1 Consolidated Amended Class Action Complaint For Violations Of ...

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

THE PENNSYLVANIA AVENUE FUNDS,Individually And On Behalf of All OthersSimilarly Situated, Civil Action No. 08-cv-06857-PKC

Plaintiff, CONSOLIDATED AMENDED CLASSvs. ACTION COMPLAINT FOR

VIOLATIONS OF THE FEDERALSECURITIES LAWS

1NYX INC., JACK KACHKAR, STEVEN JURY TRIAL DEMANDEDHANDLEY, RIMA GOLDSCHMIDT, JAY M.GREEN and BERKOVITS & COMPANY, LLP,

Defendants.

1. Plaintiff David S. Lening,ton brings this Consolidated Amended Class Action

Complaint for Violations of the Federal Securities Laws (the "Complaint") individually and on

behalf of all other purchasers of the securities of Inyx, Inc. ( "Inyx" or the "Company") between

April 1, 2005 and July 2, 2007, inclusive (the "Class Period"). Such purchasers, along with

Plaintiff, are collectively referred to herein as the "Class." This Complaint is brought against

Inyx, the Company's Chairman and Chief Executive Officer, Jack Kachkar ("Kachkar"),

President and Director, Steven Handley ("Handley"), the Vice President of Finance, Treasurer,

Corporate Secretary, and Inyx's Chief Financial Officer and Chief Accounting Officer, Rima

Goldschmidt ("Goldschmidr), and the Company's Executive Vice President and Director of

Corporate Development, Jay M. Green ("Green") (collectively the "Individual Defendants,- and

with the Company, -Inyx Defendants"). The Complaint is also brought against Berkovits &

Company, LLP ("Berkovits"), a firm that served as Inyx's auditor during the Class Period (with

the Inyx Defendants, collectively the "Defendants").

2. This Complaint is alleged upon personal knowledge as to Plaintiff's own acts, and

upon information and belief as to all other matters, based upon Plaintiff’s counsel’s

investigation, including interviews with David Zinn (“Zinn”), Inyx’s Vice President of Finance

and Principal Accounting Officer, who joined the Company on May 15, 2006, and continued his

employment until July 2, 2007, review of the affidavit of Jonathan Middup, review of the

transcript in the bankruptcy proceedings in the United States Bankruptcy Court for the District of

Delaware on July 11, 2007 brought by two of Inyx’s subsidiaries, review of Inyx’s public filings

with the United States Securities and Exchange Commission (“SEC”), as well as regulatory

filings and reports, securities analysts’ reports and advisories about the Company, press releases

and other public statements issued by the Company, as well as media reports about the

Company.

3. Additional supporting facts are known only to the Defendants or are exclusively

within their control. Plaintiff believes that substantial additional evidentiary support exists for

the allegations set forth in this Complaint that will be revealed after a reasonable opportunity for

discovery.

JURISDICTION AND VENUE

4. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of

the Exchange Act, 15 U.S.C. §§78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder by the

SEC, 17 C.F.R. §240.10b-5.

5. This Court has jurisdiction over the subject matter of this action pursuant to 28

U.S.C. §1331 and Section 27 of the Exchange Act, 15 U.S.C. §78aa.

6. Venue is proper in this District pursuant to Section 27 of the Exchange Act, and

28 U.S.C. §1391(b), as and many of the acts and practices complained of herein occurred in

substantial part in this District. Additionally, the Company’s principal executive offices are

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located in the District.

7. In connection with the acts alleged in this Complaint, Defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, but not

limited to, the mails, interstate telephone communications, and the facilities of the national

securities markets.

PARTIES

8. Plaintiff David S. Lenington (“Lenington”) purchased Inyx securities in reliance

on Defendants’ false and misleading statements and omissions of material facts and/or the

integrity of the market for Inyx securities at artificially inflated prices during the Class Period

and suffered economic loss and damages when the truth about Inyx that was misrepresented and

omitted during the Class Period was revealed. The Plaintiff’s Certification of Lenington

containing a detailed list of his transactions in Inyx securities during the Class Period is attached

hereto as Exhibit A.

