatility of 550%, and a
risk free borrowing rate of 3.125% and will be charged to interest  expense over
the life of the debt  commencing in 2005. The price per share for the conversion
of the  Convertible  Notes and  exercise of the  Private  Warrants is subject to
potential downward adjustment in accordance with the terms of the agreement. The
Financing was made in accordance  with Section 4(2) and Rule 506 of Regulation D
under the  Securities  Act. The Company paid a cash  commission  of $301,050 and
agreed to issue to Indigo Capital (the "Placement  Agent" three year Warrants to
purchase 75,263 shares of Common Stock.  The purchaser of the Notes and Warrants
agreed that no sales of those  securities will be made unless  registered  under
the Securities Act or exempt from registration.

         In May  2006,  the  Company  sold an  additional  $1,500,000  aggregate
principal amount of notes  substantially  identical to the Convertible  Notes to
Asia Pacific Holdings Limited.  In addition,  the Company issued to Asia Pacific
warrants  to  acquire  an  aggregate  of  250,000  shares  at $4.00  per  share,
exercisable for three years.

         On February 2006, the Placement Agent acquired a warrant to purchase an
aggregate of 500,000  shares of common stock at the exercise  price of $5.00 per
share  exercisable  for three years.  The purchae  price for such warrants was a
promissory note in the amount of $150,000 due and payable in February 2009.

         The Company also entered into a registration  rights agreement with the
purchasers of the 9% Convertible Notes which, among other things,  obligates the
Company to file a registration  statement to register the shares of Common Stock
underlying the 9% Convertible  Notes and warrants  including the placement agent
warrants  promptly  following  the  closing  of the  offering  and to cause  the
registration statement to be declared effective no later than 120 days following
closing.  The registration  rights agreement provides for a penalty of 1% of the
sum of purchase price paid by the purchaser plus the aggregate exercise price of
the warrants and placement  agent  warrants for the first two months of the late
period  increasing  to 2.5% for each  subsequent  month.  There is no cap on the
penalty.  The Company will  recognize the penalty,  if any,  incurred  under the
registration  rights  agreement as interest  expense in the period in which they
are incurred.  The Company failed to have an effective registration statement as
defined under the agreement  and as of October 31, 2006  recognized  $914,549 of
penalties.

         On  April  30,   2006,   the  Company   together   with  Asia   Pacific
(collectively,  the "Sellers") each sold their respective 50% interests in InCon
Processing  LLC to  John  Palmer  and  N.P.  Shaikh,  current  managers  of that
operation.  The InCon  operation  was  deemed by the  Company to no longer be an
important element in its current business  strategy.  The Sellers are to receive
distribution of future earnings before  interest,  depreciation and amortization
(EBITDA) of InCon in the total amount of  $600,000,  and were  assigned  certain
tocotrienol processing technology and the respective interests of Messrs. Palmer
and Shaikh in Bali Holding, LLC, a holding company,  including 118,000 shares of
the Company's Common Stock which had been issued to acquire the interests stock.
The sale  proceeds  are to be shared  equally by Synovics  and Asia Pacific when
distributed.  The  Company  and Asia  Pacific  have  agreed to  provide  certain
consulting  services  to InCon for three  years  for an  annual  consulting  fee
payable for five years equal to the lesser of 100,000 per year or 25% of InCon's
EBITDA, but not more than a total of $300,000 for each.

         During  fiscal year 2006,  the Company sold for  $3,000,000 in a bridge
financing a like principal  amount of its 9% Convertible  Bridge Notes and three
year  warrants to purchase  500,000  shares of the Company's  Common Stock.  The
Company paid a cash commission of

                                       40
<PAGE>

301,050  and issued to the  Placement  Agent  three year  Warrants  to  purchase
575,000 shares of Common Stock.  The purchaser of the Notes and Warrants  agreed
that no sales of those  securities  will be made  unless  registered  under  the
Securities Act or exempt from registration.

         On May 23,  2006,  the  Company  acquired  Kirk and  Andapharm  for $12
million of which $9 million  was paid in cash and the  remaining  $3 million was
paid by a carry back three year note.  To help  finance the  acquisition  of the
outstanding  stock of  Kirk,  the  Company  in May  2006  entered  into a Credit
Agreement  providing for a $5,250,000  working capital loan to be extended and a
$5,250,000  term  loan with Bank of India  and sold for  $6,000,000  to  Maneesh
1,500,000  shares of its Common Stock.  The loans are secured by a pledge of the
Company's assets and are guaranteed by Nostrum and Dr. Mulye.

         Kirk is a cash flow  positive  pharmaceutical  business  engaged in the
development,  manufacture and  distribution  of  prescription  and private label
over-the-counter  drugs for major drug  store  chains  and  distributors  in the
United States. Since its inception in 1999, it has sustained year to year growth
through unique over-the-counter products combined with high quality and low cost
manufacturing. The acquisition of Kirk is part of the Company's overall strategy
of  creating  an  operational  structure  through  which the  Company's  product
pipeline can be manufactured and distributed at the same as generating cash flow
to support the Company's research and development  program. No assurances can be
given that Kirk will  continue to be cash flow positive or that it will generate
sufficient  cash  flow to  independently  support  the  Company's  research  and
development program.

         Since the Company's  inception  through the current fiscal year, it has
received an opinion noting the substantial  doubt about the Company's ability to
continue as a going concern from its independent auditors due to the significant
recurring operating losses.  However, the Company intends to attempt to take the
steps  necessary to resolve the conditions  giving rise to this opinion  through
the efforts outlined above, as to which no assurances can be given.

CRITICAL ACCOUNTING POLICIES

         The section herein  entitled  "Management's  Discussion and Analysis of
Financial   Condition  and  Results  of   Operation"   addresses  the  Company's
consolidated  financial statements,  which have been prepared in accordance with
accounting  principles  generally accepted in the United States of America.  The
preparation  of these  statements  requires  management  to make  estimates  and
assumptions  that affect the  reported  amounts of assets and  liabilities,  the
disclosure  of  contingent  assets  and  liabilities  at the  date of  financial
statements and the reported amounts of revenue and expenses during the reporting
period.  On an ongoing basis,  management  evaluates its estimates and judgment,
including  those related to revenue  recognition,  goodwill,  bad debts,  income
taxes, and contingent liabilities.  Management bases its estimates and judgments
on  historical  experience  and on various other factors that are believed to be
reasonable  under the  circumstances,  the  results  of which form the basis for
making judgments as to the carrying value of assets and liabilities that are not
readily  apparent  from other  sources.  Actual  results  may differ  from these
estimates under different assumptions and conditions.

                                       41
<PAGE>

         The  Securities  and  Exchange  Commission  ("SEC")  defines  "critical
accounting  policies" as those that require  application  of  management's  most
difficult,  subjective  or complex  judgments,  often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods.

         The following discussion of critical accounting policies represents the
Company's  attempt  to report on those  accounting  policies  which the  Company
believes are critical to the Company's  consolidated  financial  statements  and
other financial disclosure. It is not intended to be a comprehensive list of all
of the Company's significant accounting policies, which are more fully described
in Note 1 of the Notes to the Consolidated Financial Statements included in this
report.

         Synovics has identified the following as critical  accounting  policies
affecting the Company: Revenue Recognition and Income Taxes.

         REVENUE RECOGNITION

         Synovics  generally  recognizes product revenue at the time of shipment
to the customer.  Revenues from the sale of consignment inventory are recognized
upon the sale of the  inventory by third  parties.  Revenues  from  services are
recorded at the time the service is rendered  and/or  reimbursable  expenses are
incurred.

         INCOME TAXES

         The Company has a history of losses.  These losses  generated  sizeable
federal  net  operating  loss  ("NOL")  carryforwards  as of October 31, 2006 of
approximately $46 million.

         Generally  accepted  accounting  principles  require  that the  Company
record a valuation  allowance  against the deferred income tax asset  associated
with these NOL carryforwards and other deferred tax assets if it is "more likely
than not" that the  Company  will not be able to utilize  them to offset  future
income  taxes.  Due to the Company's  history of  unprofitable  operations,  the
Company only  recognizes net deferred tax assets in those  subsidiaries in which
it  believes  that it is "more  likely than not" that it will be able to utilize
them to offset future income taxes in the future. The Company currently provides
for income taxes only to the extent that it expects to pay cash taxes on current
income.  At October 31, 2006, net deferred tax assets were  approximately  $18.5
million.

         It is possible,  however,  that the Company  could be profitable in the
future at levels  which  cause  management  to  conclude  that it may  realize a
portion of the NOL  carryforwards  and other deferred tax assets.  However,  the
realization  of such NOL  carryforwards  may be  significantly  limited if it is
deemed that a change in ownership  has occurred.  For tax purposes,  a change in
ownership has occurred if an entity or group of entities that previously did not
own 50% or more of a Company acquires enough new equity to raise its interest to
more than 50% over a three year period.  Subsequent  revisions to the  estimated
net  realizable  value of the  deferred  tax assets  could  cause the  Company's
provision for income taxes to vary significantly from period-to-period.

                                       42
<PAGE>

RESULTS OF OPERATIONS

RESULTS OF  OPERATIONS  FOR YEAR ENDED  OCTOBER 31, 2006  COMPARED TO YEAR ENDED
OCTOBER 31, 2005

         The Company acquired Kirk and Andapharm,  in May 2006.  Results for the
period since acquisition  through October 31, 2006 are included in the Company's
results for the year.

         Total  revenues  generated  during  the year  ended  October  31,  2006
amounted to $10,516,000, compared to $8,000 for the year ended October 31, 2005.
Cost of revenues and gross profit was  approximately  $8,159,000  and $2,358,000
for the year ended October 31, 2006,  respectively,  versus  $45,000 and a gross
loss of $37,000 for the year ended  October 31,  2005.  The increase in revenues
cost of  revenues  and gross  profit  was  solely  the  result of the  Company's
acquisition of Kirk.

         Total  expenses  for  the  year  ended  October  31,  2006   aggregated
approximately  $9.9 million,  which resulted in a net loss of  $8,571,000.  This
compares to net loss of  $2,911,000  for the year ended  October 31,  2005.  The
increase in net loss is due primarily to interest  expense and the loss from the
sale of InCon  Processing  during the year ended October 31, 2006.. The net loss
per share was  $0.33,  $0.14  and  $0.14  for each of the  years  ended  October
31,2006, 2005, and October 31, 2004, respectively.

RESULTS OF  OPERATIONS  FOR YEAR ENDED  OCTOBER 31, 2005  COMPARED TO YEAR ENDED
OCTOBER 31, 2004.

REVENUES, EXPENSES AND NET LOSS

         During 2005, the Company  focused on negotiating and  consummating  its
agreement  with  Nostrum and  furthering  the research  and  development  of the
licensed technology of such agreement.  Total revenues generated during the year
ended  October  31, 2005  amounted  to $8,000,  compared to $99,000 for the year
ended October 31, 2004.  Synovics Health Products  generated  $8,000 in revenues
for the year ended  October  31,  2005,  compared  to $99,000 for the year ended
October 31, 2004.  LipoGenics  did not generate any revenues for the years ended
October 31, 2005 and October 31, 2004.  The Synovics  Health  Products  revenues
reflect  the sales of its first  product,  evolvE(R)  which is sold  directly to
consumers  via the  Internet.  The  Company no longer  views  this  product as a
material part of its future  plans,  and therefore the decline in revenue is due
to the elimination of advertising and promotional programs.

         Total  expenses  for  the  year  ended  October  31,  2005   aggregated
$2,874,000,  which  amounted to a net loss of  $2,911,000.  This compares to net
loss of  $1,124,000  for the year ended  October 31, 2004.  This increase in net
loss is due primarily to an increase in the Company's  research and  development
activities of  approximately  $1,522,000,  legal and accounting  fees associated
with the Company's  efforts to maintain  compliance with the periodic  reporting
requirements  of the Exchange  Act, as well as interest  expense of $732,000 for
the recognition of

                                       43
<PAGE>

an accelerated interest rate of 25% on borrowings under a consolidated, multiple
advance,  non-revolving  note  agreement.  There was also a one-time  expense of
$43,750 for stock based compensation to an employee of the Company. The net loss
per share was $.14 for each of the years ended October 31, 2005, and October 31,
2004.

LIQUIDITY AND CAPITAL RESOURCES

         YEAR ENDED OCTOBER 31, 2006, 2005, AND 2004

         To date, the Company's  operations  have not generated  sufficient cash
flow to satisfy the  Company's  capital  needs.  The Company  has  financed  its
operations  primarily  through the private sale of common stock and warrants and
debt  securities.  The Company had a working  capital  deficit of  approximately
$5,200,000 at October 31, 2006, as compared with  $3,913,000  and  $3,079,000 at
October  31,  2005,  and  2004,  respectively.  Cash and cash  equivalents  were
$2,393,437,  $129,000  and  $629,000,  at  October  31,  2006,  2005,  and 2004,
respectively.

         Net cash used in operating  activities  during the years ended  October
31,  2006,   2005,  and  2004,  was   $5,200,000,   $2,258,000,   and  $640,000,
respectively.  The  approximately  $5,200,000  in net  cash  used  in  operating
activities during the year ended October 31, 2006 was the result of the net loss
of approximately $8,600,000 in fiscal 2006, offset by non cash expense including
the loss in the joint ventures of approximately $1,000,000 and the loan discount
was  approximately  $1,200,000.  The  increase  in net  cash  used in  operating
activities  during the year ended October 31, 2005 resulted  primarily  from the
Company's  net loss of  approximately  $2,900,000  million  in 2005,  offset  by
non-cash  expenses  including  equity in net loss of joint  venture of $220,000,
stock based compensation of approximately  $44,000, a write down of inventory of
$44,000, as well as an interest accrual for accelerated interest on the Multiple
Advance  Non-Revolving  Note of  approximately  $732,000,  which was not paid in
cash.  The  increase in net cash used in  operating  activities  during the year
ended  October  31,  2004  resulted  primarily  from the  Company's  net loss of
approximately $1,100,000 in 2004 offset by non-cash expenses including equity in
net loss of joint venture of approximately $332,000 and stock based compensation
of approximately $157,000.

         Net cash used in investing  activities  during the years ended  October
31, 2006 and 2005, was  approximately  $10,400,000  and $350,000,  primarily the
result  of the  purchase  of  equipment  and fees  associated  with  acquisition
activities.

         Net cash  provided  by  financing  activities  during  the years  ended
October 31, 2006, 2005, and 2004, was approximately $17,800,000, $2,108.000, and
$1,280,000,  respectively.  The cash provided in 2006,  2005,  and 2004 reflects
approximately $5,600,000,  $508,000, and $1,201,000,  from the proceeds from the
placement  of  common  stock  and  warrants,   and  approximately   $13,600,000,
$1,600,000,  and $80,000,  from the proceeds from the issuance of notes payable,
respectively.