9. During the Class Period, Defendant Inyx was incorporated in Nevada, and then

reincorporated in Delaware on August 31, 2006. Its principal executive offices are located at

825 3rd Ave., 40th Floor, New York, NY 10022. Inyx is a pharmaceutical company that

develops and manufactures prescription and over-the-counter (“OTC”) aerosol pharmaceutical

products and drug delivery applications for the treatment of respiratory, allergy, dermatological,

and topical and cardiovascular disease conditions and provides pharmaceutical development and

manufacturing consulting services to the international healthcare market. Inyx has numerous

wholly-owned subsidiaries, including Inyx USA, Ltd. (“Inyx USA”), Inyx Pharma Limited

(“Inyx Pharma”), Inyx Canada Inc. (“Inyx Canada”), Inyx Europe Limited (“Inyx Europe”).

Inyx Europe’s wholly-owned subsidiaries include Ashton Pharmaceuticals Limited (“Ashton”),

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and Exaeris Inc. (“Exaeris”). Inyx common stock traded on the over-the-counter market on the

NASDAQ OTC Bulletin Board, a highly-efficient, open, developed, and automated market, free

of manipulation, under the symbol “IYXI.” Due to Inyx not clearing up its delinquency in filing

the Annual Report on Form 10-K for 2006 by May 18, 2007, the Company’s common stock

currently trades on the Pink Sheets, a highly-efficient, open, developed, and automated market,

free of manipulation, under the symbol “IYXI.”

10. Defendant Jack Kachkar (“Kachkar”) served as an Officer and Director of the

Company beginning on April 1, 2003, and continuing through the Class Period. He served as the

Chairman and Chief Executive Officer of Inyx. Defendant Kachkar founded and assisted in the

acquisition of a number of pharmaceutical companies focused on niche product development and

manufacturing capabilities. He has also provided consulting and advisory services within the

pharmaceutical industry and was a founder in 1995 of a medical publishing company. In

addition to his role as Chairman of the Board and Chief Executive Officer of Inyx, defendant

Kachkar is also currently the Chairman and Chief Executive of Karver International, Inc.

(“Karver”), a publicly-held health care services company. During the Class Period, defendant

Kachkar signed and verified Inyx’s false and misleading SEC filings, and knowingly issued

numerous false and misleading statements about the Company’s financial condition and

prospects.

11. Defendant Steven Handley (“Handley”) served as the Company’s President and

Director beginning on May 1, 2003, and continuing through the Class Period.

Defendant Handley has held several senior management positions in manufacturing and

technical operations. Defendant Handley has worked for Evans Medical, Medeva PLC, CCL

Pharmaceuticals, and its successor Miza UK, where he was responsible for all manufacturing and

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technical operations as Senior Vice President. During the Class Period, defendant Handley

signed and verified the Company’s false and misleading SEC filings, and knowingly issued

numerous false and misleading statements about the Company’s financial condition and

prospects. Defendant Handley resigned from his position, effective July 2, 2007.

12. Defendant Rima Goldschmidt (“Goldschmidt”) held Officer positions at the

Company throughout the Class Period, including Vice President-Finance, Treasurer, and

Corporate Secretary, as well as serving as Inyx’s Chief Financial Officer and Chief Accounting

Officer. Defendant Goldschmidt was employed with Inyx Canada Inc. and Inyx, Inc. since April

1, 2003. Defendant Goldschmidt worked in the pharmaceutical industry for Miza

Pharmaceuticals, Inc. between November 2001 and September 2002 as Director of Finance.

From September 2002 to April 2003, she was a self-employed financial consultant to

pharmaceutical companies. Prior to November 2001, defendant Goldschmidt served as an audit

manager at KPMG where she focused on serving clients in the life sciences industry.

Defendant Goldschmidt is a chartered accountant and a member of The Institute of Chartered

Accountants of Ontario and the Canadian Institute of Chartered Accountants. During the Class

Period, defendant Goldschmidt signed and verified the Company’s false and misleading SEC

filings, and knowingly issued numerous false and misleading statements about the Company’s

financial condition and prospects. Defendant Goldschmidt resigned from her positions, effective

June 29, 2007.

13. Defendant Jay M. Green (“Green”) served as the Company’s Executive Vice

President and Director of Corporate Development beginning on December 1, 2003, and

continuing through the Class Period. Further, effective July 1, 2007, defendant Green was

elected as a director to fill a vacancy on the Board of Directors. From January until November

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2003, defendant Green was a managing director of Duncan Capital, LLC, a merchant

banking/investment banking firm that served as our investment banking firm. From June 2001

until 2002 year-end, defendant Green was a Managing Director of BlueFire Partners, a

Minneapolis-based capital markets advisory firm. From January 2001 until May 2001, defendant

Green served as an independent financial consultant advising both private and public companies.

From June 2000 until December 2000, he was a Vice President with Unapix Entertainment, Inc.,

which was a public company on the American Stock Exchange (ASE: UPX) that filed for

bankruptcy and its assets were subsequently liquidated. From March 1999 to May 2000,

defendant Green was an independent consultant advising private and public companies. From

September 1998 until February 1999, he served as a Vice President with Paxar Corp. (NYSE:

PXR). From January 1991 until May 1998, defendant Green was a Vice President with Seitel,

Inc. (which was on the ASE and then the NYSE during his tenure). Since September 2004,

defendant Green was also a director and officer of Medeorex, Inc., a publicly-held health

services company. During the Class Period, defendant Green knowingly issued numerous false

and misleading statements about the Company’s financial condition and prospects.

14. Defendants Kachkar, Handley, Goldschmidt, and Green are collectively referred

to herein as the “Individual Defendants.” Inyx and the Individual Defendants are collectively

referred to herein as the “Inyx Defendants.”

15. Defendant Berkovits & Company, LLP (formally known as Berkovits, Lago &

Company, LLP) (“Berkovits”) is a firm of Certified Public Accountants and consultants.

Through its Fort Lauderdale, Florida office, Berkovits served as Inyx’s auditor during the Class

Period. Inyx and defendant Kachkar were among Berkovits’ largest, if not the firm’s largest and

most profitable clients. Throughout the Class Period, Berkovits knew and/or recklessly ignored

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that it had falsely represented that Inyx’s annual financial statements for at least the years ended

2004 and 2005 were presented in conformity with GAAP. On July 5, 2007, the Company was

informed by Berkovits that it was resigning from its position effective immediately. Upon

information and belief, the resignation of Berkovits as Inyx’s auditor and the reorganization of

the firm, including the departure of Jesus Lago (“Lago”) from Berkovits, was a direct and

consequent result of the conduct of Defendants alleged herein. The Inyx Defendants and

Berkovits are collectively referred to herein as “Defendants.”

16. During the Class Period, the Individual Defendants, as senior executive officers

and/or directors of Inyx, were privy to confidential and proprietary non/public information

concerning Inyx’s operations, finances, financial condition, products, markets and present and

future business prospects, via: their direct “hands on” involvement in Inyx’s business; access to

internal corporate documents (including the Company’s operating plans, budgets and forecasts

and reports of actual operations compared thereto), conversations and connections with other

corporate officers and employees; attendance at management and/or board of directors meetings

and committees thereof; and reports and other information provided to them. Because of their

possession of such information, the Individual Defendants knew or recklessly disregarded that

the adverse facts specified herein were misrepresented and/or had not been disclosed to, and

were being concealed from, the investing public.

17. The Individual Defendants are liable as direct participants in the wrongs

complained of herein. In addition, the Individual Defendants, by reason of their status as senior

executive officers and/or directors, were “controlling persons” within the meaning of Section

20(a) of the Exchange Act and had the power and influence to cause the Company to engage in

the unlawful conduct complained of herein. Because of their positions of control, the Individual

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Defendants were able to and did, directly or indirectly, control the conduct of Inyx’s business.

18. The Individual Defendants, because of their positions with the Company,

controlled and/or possessed the authority to control the contents of Inyx’s reports, press releases

and presentations to securities analysts and the investing public. The Individual Defendants were

provided with copies of Inyx’s misleading reports and press releases prior to or shortly after their

issuance, and had the ability and opportunity to prevent their issuance or cause them to be

corrected.

19. As senior executive officers and/or directors and as controlling persons of a

publicly traded company whose common stock was, and is, governed by the federal securities

laws and registered with the SEC pursuant to the Exchange Act, and was, during the Class

period, traded on the over-the-counter market on the NASDAQ OTC Bulletin Board, and then on

the Pink Sheets, the Individual Defendants had a duty to promptly disseminate accurate and

truthful information with respect to Inyx’s financial condition and performance, growth,

operations, financial statements, business, products, markets, management, earnings and present

and future business prospects, and to correct any previously issued statements that had become

materially misleading or untrue, so that the market price of Inyx’s securities would be based

upon truthful and accurate information. The Individual Defendants’ misrepresentations and

omissions during the Class Period violated these obligations.