         The Company is currently  delinquent in the payment of an obligation to
bring  current  certain notes  payables and  currently has  undertaken a capital
raising effort for this purpose.  There is no assurance the Company will succeed
in this effort or that none of these noteholders will file an action against the
Company for default.

         The Company will require  additional  equity and/or debt  financing for
fiscal 2007 to fund

                                       44
<PAGE>

its  operations  and to satisfy its debt  service  obligations.  There can be no
assurance given that the Company will be successful in the sale of its equity or
obtaining additional capital from other sources or means.

         Synovics' auditors have expressed in their audit report a qualification
as to its ability to continue as a going concern. See Note 2 of the Notes to the
Consolidated  Financial Statements regarding the Company's plans to address this
concern.

         The Company  has not  entered  into any  material  capital  expenditure
agreements, or engaged in any off balance sheet financing.

         The  following  table depicts our  obligations  and  commitments  as of
October 31, 2006 to make future payments under existing  contracts or contingent
commitments.



                                           PAYMENTS DUE BY PERIOD

                                         LESS                            AFTER 5
                                        THAN 1
CONTRACTUAL OBLIGATIONS    TOTAL         YEAR       1-3 YEARS  4-5 YEARS  YEARS

Note payable - bank      $10,500,000  $1,000,000   $8,250,000  $1,250,000   $ -

Note payable - seller    3,000,000    1,000,000    2,000,000   -            -

Convertible bridge notes 4,545,000    4,545,000    -           -            -

Notes payable -
shareholders and others  250,000      250,000      -           -            -

Capital lease
obligations              279,638      78,100      201,538
                         -------------------------------------------------------

                         $18,574,638  $6,873,100  $10,451,538  $1,250,000   $ -
                         =======================================================

PROSPECTIVE INFORMATION

         The Company expects to incur losses from operations for the foreseeable
future as it aggressively pursues the commercialization of certain products and,
subject to its achieving  success in its dispute with Nostrum as to  termination
of its Technology License and ANDA Agreements, employing the licensed technology
from  Nostrum  and the  development  of products  with Kirk.  We expect to incur
increasing  research and development  expenses,  including  expenses  related to
additions to personnel, product formulation and development, and clinical trials
as well as increasing  legal costs as a result of the dispute with  Nostrum.  We
expect that our selling,  general and  administrative  expenses will increase in
the future as we expand our business  development,  legal and accounting  staff,
and  add  sales  and  marketing  to  our  infrastructure.   Our  future  capital
requirements will depend on a number of

                                       45
<PAGE>

factors, including the continued progress of our research and development of our
licensed  technology  from  Nostrum,   the  timing  and  outcome  of  regulatory
approvals, the costs involved in preparing,  filing,  prosecuting,  maintaining,
defending and enforcing  patent claims and other  intellectual  property rights,
and the availability of debt and equity financing.

          We also intend to further  explore  strategic  alliances and licensing
agreements with other  pharmaceutical  companies to generate  revenues,  but can
give  no  assurance  that  any of  these  efforts  will  be  successful  or meet
expectations.

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

         The  Company  does  not  invest  in or own any  market  risk  sensitive
instruments entered into for trading purposes or for purposes other than trading
purposes.  All loans made to the Company have been for fixed  interest rates and
accordingly, the market risk to the Company prior to maturity is minimal.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         Reference  is made to the  Consolidated  Financial  Statements  for the
fiscal year ended October 31, 2006, the Notes thereto and Independent  Auditors'
Report thereon commencing at Page F-1 of this Report.

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

         None.

ITEM 9A.   CONTROLS AND PROCEDURES.

         The  Company's   management  is  responsible   for   establishing   and
maintaining a system of disclosure  controls and  procedures (as defined in Rule
13a-15(e) and 15d-15(e)  under the Exchange Act) that is designed to ensure that
information  required to be  disclosed  by the  Company in the reports  that the
Company  files  or  submits  under  the  Exchange  Act is  recorded,  processed,
summarized and reported,  within the time periods  specified in the Commission's
rules and forms. Disclosure controls and procedures include, without limitation,
controls  and  procedures  designed  to ensure that  information  required to be
disclosed  by an  issuer  in the  reports  that it files or  submits  under  the
Exchange  Act  is  accumulated  and  communicated  to the  issuer's  management,
including its principal  executive  officer or officers and principal  financial
officer or officers, or persons performing similar functions,  as appropriate to
allow timely decisions regarding required disclosure.

         In accordance with Exchange Act Rules 13a-15 and 15d-15,  an evaluation
was completed under the supervision and with the  participation of the Company's
President and Chief  Financial  Officer of the  effectiveness  of the design and
operation of the Company's  disclosure  controls and procedures as of the end of
the  period  covered  by this  Annual  Report.  Based  on that  evaluation,  the
Company's  President and Chief Financial  Officer,  concluded that the Company's
disclosure controls and procedures are effective to provide reasonable assurance
that information required

                                       46
<PAGE>

to be disclosed in the Company's  reports filed or submitted  under the Exchange
Act is recorded,  processed,  summarized,  and reported  within the time periods
specified in the  Commission's  rules and forms.  There have been no significant
changes  to  the  Company's  internal  controls  or  other  factors  that  could
significantly  affect internal controls subsequent to the period covered by this
Annual Report.

ITEM 9B.  OTHER INFORMATION.

None.


                                       47
<PAGE>


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

         The following table sets forth certain information  regarding Synovics'
current directors and executive officers:

NAME                             AGE      POSITION

Ronald H. Lane, Ph.D.            62       Chairman of the Board, Chief Executive
                                          Officer,  President,  Treasurer, Chief
                                          Financial Officer and Secretary
William M. McCormick(1)(2)       66       Director
Richard M. Feldheim(1)(2)        65       Director
John S. Copanos                  37       President,  Chief  Operating  Officer,
                                          Treasurer   Secretary    of       Kirk
                                          Pharmaceuticals,  LLC  and  AndaPharm,
                                          LLC
Steve Getrear                    59       Chief    Executive   Officer,     Kirk
                                          Pharmaceuticals LLC and AndaPharm, LLC
----------------------
(1)      Member of the Audit Committee
(2)      Member of the Compensation Committee

         RONALD HOWARD LANE,  PH.D., has served as Chairman of the Board,  Chief
Executive  Officer and  President  of the Company  since  December  1994 and its
predecessor,  NutraGenics (Delaware),  since April 1994. He also served as Chief
Executive  Officer and President of  LipoGenics  from July 1992 to October 1997.
Dr. Lane is  responsible  for  directing  Synovics'  corporate  development  and
growth.  He  received  a  Ph.D.  and  post-doctorate  NIH  fellowship  from  the
University  of Wisconsin  (Madison)  in  Neurophysiology.  Dr. Lane  spearheaded
development of the technology at LipoGenics.  He had been previously employed by
Norcap Financial  Corporation,  The National Western Group,  Inc. (an investment
company), and Taylor Pearson Corporation.

         RICHARD M.  FELDHEIM has been a member of the board of directors  since
October 1995. He served as a director,  Secretary and Chief Financial Officer of
LipoGenics  from July 1992  until  October  1996.  Mr.  Feldheim  has  served as
Chairman and Co-Chief Executive Officer of Abby's, a restaurant chain in Oregon,
since 1991. He was in private  practice as a lawyer prior thereto,  and had been
previously employed with Goldman Sachs & Co.; Donaldson,  Lufkin & Jenrette;  J.
Aron  Company;  and Price  Waterhouse,  and was  President  of Norcap  Financial
Corporation.   Mr.  Feldheim  received  a  B.S.,  B.A.,  a  Master's  Degree  in
Accounting,  and a J.D. from the  University of Arizona,  as well as an LL.M. in
Taxation from New York University. He is a Certified Public Accountant.

     WILLIAM M. McCORMICK has been a member of the board of directors  since May
1996.  He  currently  serves as  Chairman  of the  Executive  Advisory  Board of
Inverness  Management,  LLC . Mr.  McCormick was from 1990 to 1995 President and
Chief Executive

                                       48
<PAGE>

Officer and a Director from 1990 until 1997 of PennCorp Financial Group, Inc., a
NYSE company.  Prior thereto, Mr. McCormick was employed by the American Express
Company.  His titles there ranged from Senior Vice President Finance,  Systems &
Operations  of  the  American  Express  International  Banking  Corporation  and
President  of  American   Express'   Travel  Related   Services   Company.   For
approximately  five years  thereafter,  Mr.  McCormick  was  Chairman and CEO of
Fireman's Fund Insurance.  After  graduating from Yale, Mr.  McCormick spent his
early years in investment  banking and  management  consulting  with  Donaldson,
Lufkin & Jenrette and McKinsey & Company, Inc., respectively.

         JOHN S. COPANOS is the founder of Kirk and its affiliate  ANDAPharm and
is the President and Chief Operating Officer of Kirk and Chief Executive Officer
of ANDAPharm.

         STEVEN  GETRAER,  has  served as Chief  Executive  Officer  of Kirk and
President  of  Andapharm  since its  acquisition  in May  2006.  He was hired to
provide Kirk with a top level professional  manager.  Prior to joining Kirk, Mr.
Getraer was an independent  business consultant starting in 2003. Before that he
was a managing  director  of Henry  Schein UK  Holdings  from 1999 to 2003.  Mr.
Getraer is a strong  complement  to Mr.  Copanos'  entrepreneurial  skills.  Mr.
Getraer has a BS in accounting from Long Island  University and he completed his
course work for his MBS from New York University.

         The Board of Directors is divided into three classes with each class of
director  elected for a staggered term of three years and until their respective
successors is duly elected and qualified.

         There  have  been no events  under  any  bankruptcy  act,  no  criminal
proceedings  and no judgments,  injunctions,  orders or decrees  material to the
evaluation  of the ability and  integrity of any  director,  executive  officer,
promoter or control person of the Company during the past five years.

         The Company has  established a standing audit committee of its board of
directors with Messrs. Feldheim and McCormick as its members. Mr. Feldheim is an
independent  director,  as defined by the rules  governing  the  American  Stock
Exchange and has been designated as an audit committee financial expert.

         The  Company  has not yet  adopted a code of ethics  applicable  to its
principal executive officer,  principal financial officer,  principal accounting
officer or controller. The Company's

                                       49
<PAGE>

examination of its corporate  governance and other policies and procedures  that
relate  to a larger  enterprise  has  been  interrupted  by the time and  effort
required by the ongoing dispute and related injunction  hearings and arbitration
with Nostrum. Shortly following conclusion of these matters, the Company expects
to adopt a code of ethics applicable to all directors, officers and employees.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Exchange Act requires the Company's  directors and
officers,  and  persons  who own  more  than  10% of a  registered  class of the
Company's  equity  securities,  to file  reports  of  ownership  and  changes in
ownership with the SEC.  Officers,  directors and greater than 10%  stockholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.

         Based  solely  on the  Company's  review  of the  copies  of the  forms
received  by it during the  fiscal  year ended  October  31,  2006 that no other
reports were required,  the Company believes that its directors and officers may
have been deficient in complying with Section 16(a) filing  requirements  during
such fiscal year.

ITEM 11.  EXECUTIVE COMPENSATION.

         The  following  table sets forth the total  compensation  received  for
services  rendered in all  capacities  to the Company for the three fiscal years
ended  October 31,  2006,  2005 and 2004 by the  Company's  Principal  Executive
Officer,  who is also its Principal  Financial Officer and its three most highly
compensated executive officers and former executive officer whose aggregate cash
compensation  exceeded  $100,000 for the year ended October 31, 2006,  including
Dr. Mulye who had been employed as Chief Scientific Officer from October 1, 2005
to January 3, 2007 (collectively, the "Named Executive Officers"). There were no
other  employees of the Company or its subsidiary  whose  compensation  exceeded
$100,000 for the October 31, 2006 fiscal year.

                                       50
<PAGE>

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                              ANNUAL COMPENSATION
                              -------------------
                                                                                                CHANGE IN
                                                                                              PENSION VALUE
                                                                                                   AND
                                                                                 NON-EQUITY    NONQUALIFIED
                                                                                 INCENTIVES      DEFERRED
                                                              STOCK    OPTION       PLAN       COMPENSATION    ALL OTHER
NAME AND                                                      AWARDS   AWARDS   COMPENSATION     EARNINGS     COMPENSATION   TOTAL
PRINCIPAL POSITION           YEAR    SALARY ($)   BONUS ($)     ($)      ($)         ($)            ($)           ($)         ($)
------------------           ----    ----------   ---------     ---      ---         ---            ---           ---         ---
<S>                          <C>      <C>           <C>        <C>      <C>         <C>            <C>            <C>       <C>
Ronald H. Lane, Ph.D. (1)    2006     353,846       None    3,750,000   None        None           None           None      353,846
Chief Executive Officer      2005     225,910       None       None     None        None           None           None      225,910
and President and Chief
Financial Officer and
Secretary
                             2004     $163,919     $39,028     None     None        None           None           None       202,947

Steven Getrear (2)           2006     $240,000(3)   None       None     None        None           None           None      $240,000
Chief Executive Officer of   2005       N/A          N/A        N/A      N/A         N/A            N/A           N/A          N/A
Kirk Pharmaceuticals LLC     2004       N/A          N/A        N/A      N/A         N/A            N/A           N/A          N/A
and President of Andapharm
LLC

John Copanos (4)             2006     $250,000    $25,000(5)    N/A      N/A         N/A            N/A           N/A      $275,000
President and Chief          2005       N/A          N/A        N/A      N/A         N/A            N/A           N/A          N/A
Operating Officer of Kirk    2004       N/A          N/A        N/A      N/A         N/A            N/A           N/A          N/A
Pharmaceuticals LLC
and Chief Executive Officer
of Andapharm

John R. Palmer (5)           2006       N/A          N/A        N/A      N/A         N/A            N/A           N/A          N/A
Chief Executive Officer and  2005     200,000       None       None     None        None           None           None       200,000
President of InCon           2004     200,000       None       None     None        None           None           None       200,000
Technologies Inc.

Nirmal Mulye (6)             2006     347,692       None       None     None        None           None           None       347,692
Chief Scientific Officer     2005       N/A          N/A        N/A      N/A         N/A            N/A           N/A          N/A
                             2004       N/A          N/A        N/A      N/A         N/A            N/A           N/A          N/A
</TABLE>

                                       51
<PAGE>

(1)  Does not  include  accumulated  deferred  compensation  of  $267,948  as of
     October 31, 2006.

(2)  In May 2006, the Company acquired Kirk  Pharmaceuticals  LLC and Andapharm,
     LLC.  Mr.   Gatrear  serves  as  the  Chief   Executive   Officer  of  Kirk
     Pharmaceuticals LLC and as President of Andapharm, LLC.

(3)  This represents annualized consulting fees for services of Mr. Getrear.

(4)  In May 2006, the Company acquired Kirk  Pharmaceuticals  LLC and Andapharm,
     LLC. Mr.  Copanos  serves as the President and Chief  Operating  Officer of
     Kirk Pharmaceuticals and as Chief Executive Officer of Andapharm, LLC.

(5)  This  represents a onetime bonus paid to Mr. Copanos prior to the Company's
     acquisition of Kirk Pharmaceuticals LLC and Andapharm, LLC.

(6)  In October 31, 2005, the Company sold InCon Technologies, Inc.

(7)  The referenced individual resigned from the position in January 2007.

COMPENSATION COMMITTEE

         The  compensation  committee  of the board of directors  currently  has
William  McCormick and Richard Feldheim as its members and since September 2006,
Mr.  McCormick  has served as the Chairman of the  compensation  committee.  The
compensation  committee held one meeting during the year ended October 31, 2006.
Subject  to  outstanding  employment  agreements,   the  compensation  committee
determines the salaries and incentive  compensation of our officers and provides
recommendations  for  the  salaries  and  incentive  compensation  of our  other
employees and consultants.

         Our  compensation  programs  are  intended  to  enable  us to  attract,
motivate,  reward and retain the management talent required to achieve corporate
objectives and thereby increase  stockholder  value. It is our policy to provide
incentives  to our senior  management to achieve both  short-term  and long-term
objectives  and to  reward  exceptional  performance  and  contributions  to the
development of our business.

RELATIONSHIP OF  COMPENSATION  TO PERFORMANCE AND  COMPENSATION OF OUR EXECUTIVE
OFFICERS

         The  compensation  committee  will annually  establish,  subject to the
approval of the board of directors and any applicable employment agreements, the
salaries that will be paid to our executive  officers during the coming year. In
setting salaries, the compensation committee takes into account several factors,
including  competitive  compensation data, the extent to which an individual may
participate in the stock plans maintained by us, and qualitative factors bearing
on an  individual's  experience,  responsibilities,  management  and  leadership
abilities and job performance.

OPTION GRANTS

         There were no options  granted in the  fiscal  year ended  October  31,
2006. As of October 31, 2006 there are no  outstanding  options held by officers
or directors of the Company.

DIRECTOR COMPENSATION

         The Company pays all of its Board  members  reimbursement  for expenses
for each Board meeting  attended.

                                       52
<PAGE>

EMPLOYMENT AGREEMENTS

         Currently,  we do not maintain employment agreements with our executive
officers.  We intend to enter into an employment  agreement  with each executive
officer prior to the end of the second quarter of 2007. We anticipate that these
agreements  will  contain  provisions  which  will be  comparable  to  those  of
similarly  situated  companies in our industry with respect to  confidentiality,
non-competition and assignment of intellectual property.

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

         The following  tables set forth certain  information  as of October 31,
2006,  regarding (i) each person known by the Company to be the beneficial owner
of more than 5% of the outstanding  shares of Common Stock,  (ii) each director,
nominee and executive  officer of the Company,  (iii) all officers and directors
as a group.

BENEFICIAL OWNER AS OF OCTOBER 31, 2006                  AMOUNT
NAME OF BENEFICIAL OWNER                                OWNED(2)    PERCENT

DIRECTORS AND NAMED EXECUTIVE OFFICERS(1):
Ronald H. Lane, Ph.D. ** (3)                            3,939,668    15.13%
Richard M. Feldheim** (4)                                 405,529     1.56%
William M. McCormick ** (5)                               811,167      3.1%

Executive officers and directors as a group
(3 persons)                                             5,156,364    19.71%

OTHER 5% STOCKHOLDERS
Nirmal Mulye (6)
505 Thornall Street, STE 304
Edison, NJ 08837                                       10,661,000    40.93%
Maneesh Pharmaceuticals
23-24 Kalptaru Court
C. G. Road, Chembour
Mumbaik7 400 074
91 22 2520 2122                                         1,500,000     5.76%
Nalin Rathod (7)
90 Cecil Street, #08-03
069531 Singapore                                        2,184,661     8.15%


** His address is c/o Synovics  Pharmaceuticals Inc., 2575 Camelback Road, Suite
450, Phoenix, AZ 85016

                                       53
<PAGE>


(1) Except as otherwise  indicated,  and subject to community property laws when
applicable, the persons named in the table above have sole voting and investment
power and with respect to all shares of Common Stock shown as beneficially owned
by them.

(2) Includes  shares of Common Stock issuable to the identified  person pursuant
to stock options or warrants that may be exercised  within 60 days after October
31, 2006. In calculating the percentage of ownership,  such shares are deemed to
be  outstanding  for the purpose of computing the percentage of shares of Common
Stock owned by such person, but are not deemed to be outstanding for the purpose
of  computing  the  percentage  of  shares of  Common  Stock  owned by any other
stockholders.

(3) Includes 3,403,638 shares held of record by R.H. Lane Limited Partnership of
which Dr. Lane is a general  partner.  He shares  voting power over these shares
with Richard M.  Feldheim,  a general  partner.  Dr. Lane  disclaims  beneficial
ownership  of 60,000  shares held by such  partnership  for the benefit of other
partners and 180,000 shares held by the partnership for the benefit of his wife.

(4)  Includes  3,966  shares  held of  record by  Abby's,  Inc.,  a  corporation
controlled  by Mr.  Feldheim,  and  401,563  shares  held of record by the R. M.
Feldheim Limited Partnership of which Mr. Feldheim is the general partner.  Does
not include  3,403,638  shares held by R.H.  Lane  Limited  Partnership  for the
benefit of other  partners.  He shares  voting  power  over the  shares  held by
Abby's, Inc. and R.H. Lane Limited Partnership.

(5) Includes  120,000  shares  issuable  upon  exercise of stock  options.  Also
includes 10,000 shares held by Mr. McCormick's wife and 4,500 shares held by Mr.
McCormick's minor children, of which shares he disclaims beneficial ownership.

(6) Includes 10,661,000 shares held of record by Nostrum Pharmaceuticals, Inc, a
corporation controlled by Mr. Mulye.

(7) Includes  750,000 shares issuable upon  conversion of convertible  notes and
warrants  exercisable  into  shares  which were  acquired  in April 2006 by Asia
Pacific  Investment  Holdings  Ltd., an entity  controlled by Mr.  Rathod.  Also
includes  1,349,500  shares held of record by Asia Pacific  Investment  Holdings
Ltd.,  30,000  shares held of record by Macropower  Development  Ltd, and 14,286
shares  held  of  record  by  Technology   Resources  &  Investments   Ltd,  all
corporations  controlled  by Asia Pacific  Investment  Holdings Ltd. Also 40,875
shares held in street name in the Indian Bank Depository Trust.

(8) Unless otherwise  indicated,  the address for each individual  listed on the
chart above is 2575 E. Camelback Road, Suite 450, Phoenix, AZ 85016.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         On September 27, 2005, the Company entered into an Assumption Agreement
with Nostrum  Pharmaceuticals,  whereby the Company assumed Nostrum's obligation
to pay Enem Nostrum  Remedies Pvt. Ltd.  $1,508,000 for its work in the research
and development of  pharmaceutical  products.  In consideration of the Company's
assumption of the foregoing

                                       54
<PAGE>

obligations,  Nostrum  agreed that the  assumption and payment shall be a credit
against the Company's  obligation  pursuant to Section  3.2(c) of the Technology
License  Agreement dated as of March 16, 2005, as amended,  to reimburse Nostrum
for  reasonable  costs and  expenses  incurred in  providing  assistance  to the
Company.

         On August 15, 2005, the Company issued 80,000 shares of Common Stock in
a private  placement to James Belcher and his designees,  a current  shareholder
and  note  holder  of  the  Company,  for  rights  to  certain  technology.  The
transaction was valued at $116,000, the fair market value of the Company's stock
on the given date.

         On March 16,  2005,  the  Company  entered  into a  Technology  License
Agreement  and  replaced in its  entirety  the Product  Development  and License
Agreement  with Nostrum  Pharmaceuticals,  Inc. dated June 16, 2004. The license
grant   provided   exclusive   worldwide   rights  to  employ   Nostrum's   oral
controlled-release  delivery  technology  in the future  development  of ten 505
(b)(2) drugs and ten generic  drugs,  and the Company issued 6 Million shares of
its  common  stock  to  Nostrum.   Nirmal  Mulye,  who  controls  Nostrum  which
beneficially  owns  approximately  40% of the  Company,  was a  Director  of the
Company from July 2004 until  September 2006 and Chief  Scientific  Officer from
October 31, 2005 to January  20007.  Nostrum will receive a 50% royalty  payment
derived for net sales less cost of goods and other customary  offsets on revenue
generated for generic drug sales. There will is no royalty agreement nor payment
required to Nostrum for sale of 505(b)(2) drugs or dietary supplements employing
the licensed technology.

         On June 16, 2004, the Company  entered into a Product  Development  and
License  Agreement with Nostrum  extending rights to Synovics to develop and own
exclusively and worldwide certain to be determined 505(b)(2) drug products.

         The Company  issued  Nostrum six  million  shares of common  stock in a
private  placement as payment for the  exclusive use of technology in the future
development  of 505(b)(2) drug products made available to it under the agreement
with  Nostrum.  There  is no  additional  compensation  due to  Nostrum  for the
technology available to Synovics under the agreement.

         On August 10, 2004,  the Company  issued and sold  1,000,000  shares of
Common Stock in a private placement to Asia Pacific Investment Holdings Limited,
the current owner of a 50% interest in InCon  Processing  (as  described  above,
Synovics also owns a 50% interest in InCon  Processing,  LLC),  for an aggregate
purchase price of $1,000,000.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

         The  following  is a  description  of the fees paid by the  Company  to
Miller,  Ellin & Co., LLP ("Miller Ellin") during the fiscal years ended October
31, 2006 and October 31, 2005:

                                       55
<PAGE>

         AUDIT FEES

         The Company paid fees of  approximately  $84,000 and $156,000 to Miller
Ellin in  connection  with its  audit  and  review  of the  Company's  financial
statements for the fiscal years ended October 31, 2006 and 2005, respectively.

         TAX FEES

         The Company did not pay any fees to Miller Ellin in connection with its
services related to tax compliance,  tax advice and tax planning for the Company
for the fiscal years ended October 31, 2006 and 2005, respectively.

         ALL OTHER FEES

         The Company did not pay any fees to Miller  Ellin to perform  non-audit
services during the years ended October 31, 2006 and 2005, respectively.

                                       56
<PAGE>

                                     PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)      Documents filed as part of this Report:

         (1)      Consolidated  Financial Statements and Supplemental  Schedules
                  as listed in the Index to Consolidated Financial Statements on
                  Page F-1 of this Report.

         (2)      List of Exhibits - See Index to Exhibits below.


Exhibit           Description
-------           -----------

3.1      Restated Articles of Incorporation (1)

3.2      Articles of Amendment to the Articles of Incorporation (1)

3.2a     Amendment to the Restated Articles of Incorporation*

3.3      Bylaws (1)

3.3a     Bylaws, as amended through September 20, 2006 (2)

4.1      Form of Certificate evidencing shares of common stock (1)

10.1     Form of Rights  Agreement,  effective as of September 8, 2006,  between
         the Registrant  and  Continental  Stock  Transfer & Trust  Company,  as
         rights agent (3)

10.2     Amendment No. 1 to  Technology  License  Agreement,  by and between the
         Company and Nostrum Pharmaceuticals, Inc., dated June 30, 2005 (4)

10.2a    Amendment No. 2 to  Technology  License  Agreement,  by and between the
         Company and Nostrum Pharmaceuticals, Inc., dated August 31, 2005 (4)

10.2b    Amendment No. 3 to  Technology  License  Agreement,  by and between the
         Company and Nostrum Pharmaceuticals, Inc., dated October 3, 2005 (5)

10.3     ANDA Ownership Transfer and Product License Agreement, dated as
         of May  17,  2006, by and between Nostrum Pharmaceuticals, Inc. and
         Synovics Laboratories, Inc. (6)

10.4     Letter Agreement, by and between the Company, Nostrum Pharmaceuticals,
         Inc. and Enem Nostrum Remedies Pvt. Ltd, dated September 27, 2005 (7)

10.5     Placement  Agency  Agreement,  by and  between  the  Company and Indigo
         Securities  LLC,  dated  October  3, 2005 with  respect  to the  Bridge
         Financing (5)

                                       57
<PAGE>

10.5a    Form of Subscription Agreement associated with the Bridge Financing (5)

10.5b    Form of 9% Convertible Bridge Notes (5)

10.5c    Form of Note offered in exchange for Convertible Bridge Note (3)

10.5d    Form of Bridge Warrants associated with the Bridge Financing (5)

10.5e    Form of  Registration  Rights  Agreement  associated  with  the  Bridge
         Financing (5)

10.6     Credit Agreement,  dated as of May 22, 2006, between the Registrant and
         Bank of India, New York Branch (8)

10.6a    Promissory Note, dated May 22, 2006, by the Registrant in favor of Bank
         of India, in the principal amount of $10,500,000 (8)

10.6b    Security  Agreement,  dated May 22, 2006, by the Registrant in favor of
         Bank of India (8)

10.6c    Corporate Guaranty, dated May 22, 2006, by Andapharm,  Inc., Andapharm,
         LLC, Bionutrics Health Products,  Inc., Incon Technologies,  Inc., Kirk
         Pharmaceuticals,  LLC, Kirk Pharmaceuticals,  Inc.,  Lipogenics,  Inc.,
         Synovics Laboratories, Inc., and Nutrition Technology Corp. in favor of
         Bank of India (8)

10.6d    Corporate Guaranty, dated May 22, 2006 by Nostrum Pharmaceuticals, Inc.
         in favor of Bank of India (8)

10.6e    Individual  Guaranty,  dated May 22, 2006, by Dr. Nirmal Mulye in favor
         of Bank of India (8)

10.7     Promissory Note, dated May 23, 2006, by the Registrant in favor of John
         S. Copanos (9)

10.8     Form of Purchase  and Sale  Agreement  by and among the  Company,  Asia
         Pacific Investment  Holdings Limited,  InCon  Technologies,  Inc., Bali
         Holdings, LLC, InCon Processing,  LLC, InCon International,  Inc., N.P.
         Shaikh and John R. Palmer, dated as of October 31, 2005 (10)

10.8a    Form of Consent of Noteholders to purchase (10)

10.9     Andapharm  Purchase  Agreement,  dated as of July 28, 2005, between the
         Registrant and John S. Copanos (8)

21       Subsidiaries of the Company*

                                       58
<PAGE>

31.1     Certification of Principal Executive Officer Pursuant to Section 302 of
         the Sarbanes-Oxley  Act of 2002 and Securities and Exchange  Commission
         Release 34-46427*

31.2     Certification of Principal Financial Officer Pursuant to Section 302 of
         the Sarbanes-Oxley  Act of 2002 and Securities and Exchange  Commission
         Release 34-46427*

32.1     Certification of Principal Executive Officer pursuant to Section 906 of
         the Sarbanes-Oxley Act of 2002*

32.2     Certification of Principal Financial Officer pursuant to Section 906 of
         the Sarbanes-Oxley Act of 2002*

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

* Filed herewith

--See Item 13 of the  Company's  Report on Form 10-K for the year ended  October
  31, 2005 for a list of other material  agreements executed prior to October 1,
  2005

(1)      Incorporated  by  reference  to  Registrant's  Form 10  filed  with the
         Commission on or about January 21, 1997.