20. The Individual Defendants are liable as participants in the fraudulent scheme and

course of conduct which operated as a fraud or deceit on purchasers of Inyx securities by

disseminating materially false and misleading statements and/or concealing material adverse

facts. The scheme deceived the investing public regarding Inyx’s business, operations and

management and the intrinsic value of Inyx’s securities and caused Plaintiff and other members

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of the Class to purchase Inyx securities at artificially inflated prices, and to suffer significant

economic losses when the truth was revealed.

PLAINTIFF CLASS ACTION ALLEGATIONS

21. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a Class, consisting of all those who purchased or

otherwise acquired Inyx securities during the Class Period and who were damaged thereby ( i.e.,

the “Class”). Excluded from the Class are Defendants, the predecessors, successors, parents and

subsidiaries of defendant Inyx and Berkovits, the current or former officers, directors, partners,

and other employees of the Defendants, at all relevant times, members of their immediate

families and their legal representatives, heirs, successors or assigns; and any entity in which

Defendants have or had a controlling interest.

22. The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, Inyx common shares were actively traded on the

NASDAQ OTC Bulletin Board under the symbol “IYXI.” Due to Inyx remaining delinquent in

not filing its Annual Report on Form 10-K for 2006 by May 18, 2007, the Company’s common

stock currently trades on the Pink Sheets under the symbol “IYXI.” While the exact number of

Class members is unknown to Plaintiff at this time and can only be ascertained through

appropriate discovery, Plaintiff believes that there are hundreds or thousands of members in the

proposed Class. Record owners and other members of the Class may be identified from records

maintained by Inyx or its transfer agent and may be notified of the pendency of this action by

mail, using the form of notice similar to that customarily used in securities class actions,

including Internet and publication notice and notice to brokerage firms who held securities

and/or traded Inyx securities on behalf of their customers during the Class Period.

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23. Plaintiff’s claims are typical of the claims of the members of the Class as all

members of the Class are similarly affected by Defendants’ wrongful conduct in violation of

federal law that is complained of herein.

24. Plaintiff will fairly and adequately protect the interests of the members of the

Class. Plaintiff is a member of the Class and will rigorously represent the interests of Class

members in the same manner as he will represent his own interests. Plaintiff knows of no

conflicts or antagonisms between his individual interests and those of other class members, and

Plaintiff has retained counsel competent and experienced in class and securities litigation.

25. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

(a) whether the federal securities laws were violated by Defendants’ acts as

alleged herein;

(b) whether statements made by Defendants to the investing public during the

Class Period misrepresented material facts or omitted to disclose material information that, under

the circumstance would render the statements made not false and misleading about the business,

operations, and financial condition of the Company;

(c) whether Defendants acted knowingly or recklessly in making materially

false and misleading statements or omitting to disclose material information that, under the

circumstances, would render the statements made not false and misleading during the Class

Period;

(d) whether Defendants engaged in schemes, artifices to defraud and/or

manipulative conduct during the Class Period;

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(e) whether the market prices of Inyx securities were artificially inflated or

distorted during the Class Period because of Defendants’ conduct complained of herein; and

(f) whether members of the Class have sustained damages and the proper

measure of damages.

26. Plaintiff intends to rely, in part, upon the presumptions of reliance created by the

United States Supreme Court in connection with the reliance element of his claims and the

claims of the other Class members under Sections 10(b) and 20(a) of the Exchange Act and,

therefore, individual questions regarding reliance do not predominate. In particular, with respect

to Defendants’ material omissions alleged herein, reliance by Plaintiff and the other members of

the Class is presumed. With respect to Defendants’ affirmative misrepresentations alleged

herein, reliance by Plaintiff and the other members of the Class is presumed under the fraud-on-

the-market doctrine, because, at all relevant times, the market for Inyx securities was efficient for

the following reasons, among others:

(a) Inyx’s common stock met the requirements for listing, and was listed and

actively traded on the NASDAQ OTC Bulletin Board and now trades on the Pink Sheets, which

are both highly-efficient, open, developed, and automated markets, free of manipulation;

(b) As a regulated issuer, Inyx filed periodic public reports with the SEC and

the National Association of Securities Dealers (NASD);

(c) Inyx regularly communicated with public investors via established market

communication mechanisms, including through regular disseminations of press releases on the

national circuits of major newswire services and through other wide-ranging public disclosures,

such as communications with the financial press and other similar reporting services; and

(d) Inyx was followed by numerous securities analysts and investment market

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professionals.

27. As a result of the foregoing, the market for Inyx securities rapidly absorbed all

publicly material information regarding Inyx and that information was reflected in the price of

Inyx’s securities.