(2)      Incorporated  by  reference  to  Registrant's  Form 8-K filed  with the
         Commission on September 21, 2006.

(3)      Incorporated  by  reference  to  Registrant's  Form 8-K filed  with the
         Commission on September 14, 2006.

(4)      Incorporated  by  reference  to  Registrant's  Form 10-K filed with the
         Commission on January 30, 2006.

(5)      Incorporated  by  reference  to  Registrant's  Form 8-K filed  with the
         Commission on October 7, 2005, as amended on October 11, 2005.

(6)      Incorporated  by  reference  to  Registrant's  Form 8-K filed  with the
         Commission on May 19, 2006.

(7)      Incorporated  by  reference  to  Registrant's  Form 8-K filed  with the
         Commission on October 3, 2005.

(8)      Incorporated  by  reference  to  Registrant's  Form 8-K filed  with the
         Commission on May 26, 2006.

(9)      Incorporated by reference to Registrant's  Form 8-K/A (amendment to 8-K
         filed on May 26, 2006) filed May 31, 2006

                                       59
<PAGE>

(10)     Incorporated  by  reference  to  Registrant's  Form 10-Q filed with the
         Commission on March 16, 2006

                                       60
<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange  Act of 1934,  the  Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                 SYNOVICS PHARMACEUTICALS INC.



Dated: February 13, 2007         By: /s/      Ronald Howard Lane
                                     -------------------------------------------
                                 Name:  Ronald Howard Lane
                                 Title: President and Chief Executive Officer


Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed  below by the  following  persons  on  behalf of the  Company  and in the
capacities and on the dates indicated.

                                   Title                      Date

/S/ Ronald Howard Lane             Chief Executive Officer,   February 13, 2007
------------------------------     President, Principal
Ronald Howard Lane                 Executive Officer,
                                   Principal Financial
                                   and Accounting Officer,
                                   Chairman of the Board



/s/ Richard M. Feldheim            Director                   February 13, 2007
-------------------------------
Richard M. Feldheim



/s/ William M. McCormick            Director                  February 13, 2007
---------------------------
William M. McCormick

                                       61




<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To Synovics Pharmaceuticals, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets  of  Synovics
Pharmaceuticals,  Inc. and  Subsidiaries as of October 31, 2006 and 2005 and the
related  consolidated  statements of operations,  stockholders' equity (deficit)
and cash  flows for the years  ended  October  31,  2006,  2005 and 2004.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted  our audits in  accordance  with  auditing  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform an audit to obtain  reasonable  assurance  about whether the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material   respects,   the  financial   position  of  Synovics
Pharmaceuticals,  Inc. and  Subsidiaries as of October 31, 2006 and 2005 and the
results of their  operations and their cash flows for each of the three years in
the period ended October 31, 2006,  2005, and 2004 in conformity with accounting
principles generally accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
the Company  will  continue  as a going  concern.  As shown in the  consolidated
financial  statements,  the  Company  has  experienced  significant  losses  and
negative cash flows which raises  substantial  doubt about the Company's ability
to continue as a going concern.  Management's plans in this regard are described
in Note 2.

                                             Miller Ellin & Company, LLP
                                             Certified Public Accountants

New York, New York
February 13, 2007

                                      F-1

<PAGE>

                 SYNOVICS PHARMACEUTICALS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      OCTOBER 31,
                                                             -------------------------------
                                                                2006                2005
                                                             ------------        -----------
<S>                                                          <C>                <C>
ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                  $  2,393,437       $    128,819
  Accounts receivable, net                                      2,037,860                  -
  Inventory                                                     2,376,480              4,010
  Prepaid expenses and other current assets                       922,670            137,609
                                                             ------------       ------------

             Total Current Assets                               7,730,447            270,438
                                                             ------------       ------------

PROPERTY - Net of accumulated depreciation of $163,303.
  and $70,689, respectively                                     1,642,282              4,513
                                                             ------------       ------------

OTHER ASSETS:
  Deposits on equipment and security deposits                     379,622            234,494
  Deposit on purchase agreement                                         -            200,000
  Goodwill                                                     11,447,698                  -
  Deferred financing fees                                       1,967,937            375,042
  Intangible assets  - net of accumulated amortization of
      $343,113 and $312,816, respectively                      15,714,664         14,600,149
  Investment in Incon Processing, LLC                                   -          1,226,919
                                                             ------------       ------------
             Total Other Assets                                29,509,921         16,636,604
                                                             ------------       ------------
TOTAL ASSETS                                                 $ 38,882,650       $ 16,911,555
                                                             ============       ============

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                           $  3,226,664       $  1,007,570
  Accrued expenses                                              1,970,277            992,362
  Current portion of note payable - bank                        1,000,000                  -
  Current portion of note payable - seller                      1,000,000                  -
  Current portion of capital lease obligations                     71,227                  -
  Notes payable - shareholders and others                         180,929          1,452,100
  Convertible bridge notes                                      3,906,118          1,423,980
  Accrued interest                                              1,735,174            731,792
                                                             ------------       ------------
             Total current liabilities                         13,090,389          5,607,804
                                                             ------------       ------------

LONG-TERM LIABILITIES:
  Deferred revenue                                                980,363                  -
  Note payable - bank, net of current maturities                9,500,000                  -
  Note payable - seller, net of current maturities              2,000,000                  -
  Capital lease obligations, net of current maturities            208,411                  -
                                                             ------------       ------------

             Total Liabilities                                 25,779,163          5,607,804
                                                             ------------       ------------

STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value - authorized, 5,000,000 shares;
591,850 and 591,850 issued and outstanding, respectively
(liquidation preference of $798,998)                              798,998            798,998

Common stock - $.001 par value - authorized, 45,000,000 shares;
26,044,627 and 22,681,725 issued and outstanding,
respectively                                                       26,044             22,681

Additional paid-in capital                                     61,876,506         54,802,634

Warrants                                                        4,139,972            511,650

 Accumulated deficit                                         (53,403,233)       (44,832,212)

                                                               13,438,287         11,303,751
                                                             ------------       ------------

Subscription receivable                                         (150,000)                  -

Common Stock in Treasury                                        (184,800)                  -
                                                             ------------       ------------
             Total stockholders' equity                        13,103,487         11,303,751
                                                             ------------       ------------

TOTAL LIAILITIES AND STOCKHOLDERS' EQUITY                    $ 38,882,650       $ 16,911,555
                                                             ============       ============
</TABLE>

See notes to the consolidated financial statements.


                                      F-2
<PAGE>

                 SYNOVICS PHARMACEUTICALS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                      YEARS ENDED OCTOBER 31,
                                                        --------------------------------------------------
                                                            2006               2005               2004
                                                        ------------       ------------       ------------

<S>                                                     <C>                <C>                <C>
REVENUES, net                                           $ 10,516,398       $      8,192       $     98,767


COST OF REVENUES                                           8,158,727             45,289             18,269
                                                        ------------       ------------       ------------

                     GROSS PROFIT (LOSS)                   2,357,671            (37,097)            80,498


OPERATING EXPENSES
  Research and development                                 1,200,000          1,521,508                250

  Selling, general, and administrative                     4,776,857            352,960            866,663
                                                        ------------       ------------       ------------
                     Total expenses                        5,976,857          1,874,468            866,913
                                                        ------------       ------------       ------------

                     OPERATING LOSS                       (3,619,186)        (1,911,565)          (786,415)
                                                        ------------       ------------       ------------


OTHER INCOME (EXPENSES):
Other income                                                       -             13,695             (3,849)
Interest expense, net                                     (3,909,716)          (792,976)            (1,822)
                                                        ------------       ------------       ------------

                     Total other (expenses) income        (3,909,716)          (779,281)            (5,671)
                                                        ------------       ------------       ------------

NET LOSS BEFORE PROVISION FOR
     INCOME TAX                                           (7,528,902)        (2,690,846)          (792,086)

PROVISION FOR INCOME TAXES                                         -                  -                  -
                                                        ------------       ------------       ------------

       NET LOSS FROM CONTINUING OPERATIONS                (7,528,902)        (2,690,846)          (792,086)
       NET LOSS FROM DISCONTINUED OPERATIONS
       Equity in the loss of InCon Processing, LLC        (1,042,119)          (220,414)          (332,250)
                                                        ------------       ------------       ------------

NET LOSS                                                $ (8,571,021)      $ (2,911,260)      $ (1,124,336)
                                                        ============       ============       ============

BASIC AND DILUTED NET LOSS PER COMMON SHARE
FROM CONTINUING OPERATIONS                              $      (0.29)      $      (0.13)      $      (0.10)
FROM DISCONTINUED OPERATIONS                                   (0.04)             (0.01)             (0.04)
                                                        ------------       ------------       ------------

NET LOSS PER SHARE                                      $      (0.33)      $      (0.14)      $      (0.14)
                                                        ============       ============       ============

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING                                               26,044,630         20,094,784          7,840,496
                                                        ============       ============       ============
</TABLE>

See notes to the consolidated financial statements.


                                      F-3
<PAGE>

SYNOVICS PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                      YEARS ENDED OCTOBER 31,
                                                                        --------------------------------------------------
                                                                            2006                2005              2004
                                                                        ------------        ------------      ------------
<S>                                                                     <C>                 <C>               <C>
OPERATING ACTIVITIES:
Net loss                                                                $ (8,571,021)       $ (2,911,260)     $ (1,124,336)

Adjustments to reconcile net loss to net cash used in
operating activities:
  Depreciation and amortization                                              122,911              32,015            30,880

  Equity in the loss of joint venture                                      1,042,119             220,414           332,275

  Stock based compensation                                                         -              43,750           156,500

  Amortization of bridge loan discount                                     1,230,412              40,225

  Expenses satisfied with issuance of common stock                                 -             141,250

  Changes in operating assets and liabilities:
      Accounts receivable                                                   (113,335)                  -

      Inventory                                                              974,229              45,311           (21,731)

      Prepaids and other current assets                                     (337,304)           (305,577)           (6,431)

Security Deposits                                                            (48,918)

Other assets
      Accounts payable                                                    (1,985,106)           (568,364)          (56,725)

      Accrued interest                                                     1,735,174

      Accrued liabilities                                                    866,346           1,004,150            49,171

Deferred Revenues                                                            (80,932)
                                                                        ------------        ------------      ------------

Net cash used in operating activities                                     (5,165,425)         (2,258,086)         (640,397)
                                                                        ------------        ------------      ------------

INVESTING ACTIVITIES:
  Purchases of equipment                                                    (447,939)           (237,809)           (3,499)

 Acquisition activities                                                   (8,800,000)           (112,247)                -

  Patent acquisition cost                                                 (1,144,812)                  -           (10,000)
                                                                        ------------        ------------      ------------

Net cash used in investing activities                                    (10,392,751)           (350,056)          (13,499)
                                                                        ------------        ------------      ------------

FINANCING ACTIVITIES:
Issuance of common stock                                                   5,640,000             507,900         1,200,500

Payment of deferred financing fees                                          (840,639)

Proceeds from Debt                                                        13,600,000           1,599,804            79,500

Repayment of Debt                                                           (341,783)

Repayment of leases                                                         (234,784)
                                                                        ------------        ------------      ------------

Net cash provided by financing activities                                 17,822,794           2,107,704         1,280,000
                                                                        ------------        ------------      ------------


NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS                                                           2,264,618            (500,438)          626,104

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                               128,819             629,257             3,153
                                                                        ------------        ------------      ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                $  2,393,437        $    128,819      $    629,257
                                                                        ============        ============      ============


SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING
AND INVESTING ACTIVITIES:
  Settlement of debt through issuance of common stock                   $  2,088,244        $     49,500           $     -
                                                                        ============        ============      ============

  Rights to technology acquired through issuance of common stock        $          0        $ 13,916,000      $    360,000
                                                                        ============        ============      ============
</TABLE>

See notes to the consolidated financial statements.

                                      F-4
<PAGE>

                 SYNOVICS PHARMACEUTICALS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                              Preferred Stock                 Common Stock                       Warrants
                                      ----------------------------------------------------------------------------------------------
                                           Shares        Amount          Shares          Amount            Number         Amount
                                      ----------------------------------------------------------------------------------------------

<S>                                       <C>        <C>                <C>           <C>                  <C>         <C>
Balances, November 1, 2003                591,850    $    798,998       4,352,600     $      4,352         659,000     $    448,023

Issuance of common stock                        -               -      11,650,000        11,650.00               -                -
Warrants issued                                 -               -               -                -          50,000                -
Warrants expired                                -               -               -                -         (24,000)         (46,832)
Net loss                                        -               -               -                -               -                -
                                       ----------    ------------     ------------    ------------     -----------     ------------

Balances, October 31, 2004                591,850         798,998      16,002,600           16,002         685,000          401,191

Issuance of common stock                        -               -       6,679,125            6,679               -                -
Warrants issued                                 -               -               -                -         307,496          461,245
Warrants expired                                -               -               -                -        (555,000)        (350,786)
Net Loss                                        -               -               -                -               -                -
                                       ----------    ------------     ------------    ------------     -----------     ------------

Balances, October 31, 2005                591,850         798,998      22,681,725           22,681         437,496          511,650

Issuance of common stock                        -               -       3,362,902            3,363               -                -
Warrants issued                                 -               -               -                -         444,996          300,326
Warrants expired                                -               -               -                -         (10,000)            (405)
Warrants issued in connection with
convertible bridge notes                        -               -               -                -       1,075,259        3,328,401
Beneficial conversion feature of
convertible bridge notes                        -               -               -                -               -                -
Net Loss                                        -               -               -                -               -                -
Subscription receivable on sale of
warrants                                        -               -               -                -               -                -
Acquisition of treasury stock                   -               -               -                -               -                -
                                       ----------    ------------     ------------    ------------     -----------     ------------
Balances, October 31, 2006                591,850    $    798,998      26,044,627     $     26,044       1,947,751     $  4,139,972
                                       ==========    ============     ============    ============     ===========     ============

<CAPTION>

                                                                          Treasury stock
                                        Paid in        Accumulated   -------------------------   Subscription     Stockholders'
                                        Capital          Deficit      Shares         Amount        Receivable     Equity (Deficit)
                                      ------------  --------------   ---------    -----------  --------------    -----------------

<S>                                   <C>            <C>                          <C>            <C>             <C>
Balances, November 1, 2003            $ 38,047,945   $(40,796,616)          -     $         -    $          -    $ (1,497,298)

Issuance of common stock                 1,705,350              -           -               -               -       1,717,000
Warrants issued                                  -              -           -               -               -               -
Warrants expired                            46,832              -           -               -               -               -
Net loss                                         -     (1,124,336)          -               -               -      (1,124,336)
                                      ------------   -------------   --------     -----------    ------------    ------------

Balances, October 31, 2004              39,800,127    (41,920,952)          -               -               -        (904,634)

Issuance of common stock                14,651,720              -           -               -               -      14,658,399
Warrants issued                                  -              -           -               -               -         461,245
Warrants expired                           350,786              -           -               -               -               -
Net Loss                                               (2,911,260)          -               -               -      (2,911,260)
                                      ------------   -------------   --------     -----------    ------------    ------------

Balances, October 31, 2005              54,802,633    (44,832,212)          -               -               -      11,303,750

Issuance of common stock                 7,499,542              -           -               -               -       7,502,905
Warrants issued                           (300,326)             -           -               -               -               -
Warrants expired                               405              -           -               -               -               -
Warrants issued in connection with
convertible bridge notes                (3,328,401)             -           -               -               -               -
Beneficial conversion feature of
convertible bridge notes                 3,202,653              -           -               -               -       3,202,653
Net Loss                                         -     (8,571,021)          -               -               -      (8,571,021)
Subscription receivable on sale of
warrants                                         -              -           -               -        (150,000)       (150,000)
Acquisition of treasury stock                    -              -      59,000        (184,800)              -        (184,800)
                                      ------------   -------------   --------     -----------    ------------    ------------
Balances, October 31, 2006            $ 61,876,506   $(53,403,233)     59,000     $  (184,800)   $   (150,000)   $ 13,103,487
                                      ============   =============   ========     ===========    ============    ============
</TABLE>


See notes to the consolidated financial statements.

                                      F-5


<PAGE>


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, ORGANIZATION, AND NATURE OF
BUSINESS

PRINCIPLES OF CONSOLIDATION

The  consolidated   financial   statements  include  the  accounts  of  Synovics
Pharmaceuticals,  Inc.  and its wholly  owned  subsidiaries,  (collectively  the
"Company").  All significant  inter-company  accounts and transactions have been
eliminated in consolidation.

ORGANIZATION AND NATURE OF BUSINESS

Synovics Pharmaceuticals,  Inc. is a specialty pharmaceutical company engaged in
the development,  manufacturing and commercialization of oral controlled-release
generic  drugs  and  improved   formulations   of  previously   approved   drugs
(505(B)(2)).  Synovics Pharmaceuticals,  Inc. previously called Bionutrics, Inc.
was  incorporated  in Nevada in 1990. The Company has two primary  subsidiaries,
Kirk  Pharmaceuticals,   Inc.  ("Kirk"),  and  Andapharm,   Inc.  ("Andapharm"),
Andapharm has served as the product  research arm of the Company with a focus on
the  discovery  and  development  of active  compounds  for  drugs.  Kirk,  Inc.
manufactures and distributes products developed or licensed to the company

CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.  At October 31, 2006, and 2005 cash
consisted of cash on deposit with banks and the Company had no cash equivalents.

INVENTORY

The  Company's  inventory  is  stated at the  lower of cost or  market.  Cost is
determined using the first in first out method.

PROPERTY AND DEPRECIATION

Property and equipment are stated at cost.  Major renewals and  improvements are
capitalized and replacements,  maintenance and repairs,  which do not improve or
extend the lives of the respective assets, are charged to expense when incurred.
When items of property and equipment  are retired or otherwise  disposed of, the
original cost and related accumulated  depreciation to date are removed from the
accounts and any gain or losses upon retirement or sale is recognized in income.

The Company's property consists of computer equipment,  manufacturing equipment,
leasehold  improvements,  and furniture and fixtures which are  depreciated  for
financial  reporting purposes using the straight-line  method over the estimated
useful life of the assets.

                                      F-6
<PAGE>


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,  ORGANIZATION AND NATURE OF
BUSINESS (cont'd)

PATENTS

  Costs incurred for the application of patents are capitalized and amortized on
the  straight-line  method for 17 years,  which is their estimated  useful life.
These  costs are charged to expense if the patent is  unsuccessful.  The Company
continually  reviews  patents for  impairment.  If conditions  indicate that the
carrying value is not  recoverable an impairment  charge is recognized to reduce
the carrying amount to the estimated fair value of the asset.  Patents currently
capitalized  relate  to both the  processes  and  products  associated  with the
Company's business.

LICENSE AGREEMENT

The Technology  License  Agreement (the "Technology  Agreement") dated March 16,
2005  entered  into  with  Nostrum  Pharmaceuticals,  Inc.  ("Nostrum")  and the
Company,  replaced in its entirety the Product Development and License Agreement
with Nostrum dated as of June 16, 2004. Under the revised License Agreement, the
Company  received  an  exclusive  license to develop and  commercialize  ten 505
(b)(2) products  pharmaceutical products that qualify for filing with the United
States Food and Drug Administration (the "FDA") under a "505(b)(2)"  application
and ten generic products (generic  bio-equivalents of the branded products which
qualify  for  filing  with  the  FDA  pursuant  to  an   Abbreviated   New  Drug
Application)) under the Nostrum Technology (as defined in the License Agreement)
within a three year period.  As consideration  for the new license,  the Company
issued 12  million  shares  of its  common  stock,  and  agreed  to pay  Nostrum
royalties  on  net  sales  of  generic  products  developed  from  the  licensed
technology  equal to 50% of gross profit,  as defined.  As of July 31, 2006, the
Company  has paid  $1,713,637  to  Nostrum  as  remuneration  for  research  and
development costs associated with the licensed  technology,  as well as advanced
to Nostrum $440,000 for future services associated with the licensed technology.


IMPAIRMENT OF LONG-LIVED ASSETS

The  Company  continually  evaluates  the fair  value of  long-lived  assets for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of an asset may not be recoverable. No material impairments were
determined to have occurred during the years ended October 31, 2006, and 2005.

REVENUE RECOGNITION

The Company generally  recognizes product revenue at the time of shipment to the
customer.  Revenues  from  services  are  recorded  at the time the  service  is
rendered and/or reimbursable expenses are incurred.

The Company redefined its strategy to focus on the development of the technology
that  it  has  licensed,  and  the  Company  intends  to  perform  the  Chemical
Manufacturing   and  Controls  ("CMC")   development  at  Kirk,  its  designated
manufacturer.  Revenues  for the  years  ended  October  31,  2006 and 2005 were
derived primarily from services and product sales, the latter of which were from
the sales at Kirk and Andapharm from May 22, 2006, the date of acquisition.


                                      F-7
<PAGE>

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,  ORGANIZATION AND NATURE OF
BUSINESS (cont'd)

ADVERTISING EXPENSES

The cost of advertising is charged to expense as incurred.

RESEARCH AND DEVELOPMENT

The cost of research and development is charged to expense as incurred.

Loan Closing Costs

The Company incurred  various expenses  primarily in connection with obtaining a
line of credit bank  facility to finance  the Kirk and  Andapharm  acquisitions.
These costs are being amortized over 36 months.  Amortization expense charged to
operations  for the year  ended  October  31,  2006,  were  $885,016,  none were
incurred during the years ended October 31, 2005 and 2004.


Intangible Assets

Goodwill  and  intangible  assets with  indefinite  lives are  reviewed at least
annually for impairment.  Management  performed its review of the carrying value
of the Company's  goodwill and other intangible assets and determined that there
was no  impairment  as of October  31,  2006,  2005 and 2004.  Accordingly,  the
carrying value of the Company's  goodwill and other intangible assets represents
goodwill and licensed technology.


STOCK-BASED COMPENSATION

Beginning  with stock  options  and  warrants  granted in 2003,  the Company has
accounted for stock-based compensation in accordance with the provisions of SFAS
No. 123, "Accounting for Stock-Based  Compensation," which provided guidance for
the recognition of  compensation  expense as it related to the issuance of stock
options and warrants.  In addition,  the Company  adopted the provisions of SFAS
No. 148, "Accounting for Stock-Based  Compensation - Transition and Disclosure -
an  amendment  of SFAS No.  123." SFAS No. 148  amended  SFAS No. 123 to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee  compensation provided by SFAS No.
123. As permitted by SFAS No. 148, the Company has adopted the fair value method
recommended  by SFAS No. 123 to effect a change in  accounting  for  stock-based
employee  compensation.  In addition, the Company adopted the provisions of SFAS
No.  123R,  "Share-Based  Payment,"  which  revised  SFAS No. 123 to require all
share-based  payments to employees,  including grants of employee stock options,
to be recognized based on their fair values.


                                      F-8
<PAGE>

INCOME TAXES

The Company accounts for income taxes using the liability method.  The liability
method  measures  deferred income taxes by applying  enacted  statutory rates in
effect at the  balance  sheet date to the  differences  between the tax bases of
assets and liabilities and their reported  amounts in the financial  statements.
Any resulting deferred tax assets or liabilities are adjusted to reflect changes
in tax laws as they occur.


USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,  the
disclosure of contingent  assets and  liabilities,  and the reported  amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.  Significant  estimates include the allowance for doubtful
accounts.


REGISTRATION RIGHTS AGREEMENT

The Company has entered into a registration  rights agreement in connection with
the sale of convertible  bridge notes.  The agreement  provides that the Company
file a Registration Statement with the SEC that covers the resale of 125% of the
Registrable Securities,  as defined, (the shares issuable upon conversion at the
initial current  conversion  price and upon exercise of related  warrants at the
initial exercise price) (the "MANDATORY REGISTRATION STATEMENT").

If the  Mandatory  Registration  Statement  has not  been  declared  or  ordered
effective within one hundred twenty (120) days after the Closing, the Company is
to pay each  investor  a fee  equal  to 1% of the  purchase  price  paid by such
Investor for the  Securities  plus the aggregate  exercise price of the Warrants
and the Placement Agent Warrants for the first two thirty (30) day periods after
such  failure and 2.5% of such amount for each  subsequent  thirty 30 day period
(pro rata, in each case, for partial  months).  Any such payments are to be made
at the end of each calendar month until the date that the Mandatory Registration
Statement is declared effective.  Those payments may be made, at the election of
the Company,  in cash or in additional shares of Series A Preferred Stock valued
at the Original  Purchase  Price.  There is no cap on the maximum  amount of the
penalties that could be payable under the agreement.  The Company will recognize
the penalties,  if any,  incurred  under the  registration  rights  agreement as
interest  expense in the  period in which they are  incurred.  The  Company  has
failed  to have  an  effective  registration  statement  as  defined  under  the
agreement  and  recognized $ 914,549 of penalties  during the year ended October
31, 2006, which are relected as interest expense.


                                      F-9
<PAGE>

CONCENTRATIONS AND CREDIT RISK

CASH

The Company  maintains cash balances in banks,  which, at times,  may exceed the
limits of amounts insured by the Federal Deposit Insurance  Corporation  (FDIC);
however, because deposits are maintained at high quality financial institutions,
management  does  not  believe  that  there  is a  significant  risk  of loss of
uninsured amounts.

The Company has customers that accounted for more than 10 percent of revenues in
the years ended October 31, 2006, and 2005.  The  percentages by customer are as
follows:

                                   2006      2005   2004
                  Customer A       33.39%     0      0
                  Customer B       27.46%     0      0
                                   -----      -      -

                                   60.85%    69.1%   0

The  percentages of Accounts  receivables by those customers  representing  more
than 10% as of October 31, 2006 are:

                                            2006
                  Customer A                30.84%
                  Customer B                26.24%
                                            ------
                                            57.08%

No customers amounted for more than 10% of receivables as of October 31, 2005 or
2004.


                                      F-10
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS NOT YET EFFECTIVE

In September 2006, the SEC staff issued Staff  Accounting  Bulletin  ("SAB") No.
108,  "Considering  the  Effects of Prior Year  Misstatements  when  Quantifying
Misstatements  in Current Year Financial  Statements." SAB No. 108 was issued in
order to eliminate the diversity of practice  surrounding  how public  companies
quantify financial statement misstatements.  SAB No. 108 requires registrants to
quantify the impact of correcting  all  misstatements  using both the "rollover"
method,  which focuses  primarily on the impact of a misstatement  on the income
statement  and is the  method  currently  used by the  Company,  and  the  "iron
curtain"  method,  which  focuses  primarily  on the  effect of  correcting  the
period-end balance sheet. The use of both of these methods is referred to as the
"dual  approach"  and should be  combined  with the  evaluation  of  qualitative
elements  surrounding the errors in accordance  with SAB No. 99,  "Materiality."
The  provisions  of SAB No. 108 are  effective  for the Company for fiscal years
beginning  July 1, 2006.  The  adoption of SAB No. 108 is not expected to have a
material impact on the Company's  consolidated  financial  position,  results of
operations or cash flows.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." SFAS
No. 157 defines fair value,  establishes a framework for measuring fair value in
accordance  with  generally   accepted   accounting   principles,   and  expands
disclosures  about fair value  measurements.  The provisions of SFAS No. 157 are
effective for the Company for fiscal years  beginning  July 1, 2008. The Company
is evaluating the impact of the provisions of this statement on its consolidated
financial position, results of operations and cash flows.

In September  2006,  the FASB issued SFAS No. 158,  "Employers'  Accounting  for
Defined Benefit Pension and Other  Postretirement  Plans." SFAS No. 158 requires
employers to fully  recognize the obligations  associated  with  single-employer
defined benefit pension,  retiree healthcare and other  post-retirement plans in
their financial statements. The provisions of SFAS No. 158 are effective for the
Company as of the end of the fiscal year ending October 31, 2007. The Company is
evaluating the impact of the  provisions of this  statement on its  consolidated
financial position, results of operations and cash flows.