28. Plaintiff and other members of the Class purchased Inyx securities between the

time that Defendants made the material misrepresentations and omissions alleged herein and

when the truth was finally and fully revealed to the public.

29. Plaintiff is thus entitled to a presumption that all purchasers of Inyx securities

during the Class Period suffered similar injury because they paid inflated prices for their Inyx

securities in reliance on Defendants’ material misrepresentations and/or omissions and/or in

reliance on the integrity of the prices for Inyx securities, and suffered economic losses when the

news services carried a report that two of Inyx’s U.S. subsidiaries, Inyx USA and Exaeris filed

for Chapter 11 protection on July 2, 2007, and the price of Inyx common stock declined in value

in direct, proximate and consequential response to the news.

30. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as

the damages suffered by individual Class members may be relatively small, the expense and

burden of individual litigation make it impossible for members of the Class to individually

redress the wrongs done to them. There will be no difficulty in the management of this action as

a class action.

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FRAUDULENT CONDUCT DURING THE CLASS PERIOD'

31. Inyx’s operations are conducted through several wholly owned subsidiaries: Inyx

USA, Ltd.; Inyx Pharma Limited, with R&D and production facilities located near Manchester,

England, which serves global markets in Europe and the Middle East; and Inyx Canada, Inc.

based in Toronto, which provides business development and support services.

32. In early 2005, Inyx was attempting to acquire the Manati, Puerto Rico-based

business of Sanofi-Aventis. Inyx sought an asset-based loan as financing. Knowing that

Westernbank Puerto Rico (“Westernbank”) made such loans, Inyx approached Westernbank for

financing. On March 16, 2005, Westernbank committed to making a $46 million asset-based

loan to Inyx (“Loan Agreement”). This loan would be the first series of loans provided by

Westernbank to Inyx over the Class Period.

33. Westernbank, through its asset-based lending division, Westernbank Business

Credit, ultimately loaned over $142 millions to Inyx over the Class Period. Under the terms of

the loan agreements (“Loan Agreements”), Westernbank agreed to provide lines of credit to Inyx

that they could draw upon based on the percentage of its accounts receivable, evidenced by

invoices, reports, and credit notes provided by Inyx to Westernbank. Further, the Loan

Agreements required that Inyx direct its customers to make payments for accounts receivable to

1 The allegations in this section are based on interviews with David Zinn, Inyx’s former VicePresident of Finance and Principal Accounting Officer from May 15, 2006 until July 2, 2007;testimony provided at the July 11, 2007 hearing in the bankruptcy proceeding brought by two ofInyx’s U.S. subsidiaries, Inyx USA and Exaeris, in the United States Bankruptcy Court for theDistrict of Delaware; and the sworn Affidavit of Jonathan Middup (“Middup”), executed onSeptember 19, 2007. The Administrators of Inyx Pharma, Inyx Europe Limited and Ashton (allsubsidiaries of Inyx) asked Middup to conduct a forensic investigation of certain aspects of thesesubsidiaries’ business and affairs, particularly cash flows and accounts receivable. Theinvestigation began on July 2, 2007. During the investigation, Middup examined materialsprovided by Westernbank, Inyx’s records and books, and conducted interviews with current andformer employees, officers, and/or directors of Inyx.

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Westernbank controlled lock boxes, the proceeds of which would be partially used to pay down

the loan obligations.

34. After learning the terms of accessing additional funds through the revolving line

of credit under the Loan Agreements, even prior to the signing of the Loan Agreement on March

31, 2005, the Inyx Defendants began to plot their fraudulent scheme to withdraw funds from the

Westernbank credit facility without the necessary collateral. Thereafter, beginning in or about

April or May 2005, Inyx began submitting fictitious invoices to obtain additional funds from

Westernbank, while representing that the invoices were legitimate. These invoices, to make the

scheme succeed, were also reflected as sales on Inyx’s financial reports and statements, which, in

turn, fraudulently inflated the Company’s financial results and condition. However, Inyx

maintained internal books reflecting that the invoices were uncollectible and fraudulent, and the

purported sales non/existent.

35. Further, at the same time, Inyx also directed payments which should have been

made into the lock boxes into other accounts. This was concealed from Westernbank by Inyx

providing Westernbank with records showing that the sums were still owed when in fact they

had been paid. The true payment records were maintained internally. The Inyx Defendants also

offset accounts receivables owed to Inyx from its customers against debts Inyx owed to

customers. As a result, the Inyx Defendants overstated Inyx’s net income and understated the

Company’s liabilities.