In June 2006, the FASB published FIN 48,  "Accounting  for Uncertainty in Income
Taxes--an  interpretation  of  FASB  Statement  No.  109"  which  clarifies  the
accounting  for  uncertainty  in  income  taxes  recognized  in an  enterprise's
financial  statements in  accordance  with SFAS No. 109,  Accounting  for Income
Taxes. This  Interpretation  prescribes a recognition  threshold and measurement
attribute for the  financial  statement  recognition  and  measurement  of a tax
position taken or expected to be taken in a tax return. This Interpretation also
provides  guidance on  derecognition,  classification,  interest and  penalties,
accounting in interim  periods,  disclosure,  and transition,  effective for the
Company in fiscal years  beginning  July 1, 2007.  The Company is evaluating the
impact of the provisions of this  Interpretation  on its consolidated  financial
position, results of operations and cash flows.

In February 2006, the FASB issued SFAS No. 155,  "Accounting  for Certain Hybrid
Financial Instruments," an amendment of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and SFAS No. 140, "Accounting for Transfers
and Servicing of Financial  Assets and  Extinguishments  of  Liabilities."  This
Statement permits fair value  remeasurement for any hybrid financial  instrument
that contains an embedded  derivative that otherwise would require  bifurcation.
This  Statement is effective  for all financial  instruments  acquired or issued
after July 1, 2007.  The  adoption  of SFAS No.  155 is not  expected  to have a
material effect on the Company's  consolidated  financial  position,  results of
operations or cash flows.

In June 2005,  the FASB  issued  SFAS No.  154,  "Accounting  Changes  and Error
Corrections,"  a replacement  of APB Opinion No. 20,  "Accounting  Changes," and
SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements." SFAS
No. 154 changes the  requirements  for the  accounting  for and  reporting  of a


                                      F-11
<PAGE>

change in accounting principle. Previously, most voluntary changes in accounting
principles  required  recognition via a cumulative  effect adjustment within net
income  of the  period  of the  change.  SFAS  No.  154  requires  retrospective
application to prior periods' financial  statements,  unless it is impracticable
to determine either the period-specific  effects or the cumulative effect of the
change. SFAS No. 154 is effective for the Company for accounting changes made in
fiscal years beginning November 1, 2006; however,  the Statement does not change
the  transition  provisions  of  any  existing  accounting  pronouncements.  The
adoption  of SFAS No.  154 is not  expected  to have a  material  effect  on the
Company's consolidated financial position, results of operations or cash flows.

In March 2005,  the FASB published FIN 47,  "Accounting  for  Conditional  Asset
Retirement  Obligations,"  which  clarifies  that the  term,  conditional  asset
retirement obligation, as used in SFAS No. 143, "Accounting for Asset Retirement
Obligations,"  refers  to a legal  obligation  to  perform  an asset  retirement
activity in which the timing and (or) method of settlement are  conditional on a
future  event  that may or may not be within  the  control  of the  entity.  The
uncertainty  about the timing and (or)  method of  settlement  of a  conditional
asset  retirement  obligation  should be factored  into the  measurement  of the
liability when sufficient  information exists. The Interpretation also clarifies
when an entity would have sufficient information to reasonably estimate the fair
value of an asset retirement obligation. The adoption of this Interpretation did
not have a material  effect on the Company's  consolidated  financial  position,
results of operations or cash flows.

In  December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  Nonmonetary
Assets,"  an  amendment  of APB  Opinion  No.  29.  SFAS No. 153  addresses  the
measurement  of  exchanges  of  nonmonetary  assets and  redefines  the scope of
transactions  that  should be  measured  based on the fair  value of the  assets
exchanged.  SFAS No. 153 was  effective  for the Company for  nonmonetary  asset
exchanges  beginning in the first  quarter of fiscal 2006.  The adoption of SFAS
No. 153 did not have a material effect on the Company's  consolidated  financial
position, results of operations or cash flows.

In November 2004, the FASB issued SFAS No. 151,  "Inventory Costs," an amendment
of  Accounting  Research  Bulletin  ("ARB")  No.  43,  Chapter  4. SFAS No.  151
clarifies that abnormal inventory costs such as costs of idle facilities, excess
freight and handling costs, and wasted  materials  (spoilage) are required to be
recognized  as  current  period  charges.  The  provisions  of SFAS  No.151  are
effective  for the  Company for fiscal  years  beginning  November 1, 2005.  The
adoption  of SFAS  No.  151 did not  have a  material  impact  on the  Company's
consolidated financial position, results of operations or cash flows.


NOTE 2 - BASIS OF PRESENTATION

GOING CONCERN AND OPERATING PLANS

The accompanying  consolidated  financial statements have been prepared assuming
the Company will continue to operate as a going concern.  Under that assumption,
it is expected that assets will be realized and liabilities will be satisfied in
the normal course of business.  However, the Company has experienced significant
operating losses and negative cash flows from operations in each of the last two
years ended October 31, 2006,  and 2005.  The Company has  sustained  cumulative
losses of approximately $52.8 million through October 31, 2006 and has a working
capital  defict of  approximately  $5.1  million  at that date.  Management  has
adopted a plan of action that it  believes  will  address its current  financial
requirements  and  enable it to achieve a more sound  financial  condition.  The
accompanying  consolidated  financial  statements do not include any adjustments
relating to the  recoverability  and classification of assets and liabilities as
might be necessary if the Company be unable to continue as a going concern.


                                      F-12
<PAGE>

Substantial doubts have been raised about the Company's ability to continue as a
going concern. As shown in the accompanying  financial  statements,  the Company
has  recurring  losses and negative  cash flows from  operations.  Management is
currently  attempting to secure additional  financing through private placements
and negotiate long-term contracts. The Company's continuation as a going concern
is  dependent  upon its  ability to  generate  sufficient  cash flow to meet its
obligations on a timely basis, to maintain adequate financing, and ultimately to
attain successful operations.


NOTE 3 - ACQUISITION

In July 2005, the Company entered into a Purchase  Agreement (the "Kirk Purchase
Agreement") to acquire Kirk Pharmaceuticals,  LLC, and its affiliate, ANDAPharm,
LLC   (collectively,   "Kirk")  for   $12,000,000.   Kirk  is  a  Florida  based
pharmaceutical  company that manufactures  over-the-counter  ("OTC") and generic
prescription  drugs  in its  FDA  and  DEA  approved  facility.  Kirk  currently
manufactures and/or markets 30 OTC solid dose and soft gel pharmaceuticals under
current Good  Manufacturing  Practices ("GMP")  guidelines.  Kirk was founded in
1999 and has grown to more than 100 people and  occupies  70,000  square feet of
manufacturing space.

On May 22,  2006,  the  Company  consummated  the  acquisition  of Kirk,  and is
currently  working  with  Kirk's  existing   management  to  integrate  the  two
companies.  The Company  anticipates that Kirk will provide  potential cash flow
from its operations to fund some of the Company's  planned  clinical  trials and
will be the designated manufacturing facility for the Company.

The Company has accounted for this acquisition  using the purchase  method.  The
purchase price of the acquisition is set forth below:

               Cash on closing                                   $   9,000,000
               Note payable to sellers                               3,000,000
               Estimated transaction costs incurred                    552,000
                                                                 -------------
               Total purchase price                              $  12,552,000
                                                                 =============


Assets Acquired:
   Current assets                                                $   5,437,675
   Non-current assets                                                1,378,655
Liabilities assumed                                                 (5,712,028)
                                                                 -------------
Net assets acquired                                              $   1,104,302
                                                                 -------------

Cost in excess of net assets acquired (recorded goodwill)           11,447,698
                                                                 -------------
Total estimated fair value of net assets acquired and
recorded goodwill                                                $ 12,552,000
                                                                 =============

The Company is in the process of completing  its estimate of the  allocation of
the purchase price to identifiable and intangible assets. The Company expects to
complete the purchase  price  allocation by the end of the second quarter of the
fiscal year ending October 31, 2007.


                                      F-13
<PAGE>

Note 4-   PLACEMENT AGENCY AGREEMENT

On September 27, 2005,  the Company  entered into a Placement  Agency  Agreement
with Indigo  Securities LLC, a Delaware  limited  liability  company  ("Indigo")
whereby, Indigo agreed to act as the Company's agent in connection with sales by
the Company of: (i) from $5,000,000 to $10,000,000, face amount of the Company's
10% Senior Notes,  to be offered  together with warrants,  (ii) Financing by the
Company of up to $2,500,000,  face amount of the Company's 9% Convertible Bridge
Notes (the "Bridge  Notes"),  to be offered  together with warrants (the "Bridge
Warrants",  the  "Bridge  Financing")  and  (iii) up to $5  million  of Series A
Convertible Preferred Stock ("Series A Preferred Stock") together with warrants,
all of which offered on terms and conditions  agreed upon by the parties.  As of
the date  herein,  the Company has issued  $4,845,000  under the 9%  Convertible
Bridge Notes as part of the Bridge Financing.  No Series A Convertible Preferred
Stock has been issued.

On May 23, 2006, the Company provided written notice that it was terminating its
Placement  Agency  Agreement.  All fees paid  thereto by the  Company  under the
Placement  Agency  Agreement in connection with the Bridge Note Placement are to
be retained by the Placement Agent.

The Company disclosed that as a result of the consummation of the acquisition of
Kirk which was financed through Bank of India loans,  and the $6,000,000  equity
investment by Maneesh  Pharmaceuticals PVT LTD. ("Maneesh"),  the Company may be
required to repay its outstanding 9% Convertible  Bridge Notes.  The Company has
solicited the consent of the holders of the Convertible  Bridge Notes to convert
their Bridge Notes into, and exchange their Bridge Notes for, an amended form of
convertible  note (the "Revised Note")  accruing  interest at the rate of 9% per
annum and  convertible  into shares of Common Stock at the  conversion  price of
$2.50 per share.  The Revised Note is to mature on April 3, 2009 and  constitute
unsecured  indebtedness of the Company.  Of the remaining  $2,695,000  aggregate
principal  amount of Bridge  Notes,  $300,000 was repaid on July 6, 2006 and the
remaining  $2,395,000  aggregate  principal  amount  and all  accrued  an unpaid
interest due and payable thereon matured and was payable on September 1, 2006.

The Company  has not yet paid any amounts due to the holders of Bridge  Notes on
September 1, 2006 and has requested  that the holders of such Bridge Notes agree
to extend the maturity date thereof to November 1, 2006. In exchange  therefore,
the  Company  has  offered to  increase  the  interest  rate on the  outstanding
principal  amount to 18% per annum for the period of such extension,  as well as
reduce the exercise price of the warrants  originally  issued to such holders at
the time of the sale of the Bridge Notes to $2.50 per share..

In the event that any holders of the Bridge Notes  rejects such  extension,  the
Company  would be required  to  immediately  repay all amounts due there  under,
which repayment would have a material adverse effect on the financial  condition
of the Company.

The  Company  is in  discussions  with  unaffiliated  third  parties  to provide
additional  financing,  although  there can be no assurance  that such financing
will be available on a timely basis,  on  commercially  reasonable  terms, or at
all.

Note - SALES AGREEMENT OF INCON PROCESSING, LLC

On April 2006,  the  Company  together  with Asia  Pacific  Investment  Holdings
Limited  ("Asia  Pacific")  complete the sale of their  respective  interests in
InCon  Processing,  LLC  ("InCon"),  to John  Palmer  and N.P.  Shaikh,  current
managers of that operation.  The InCon operation was deemed by the Company to no
longer be an  important  element  in its  current  business  strategy.  The sale
provides for the distribution to the sellers of future Earnings Before Interest,


                                      F-14
<PAGE>

Depreciation  and  Amortization  (EBITDA) in the total amount of  $600,000,  the
assignment of certain  tocotrienol  processing  technology and the conveyance of
the  respective  interest of Messrs.  Palmer and Shaikh in Bali Holding,  LLC, a
holding  company that has Synovics  restricted  common  stock,  of which 118,000
shares would accrue to the sellers. The sale proceeds noted above would be split
between  Bionutrics  and Asia  Pacific  when  distribution  was  made.  The sale
proceeds were shared by the Company.


NOTE 3 - INVENTORY

As of October 31, 2006, and 2005 inventory consists of:

                                                2006                2005
                                             ----------           --------
Finished goods                                 $445,377              $4010

Work in Process                                 101,127                  -
Raw materials                                 1,829,976                  -
                                             ----------             ------
                                             $2,376,480             $4,010
                                             ==========             ======



NOTE 4 - Intangible Assets

Intangible Assets consisted of patents for  pharmaceutical-nutritional  chemical
compounds  that the  Company  hopes to  develop  into  effective  pharmaceutical
products, and a license to market certain pharmaceutical  products acquired from
Nostrum  Pharmaceuticals,  Inc.  The  license,  which  has a  carrying  value of
$13,800,000,  and the right,  which has a carrying  value of $116,000  were both
acquired  during the year  ended  October  31,  2005 in  exchange  for 6 million
shares, and 80,000 shares,  respectively,  of the Company's common stock. In the
year ended October 31, 2006,  the Company paid $300,000 to Nostrum,  to purchase
the  license  to  produce  and  distribute  Metformin.  Amortization  charged to
operations  for the years ended October 31, 2006,  and 2005 amounted to $30,297,
and $30,297, respectively.


NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment at October 31, 2006 and 2005 consists of the following:


                                       2006           2005
                                -----------    -----------
Leasehold Improvements                    0              0
Machinery & Equipment           $ 1,639,585    $      --
Capital Leases                       24,354         75,202
Computers and Software               62,706          --
                                -----------    -----------
                                  1,726,645         75,202
Less Accumulated Depreciation       (76,863)       (70,689)
                                -----------    -----------
                                $ 1,649,782    $     4,513
                                -----------    -----------


NOTE 6 - NOTE PAYABLE - BANK

The  Company  entered  into a bank  financing  as  senior  secured  debt  in the
principal  amount  $10,500,000.  Of the  principal,  $5,250,000  could  only  be
utilized for working capital  purposes,  the amount borrowed to equal 70% of the
value of fully paid  inventory and the accounts  receivable and 100% of the cash
in the accounts  maintained by the borrower at the bank. The interest rate is 1%
above the bank's  prime rate  (9.75% at October 31,  2006).  Interest is payable
monthly.


                                      F-15
<PAGE>

Future maturities of notes payable - bank are as follows:

                           2007                $   1,000,000
                           2008                    1,750,000
                           2009                    2,750,000
                           2010                    3,750,000
                           2011                    1,250,000
                                                 -----------

                                                 $10,500,000
                                                 ===========

Interest  expense under the note payable was $143,347 and $0 for the years ended
October 31, 2006 and 2005, respectively.

NOTE 7 - NOTE PAYABLE - SELLER

In  connection  with the Kirk  Acquisition,  the seller  accepted  a  $3,000,000
unsecured convertible note from the Company. The note bears interest at 7.5% per
annum and matures on May 20, 2009.  The note is  convertible  into the Company's
common  stock at the lesser of the  conversion  price,  as defined or the option
prices set forth under the note payable as follows:

                                                            Option
                              Option Date                    Price
                           -------------------          --------------

                                 May 20, 2007            $    2.40
                                 May 20, 2008            $    3.40
                                 May 20, 2009            $    4.40


Interest  expense under the note payable was  $143,347,  $0 and $0 for the years
ended October 31, 2006, 2005 and 2004, respectively.

The seller  shall have the option for 60 days after each of the first two option
dates described  above of electing to receive a principal  payment of $1,000,000
together with all accrued and unpaid interest to such option date.

Therefore,  at the seller's option,  the maturities of the note payable - seller
at October 31, 2006 are as follows:

2007                            $1,000,000
2008                             1,000,000
2009                             1,000,000
                               -------------

                                 3,000,000
Less: current maturities         1,000,000
                               --------------

                                $2,000,000
                               ==============




NOTE 8 - NOTES PAYABLE - SHAREHOLDERS AND OTHERS

At October 31, 2006, and 2005, notes payable - shareholders and others consisted
of the following:


<TABLE>
<CAPTION>
                                                                     2006             2005
                                                                   --------         --------
<S>                                                               <C>              <C>
Notes payable under consolidated, multiple advance
  non-revolving agreement - shareholders,

 Converted into shares of common
 Stock October 31, 2006                                                             $583,000
Notes payable under consolidated, multiple advance
  non-revolving agreement -
 Converted in to common stock October 31, 2006                                       671,500

Note payable - third party,  bearing interest at 12%
  per year,  monthly interest
  only payments, matured on
  December 24, 2003                                                $100,000          150,000

Note payable - third party, bearing interest at 5% per
  year                                                                                30,000
Note payable - third party, bearing interest at 9% per
  year.                                                                               17,600


    Notes Payable 90 day 10% interest
Total

                                                                   --------         --------
</TABLE>


                                      F-16
<PAGE>

Interest  expense under the notes payable was $15,700 and $992,000 for the years
ended October 31, 2006 and 2005, respectively.


NOTE 9 - CONVERTIBLE BRIDGE NOTES


In October 2005,  the Company began issuing  convertible  bridge notes  ("Bridge
Notes").  of which $ 4,545,000  had been issued  through  October 31, 2006.  The
Bridge  Notes bear  interest  at 9% per annum and are  convertible  at $3.00 per
share at the option of the holder.  The Bridge  Notes  mature 18 months from the
date of  issuance.  In the event the Company  consummates  a  "Qualified  Equity
Financing"  prior to the eighteen (18) month  anniversary  of the Issuance Date,
the Maturity Date of the Note shall be extended to the third  anniversary of the
Issuance Date. The Company has not timely met its obligations for the payment of
principal  and interest  under such notes.  Further,  the Company has not timely
complied with its  registration  requirement  relating to shares of common stock
issuable in connection with the offering of the notes and the related  warrants.
The Company is currently in  discussions  with a number of holders of such notes
with respect to the resolution of these issues.

In  connection  with the issuance of the Bridge  Notes,  the Company also issued
detachable stock purchase warrants to purchase 807,493 shares of common stock at
$4.00 per share.  The  warrants  expire  three years from the date of  issuance.
Based on the relative fair values,  the Company has  attributed $ $ 1,429,540 of
the total  proceeds to the warrants and has recorded the warrants as  additional
paid-in capital and discount to the Bridge Notes. The resulting  discount on the
Bridge  Notes is being  amortized  over the term of the Bridge Notes as interest
expense.

The Company did not pay the  accrued  interest  due to the holders of the Bridge
Notes on September 1, 2006. The default on the interest  resulted in an increase
of the  interest  rate to increase to per annum  retroactive  to the date of the
convertible note on the unpaid principal outstanding.

In November  2005, the Company  issued  $450,000 of 9% convertible  bridge notes
along with detachable  warrants to certain  investors under the Indigo Placement
Agency  Agreement.  The convertible notes are convertible into common stock at a
price per share which was below the estimated fair value of the Company's common
stock at the date of issuance of the notes. Accordingly,  the Company recorded a
"non-cash  beneficial  conversion  charge"  of $57,351  as  additional  interest
expense, to be amortized over the term of the notes.

In December  2005, the Company  issued  $200,000 of 9% convertible  bridge notes
along with detachable  warrants to certain  investors under the Indigo Placement
Agency Agreement. The notes are convertible into common stock at $[__] per share
which was below the estimated  fair value of the  Company's  common stock at the
date of issuance  of the notes.  Accordingly,  the Company  recorded a "non-cash
beneficial  conversion charge" of $78,852 as additional  interest expense, to be
amortized over the term of the notes.

In January 2006,  the Company  issued  $100,000 of 9%  convertible  bridge notes
along with detachable  warrants to certain  investors under the Indigo Placement
Agency Agreement. The notes are convertible into common stock at $[__] per share
which was below the estimated  fair value of the  Company's  common stock at the
date of issuance  of the notes.  Accordingly,  the Company  recorded a "non-cash
beneficial  conversion charge" of $16,898 as additional  interest expense, to be
amortized over the term of the notes.


                                      F-17
<PAGE>

 [Interest  expense  under the notes  payable was  $675,400  and $24,800 for the
years ended October 31, 2006 and 2005, RESPECTIVELY].


<TABLE>
<CAPTION>
                                                                   2006                   2005
                                                           ---------------------- ----------------------

<S>                                                                   <C>                    <C>
Convertible Bridge Notes Payable                                      $4,545,000             $1,845,000
Discount                                                               (638,882)              (421,020)
                                                           ---------------------- ----------------------

                                                                      $3,906,118             $1,423,980
                                                           ====================== ======================
</TABLE>


Interest  expense under the convertible  bridge notes was $ 593,750 and $ 24,777
for the years ended October 31, 2006 and 2005, respectively. The interest on the
late  registration  of the S-3 for the periods was $ 914,549,  in the year ended
October 31, 2006. The interest expense for the deferred fees associated with the
convertible  notes for the periods  ended October 31 2006 and 2005 were $885,016
and 0, respectively.

NOTE 10 - STOCKHOLDERS' DEFICIT

COMMON STOCK

The Company has authorized  45,000,000  shares of common stock, with a par value
of $0.001 per share. During the year ending October 31, 2006, the Company issued
3,362,890 shares as follows:


       SHARES ISSUED           CONSIDERATION
       ------------            -------------
         1,862,890             Settlement of debt.
         1,500,000             Private sales.
        ----------
         3,362,890

PREFERRED STOCK

The Company has authorized  5,000,000  shares of Series A Convertible  Preferred
Stock, with a par value of $0.001 per share. The 591,850 outstanding shares were
issued  prior to  November  1, 2001 as  consideration  for the  cancellation  of
$798,998 of debt and accrued interest  thereon that was owed to a director.  The
shares have a cumulative  annual  dividend of $0.108 per share and a liquidation
value of $6.75 per share,  and each share is  convertible  into  one-fifth  of a
share of common stock.  The  preferred  shares have a dividend and a liquidation
preference over common shares.  No dividend on the preferred shares  outstanding
has ever been declared or paid and dividends in arrears  amounted to $388,072 at
October 31, 2006.

NOTE 10 - STOCKHOLDERS' DEFICIT (cont'd)

STOCK-BASED COMPENSATION

As of October 31, 2006,  the Company had  authorized  570,000  common shares for
issuance  under (the "1996 Plan"),  pursuant to options  granted or which may be
granted to key personnel,  consultants,  and independent contractors.  Under the
1996 Plan,  incentive stock options may be granted to purchase its  Nonqualified
1996 Stock  Option Plan common  stock at 100% (110% for an optionee who is a 10%
stockholder)  of the fair market value of the stock on the date of grant.  Stock
options are  exercisable  for a period of up to ten years from the date of grant
(five years for an option granted to a 10%  stockholder).  All  participants are
eligible  to  receive  stock  awards  and stock  appreciation  rights,  as to be
determined  by the  Company's  Board  of  Directors.  No stock  awards  or stock
appreciation rights have been granted under the Plan.


                                      F-18
<PAGE>

NON-EMPLOYEE STOCK BASED COMPENSATION

A summary of transactions  for  non-employee  stock options and warrants for the
years ended October 31, 2006, 2005 and 2004 is as follows:

<TABLE>
<CAPTION>
                                 NUMBER                  OPTION                WEIGHTED AVERAGE
                                                                           -----------------------
                                   OF                     PRICE            REMAINING      EXERCISE
                                 SHARES                   RANGE               LIFE          PRICE
                                -------------     --------------------     ----------   -----------
OPTIONS AND WARRANTS
OUTSTANDING, AS OF
<S>                               <C>              <C>                     <C>           <C>
October 31, 2003                     546,800          $1.00 - $20.13          2.8           1.43
Warrants issued                       50,000              $1.00               1.3           $1.00
Warrants canceled                   (24,000)              $5.00                -            $5.00
Options issued                         9,000          $5.00-$18.13             1           $10.84
                                -------------
Options canceled                     (5,200)          $10.00-$20.00            -           $17.69
OPTIONS AND WARRANTS
OUTSTANDING, AS OF
October 31, 2004                     576,600          $1.00 - $18.13          0.4           $1.24
Warrants issued                      307,496              $4.00                3            $4.00
Warrants canceled                  (555,000)              $1.00                -            $1.00
Options issued                       -                      0                  0              0
Options canceled                     (5,600)             $18.13                -           $18.13
                                -------------

OPTIONS AND WARRANTS
OUTSTANDING, AS OF
October 31, 2005                     323,496           $3.00-$5.00            2.9           $3.99
Warrants issued                    1,520,255          $4.00 - $6.00           2.5           $5.00
Warrants canceled                   (10,000)          $3.00 - $3.13            -            $3.07
Options issued                             -                -                  -
Options canceled                     (6,000)              $5.00                0            $5.00
                                -------------

OPTIONS AND WARRANTS
OUTSTANDING, AS OF
October 31, 2006                   1,827,751          $3.00 - $6.00           2.4           $4.60
                                =============
</TABLE>


<TABLE>
<CAPTION>
                                                                           2006          2005          2004
                                                                  -------------   -----------   -----------

<S>                                                              <C>               <C>           <C>
Options exercisable, end of fiscal year                                       0         6,000        11,600
                                                                  -------------   -----------   -----------
Warrants exercisable, end of fiscal year                              1,827,751       317,496       565,000
                                                                  -------------   -----------   -----------

Weighted average fair value of options granted during the year    $        0.00   $      0.00    $     0.00
                                                                  -------------   -----------   -----------

Weighted average fair value of warrants granted during the year   $        5.00   $      4.00    $     1.00
                                                                  -------------   -----------   -----------
</TABLE>


                                      F-19
<PAGE>

Additional  information regarding options and warrants outstanding as of October
31, 2006 is as follows:

<TABLE>
<CAPTION>
                                                                          WEIGHTED
                                                    WEIGHTED               AVERAGE
         RANGE OF                                    AVERAGE              REMAINING
         EXERCISE              NUMBER               EXERCISE             CONTRACTUAL
          PRICES             OUTSTANDING              PRICE             LIFE (YEARS)           EXERCISABLE
      --------------      ------------------     ----------------     -----------------   ----------------------
<S>    <C>                <C>                    <C>                   <C>                    <C>
       $3.00 - $6.00              1,827,751              $4.60                 2.41                   1,827,751
                          ==================                                               =====================
</TABLE>



In accordance with the methodology prescribed under SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, the Company did not recognize any compensation expense
related to  non-employee  stock  options in 2006,  2005,  or 2004.  Compensation
expense of $0, $0, and $0 related to employee  stock  options was  recognized in
2006, 2005, or 2004, respectively.

The fair value of each employee-nonemployee option and warrant was calculated on
the date of grant  using the  Black-Scholes  model with the  following  weighted
average assumptions:


        YEAR
        ENDED           RISK FREE        VOLATILITY         DIVIDEND
        OCT 06          INTEREST           RATE             YIELD
        ------          --------           ----             -----
           2006         4.48%               225%              0
           2005         3.13%               550%              0
           2004         2.00%                77%              0


                                      F-20
<PAGE>

NOTE 10 - STOCKHOLDERS' DEFICIT (cont'd)

STOCK-BASED COMPENSATION (cont'd)

EMPLOYEE STOCK BASED COMPENSATION

A summary of transactions  for employee stock options and warrants for the years
ended October 31, 2006, 2005, and 2004 is as follows:


<TABLE>
<CAPTION>
                                                                                         WEIGHTED AVERAGE
             EMPLOYEE                     NUMBER               OPTION             ------------------------------
        OPTIONS AND WARRANTS                OF                  PRICE               REMAINING        EXERCISE
                                          SHARES                RANGE                  LIFE            PRICE
                                      ---------------     --------------------    -------------  ---------------
<S>                                        <C>              <C>                   <C>            <C>
OPTIONS AND WARRANTS OUTSTANDING,
AS OF
October 31, 2003                           362,200          $5.00 - $18.13             2.75           $10.20
Options granted                                  -               $ -                    -                -
Options canceled                           (106,800)        $5.00 - $18.13              -              $8.42
                                      ---------------

OPTIONS AND WARRANTS OUTSTANDING,
AS OF
October 31, 2004                           255,400          $5.00 - $18.13             2.44           $10.70
Options granted                                  -               $ -                    -                -
Options canceled                           (22,400)         $5.00 - $18.13              -              $8.75
                                      ---------------

OPTIONS AND WARRANTS OUTSTANDING,
AS OF
October 31, 2005                           233,000          $5.00 - $18.13             2.44           $10.70
Options granted                                  -               $ -                    -                -
Options canceled                          (113,000)                                     -
                                      ---------------

OPTIONS AND WARRANTS OUTSTANDING,
AS OF
October 31, 2006                           120,000              16.25                  1.75            16.25
                                      ===============
</TABLE>



<TABLE>
<CAPTION>
                                                             2006          2005          2004
                                                          ----------    ----------    ----------
<S>                                                         <C>           <C>           <C>

Options exercisable, end of year                                          113,000       135,400
                                                          ----------    ----------    ----------
Warrants exercisable, end of year                           120,000       120,000       120,000
                                                          ----------    ----------    ----------

Weighted average fair value of options granted
  during the year                                               $ -           $ -           $ -
                                                          ----------    ----------    ----------

Options available for future grant under the 1996
  Plan                                                      441,153
                                                          ==========
</TABLE>


                                      F-21
<PAGE>

NOTE 10 - STOCKHOLDERS' DEFICIT (cont'd)

STOCK-BASED COMPENSATION (cont'd)

EMPLOYEE STOCK BASED COMPENSATION (cont'd)

Additional  information regarding options and warrants outstanding as of October
31, 2006 is as follows:


<TABLE>
<CAPTION>
                                                  OUTSTANDING                               EXERCISABLE
                          ----------------------------------------------------  -----------------------------------
                                                                   WEIGHTED
                                                  WEIGHTED          AVERAGE                            WEIGHTED
         RANGE OF                                 AVERAGE          REMAINING                            AVERAGE
         EXERCISE                NUMBER           EXERCISE        CONTRACTUAL                         EXERCISABLE
          PRICES               OUTSTANDING         PRICE         LIFE (YEARS)       EXERCISABLE          PRICE
      -----------------    --------------------  -----------   ---------------   -------------------  --------------

<S>       <C>                        <C>            <C>                <C>                <C>             <C>
          $16.25                     120,000        $16.25             2.75               120,000         $16.25
                           --------------------                                  -------------------
</TABLE>


In  accordance  with the  methodology  prescribed  under  SFAS  123,  pro  forma
compensation  cost for the employee  stock options for 2006,  2005, and 2004 was
estimated to be $[___], $-0-, and $-0-, respectively.

LOSS PER COMMON SHARE

Net loss per common  share is  calculated  by dividing  net loss by the weighted
average number of shares outstanding during each period presented.  Common stock
equivalents,  consisting  of options and warrants  have not been included in the
calculation  for any of the three years ended October 31, 2006,  2005, and 2004,
because their effect would be anti-dilutive.  The following potentially dilutive
securities were not included in the computation of diluted loss per share:

                             2006                2005             2004
                             ----                ----             ----
Options                       0                 119,000          147,000

Warrants                    1,827,751           437,496          685,000

The following  table sets forth the numerator and denominator in the computation
of basic and diluted per share information:

<TABLE>
<CAPTION>
                                                                    2006               2005                2004
<S>                                                              <C>                <C>                 <C>
Numerator for basic and diluted loss per share:
  Net Loss                                                       $(8,025,402)       $(2,911,260)        $(1,124,336)
                                                                 -----------        -----------         -----------

Denominator for basic and diluted loss per share:
  Weighted-average shares outstanding                            26,044,630         20,094,784           7,840,496
                                                                 -----------        -----------         -----------
</TABLE>


                                      F-22
<PAGE>

NOTE 11 - EMPLOYEE BENEFIT PLANS

The Company's  defined  contribution  employee plan under Section  401(k) of the
Internal Revenue Code was discontinued. The plan assets were distributed to plan
participants,  and the final tax  return  was filed  with the  Internal  Revenue
Service during the year ending October 31, 2005.


NOTE 12 - INCOME TAXES

Federal and state income tax expense  (benefit)  for the years ended October 31,
2006, 2005 and 2004 and a reconciliation  of income taxes computed at the United
States  federal  statutory  income tax rate to the  provision  for income  taxes
reflected in the Statements of Operations is presented below:

<TABLE>
<CAPTION>
                                                                  2006                2005                2004
                                                           ------------------- -------------------- ------------------
<S>                                                              <C>                    <C>                <C>
Current:
  Federal                                                        $(2,367,015)           $(989,828)         $(382,274)
  State                                                             (417,708)            (174,676)           (67,460)

Deferred:
  Federal                                                            300,905           (1,146,225)           (30,369)
  State                                                               53,101             (202,275)            (5,359)

Valuation allowance                                                2,430,717            2,513,004            414,006
                                                           ------------------- -------------------- ------------------
Provision for Income Taxes                                       $         -          $         -           $      -
                                                           =================== ==================== ==================
</TABLE>

Deferred  income  taxes  reflect  the net tax  effect of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes  and the  amounts  used for income tax  purposes.  Deferred  tax assets
result primarily from net operating loss  carry-forwards.  The components of the
Company's  deferred tax assets and  liabilities  at October 31, 2006,  2005, and
2004 are as follows:

<TABLE>
<CAPTION>
DEFERRED TAX ASSETS:                                                2006                2005                2004
                                                            -----------------------------------------------------------
<S>                                                              <C>                  <C>                <C>
Operating loss carryforwards                                      18,252,419          $15,821,702        $12,927,701
Stock option compensation                                            262,706              262,706            392,098
Deferred loss on inventory                                           017,600               17,600             47,002
Reserve accounts                                                           -                    -            184,844
Other                                                                      -                    -             37,359
                                                           -------------------   -------------------   ----------------
Total Deferred Tax Asset                                          18,532,725           16,102,008         13,589,004

Valuation Allowance                                              (18,532,725)         (16,102,008)       (13,589,004)
                                                           -------------------   -------------------   ----------------

                                                                 $         -          $         -        $         -
                                                           ===================   ===================   ================
</TABLE>


A full  valuation  allowance is provided  against all deferred tax assets due to
the uncertainty as to their future realization.  In addition, the realization of
such NOL  carryforwards  may be  significantly  limited  if it is deemed  that a
change in ownership  has occurred.  For tax purposes,  a change in ownership has
occurred if an entity or group of entities  that  previously  did not own 50% or
more of a Company  acquires enough new equity to raise its interest to more than
50% over a three year period.


                                      F-23
<PAGE>

NOTE 12 - INCOME TAXES (cont'd)

As of October  31,  2006,  the Company  has  federal  net  operating  loss carry
forwards totaling  approximately  $[________] available to offset future federal
taxable income. The federal net operating loss carry-forwards  expire in varying
amounts  through  2025. In addition,  the Company has state net  operating  loss
carry  forwards of  approximately  $35,700,000  available to offset future state
taxable income.


NOTE 13 - COMMITMENTS AND CONTINGENCIES

REGULATION

The Company is  required  to obtain  certain  licenses  in  connection  with the
manufacture of its products.  These  licenses  require  compliance  with certain
licensing  stipulations,  as well as the FDA, DEA and other  regulation  bodies'
rules and  regulations.  If the Company were to be out of compliance with any of
these  rules or  regulations,  there could be a material  adverse  effect on the
Company's  operations,  which  could  have an  adverse  effect on the  Company's
financial statements.


OPERATING LEASES

The Company leases office space on a month-to-month  basis. Rent expense for the
years ended October 31, 2006, 2005, and 2004 was $91,246  $25,967,  and $23,696,
respectively.  Kirk and Andapharm have commitments for office and  manufacturing
space.  The leases for rent expense  annually are $206,155.  Minimum future rent
payments under the operating leases at October 31, 2006 are as follows:

Twelve Months
Ended October 31,
-----------------
2007     $342,741
2008      356,450
2009      370,708
2010      385,537

The Company is  currently  negotiating  for  additional  space  adjacent to tits
current  manufacturing  space.  The Company  estimates  additional  rent expense
aggregating $223,000 a year for a period of five years.

Capital Leases

Minimum future lease payments under  capitalized  leases at the October 31, 2006
are as follows:


Twelve Months
ENDED OCTOBER 31,
------------------------------------------------
2007                                     $78,100
2008                                      89,949
2009                                      82,952
2010                                      58,041
                                        --------
Net minimum lease payments               309,042
Less: Amount representing interest        28,958
                                        --------
                                        $280,084
                                        ========

The capitalized  leases have effective interest rates ranging from 7.75% through
15.42% per annum.


                                      F-24
<PAGE>

LITIGATION

         The Company and a subsidiary have been subject to litigation seeking to
recover amounts due for services of approximately $267,000. The Company disputes
these  liabilities  and intends to defend itself as well as pursue  negotiations
for settlement. The final outcome of these matters cannot be determined.

         In September, October and November, 2006, the Company received a series
of written notices from Nostrum  Pharmaceuticals  Inc.  ("Nostrum")  (which owns
approximately  40%  of the  Company's  outstanding  shares,  which  shares  were
acquired in connection with the Technology Agreement and whose sole stockholder,
Nirmal V. Mulye,  PhD resigned from his positions with the Company as a Director
in September 2006 and as Chief Scientific Officer in January 2007) purporting to
terminate:  (i) the  Company's  rights to four drugs  designated  by the Company
under  the  Technology  Agreement,  and  (ii) the ANDA  Agreement.  Each  notice
purports  to be  effective  as of the  sixtieth  (60th) day from the date of the
Company's  receipt of such notice.  The notices also purported to terminate five
other drugs allegedly covered by the Technology Agreement.

         The Company  believes  that these  termination  notices  are  factually
incorrect and are contrary to the terms of the Technology Agreement and the ANDA
Agreement.  Although labeled a "termination" by Nostrum and inclusion by Nostrum
of a request to  terminate  the ANDA  Agreement,  the  letters  received  by the
Company are, in effect,  a notice under the  agreement of a dispute  between the
parties and requires the parties to, upon  completion of the exchange of certain
notices,  enter into arbitration with respect to such dispute. Each of Dr. Mulye
and Nostrum are also guarantors pursuant to that certain Credit Agreement, dated
as of May 22,  2006,  between  the  Company  and the Bank of India  for a credit
facility to the Company of up to $10,500,000.

         The Technology Agreement grants the Company the rights to make and sell
exclusively  and  worldwide,  ten  generic  and ten  505(b)(2)  drugs  (improved
formulations of previously  approved drugs) employing  Nostrum's oral controlled
release proprietary technology, which drugs are to be designated by the Company.
The ANDA Agreement  transferred ownership of an abbreviated new drug application
("ANDA") to an AB rated, generic 500mg equivalent  (Metformin ER) of the branded
product Glucophage-XR (the "Metformin Drug") and additionally grants the Company
an  exclusive  license  in the  United  States  to  develop,  make  and sell the
Metformin Drug and an additional  strength  version of the Metformin Drug. As of
the  date  hereof,  there  have  been no  material  revenues  earned  under  the
Technology Agreement.

         Each written  notice  received by the Company from Nostrum states that,
the Company failed to (i) pay or reimburse Nostrum for certain expenses incurred
by Nostrum in connection with its obligations under the Technology Agreement and
for work  performed by Nostrum  prior to the  effective  date of the  Technology
Agreement,  (ii) conduct work preparatory to, and necessary for, the performance
of clinical  studies in  connection  with each  product,  and (iii)  confer with
Nostrum in good faith regarding the Company's alleged defaults and violations of
duty under the Technology Agreement. The aggregate reimbursement expense claimed
by Nostrum for all seven products is $571,039.79.

         The  Company  believes  that such  termination  notices  are  factually
incorrect  and  are  contrary  to  the  terms  of  the   Technology   Agreement.
Accordingly,  the Company intends to pursue  vigorously all avenues necessary to
protect  its  rights  under  the  Technology   Agreement.   Notwithstanding  the
foregoing,  in the event that each  written  notice  received  by the Company is
deemed  to  be a  proper  termination  of  the  Technology  Agreement  and  ANDA
Agreement, the grant of rights to the Company with respect to each product could
terminate;  the  Company  could be  required  to  transfer  to Nostrum  the drug
formulations,  processes,  and other  technology  relating to each product,  the
approvals and applications for such product  (excluding any NDAs and ANDAs which
the Company  obtained  under the  Technology  Agreement for such  product),  the
records relating to the development and  commercialization of each such product;
and thereafter.


                                      F-25
<PAGE>

NOTE 14 - RELATED PARTY TRANSACTIONS

         On March 16,  2005,  the  Company  entered  into a  Technology  License
Agreement  and  replaced in its  entirety  the Product  Development  and License
Agreement with Nostrum dated June 16, 2004. The license grant relates to ten 505
(b)(2) Products and ten Generic  products,  and in  consideration  therefore the
Company  issued 6 Million  shares of its common stock to Nostrum.  In July 2004,
Nirmal  Mulye,  the  majority  shareholder  of  Nostrum,  was  appointed  to the
Company's Board of Directors.

         Synovics Laboratories, Inc., a wholly owned Company subsidiary, entered
into the ANDA Ownership  Transfer and Product License  Agreement,  dated May 17,
2006 with Nostrum.  The ANDA Agreement  transferred  ownership of an abbreviated
new drug application to an AB rated, generic 500mg equivalent  (Metformin ER) of
the branded product Glucophage-XR (the "Metformin Drug") and additionally grants
the Company an exclusive license in the United States to develop,  make and sell
the Metformin Drug and an additional strength version of the Metformin Drug.

         On September 27, 2005, the Company entered into an Assumption Agreement
with  Nostrum  whereby  the Company  assumed  Nostrum's  obligation  to pay Enem
Nostrum Remedies Pvt. Ltd., a party related affiliated with Nostrum,  $1,508,000
for its work in the research and  development of  pharmaceutical  products.  The
assumption  of  the  foregoing  obligations,  was  to be  credited  against  the
Company's  obligation  pursuant  to  Section  3.2(c) of the  Technology  License
Agreement,  to reimburse  Nostrum for reasonable costs and expenses  incurred in
providing assistance to the Company.


                                      F-26
<PAGE>

NOTE 15 - SUBSEQUENT EVENTS

On November  17,  2006,  the Company  commenced  an action in the United  States
District  Court for the Southern  District of New York and on November 20, 2006,
the  Court  granted  a  temporary   restraining  order  enjoining  Nostrum  from
terminating  the Technology  Agreement.  On December 6, 2006, the Court extended
the order  enjoining the  termination of the Technology  Agreement but only with
respect to the four drugs designated by the Company for development  pursuant to
the Technology Agreement. The injunction was conditioned upon the Company having
posted a bond in the amount of $100,000 no later than  December 13, 2006,  which
was posted.  The Court held a further hearing in the matter on January 31, 2007,
at which time the parties reported to the Court on the status of the arbitration
and on the status of the  Company's  work with respect to the four products that
are the subject of the injunction;  the Court has reserved decision and extended
the preliminary injunction pending the conduct of limited discovery.

         On December 4, 2006,  the Company filed a demand for  arbitration  with
the American  Arbitration  Association,  pursuant to the terms of the Technology
Agreement, challenging the propriety of the purported terminations. The Company,
on  January  11,  2007,  amended  its  statement  of  claim  with  the  American
Arbitration Association to include the claims related to the improper attempt to
terminate the ANDA Agreement, and to add Synovics Laboratories,  a subsidiary of
the Company, as a party.

         Synovics Laboratories,  on January 12, 2007, filed a complaint with the
United States  District  Court for the Southern  District of New York seeking to
enjoin  Nostrum  from  terminating  the ANDA  Agreement.  That  action  has been
consolidated  with  the  previously-filed  action  relating  to  the  Technology
Agreement.  On January 23, 2007,  Synovics  Laboratories moved for a preliminary
injunction and the Court reserved decision  ordering  preservation of the status
quo pending that decision.

                  The Company intends to pursue  vigorously and aggressively all
further avenues necessary and remedies available to protect its rights under the
Technology  Agreement and the ANDA Agreement,  the assets of the Company and the
reflective  value for the Company's  shareholders.  However,  we cannot make any
representations  as to when the  disputes  with Nostrum will be resolved and the
effect  such  resolution,  if any,  and the  resignation  of Dr.  Mulye as Chief
Scientific Officer will have on the Company's technology plans.




                                      F-27