36. To withdraw funds from the revolving lines of credit under the Loan Agreements,

Inyx was required to submit information derived from and copies of accounts receivable invoices

for each Inyx operating subsidiary to Westernbank on a daily basis. Inyx was also required to

provide Westernbank with monthly reports of the accounts receivable. Based upon those

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invoices, Inyx would then be permitted to withdraw funds from the lines of credit equal to a

certain percentage of eligible accounts receivable. This process would start by the operating

subsidiaries transmitting their accounts receivable invoices to defendant Goldshmidt on a daily

basis. Defendant Goldshmidt, thereafter, prepared or caused others to prepare assignment sheets

that listed the invoices received. The assignment sheets were then submitted to Westernbank.

Defendant Goldshmidt further caused copies of the invoices to be transmitted from Inyx to

Westernbank. On a regular basis, the Inyx Defendants also transmitted to Westernbank the

accounts receivable reports that provided summations and tabulations of the earlier submitted

documentation. If Westernbank determined, after reviewing the information, that sufficient

collateral in the form of eligible accounts receivable existed to allow and secure further funding,

Westernbank would authorize additional funds to be advanced to Inyx under the lines of credit.

However, the invoices and accounts receivable reports submitted by the Inyx Defendants were

fraudulent and created by defendant Goldschmidt at the direction of defendants Kachkar,

Handley, and Green.

Fraudulent Invoices

37. Beginning in as early as April 2005 and lasting until June 2007, the Inyx

Defendants engaged in a course of fraudulent conduct involving the submission of duplicate,

inaccurate, altered, and/or false invoices to Westernbank in order to fraudulently increase Inyx’s

accounts receivable and inflate revenue, so that Westernbank would make additional funding of

the revolving line of credit available to Inyx under the Loan Agreements. These invoices were

also reflected on Inyx’s financial reports and statements, which, in turn, fraudulently inflated the

Company’s financial results and condition. The Inyx Defendants had full knowledge that the

invoices did not reflect the true accounts receivable.

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38. According to the testimony provide by Gabriel Montanez and Middup, 2 the first

asset-based loan to Inyx by Westernbank closed on March 31, 2005. The loan was for $46

million and consisted, in part, of a revolving credit limit secured by Inyx’s inventories and

accounts receivable. In connection with the Loan Agreement, even prior to actually receiving

the loan, once the Inyx Defendants learned of the terms of the Loan Agreement, they began to

plot how they would fraudulently access additional funds from Westernbank, a fraud that also

resulted in the Company artificially inflating its financial results and condition.

39. According to the testimony of Middup, the forensic investigator acting on behalf

of U.K. administrators, certain of the sales invoices submitted by Inyx as support for the

financing were actually “pre-billing” or “development” invoices. Middup explained that in the

normal course of Inyx’s business, “customer quotes” for sales are obtained and “signed by the

customer.” The signed quotes are then attached to the invoice as evidence of the sale. Middup

testified that in the case of these development invoices “some” were never sent to the customer.

These “pre-billing” invoices were due to Inyx attempting to accelerate its sales process in order

to obtain additional financing from the revolving line of credit, which in turn, resulted in the

fraudulent inflation of the Company’s financial results and condition because these invoices were

also reflected in the Company’s financial statements and reports to ensure that the scheme

succeeded.

40. In fact, in November 2006, defendant Green informed Mike Vasquez, President of

the Business Credit Division of Westernbank, that $37.7 million of pre-billings in Inyx’s

2 Gabriel Montanez (“Montanez”) was an assistant vice-president and underwriter employed byWesternbank who had personal knowledge of the dealings between Westernbank and Inyx.Montanez and Middup provided testimony at the July 11, 2007 hearing in the bankruptcyproceeding brought by two of Inyx’s U.S. subsidiaries in the United States Bankruptcy Court forthe District of Delaware.

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accounts receivable, which were part of the collateral base securing Inyx’s revolving line of

credit, were going to be written off. However, Montanez testified that the Individual Defendants

assured Westernbank that the receivables were good, that they were research and development

receivables, and that Inyx was just having a little bit a of a delay in getting them collected.

Based on those assurances and defendant Kachkar providing a $10 million personal guarantee,

Westernbank waived the covenants in its loan agreement with Inyx that allowed Westernbank to

declare a default, and continued to loan additional money to Inyx.

Fraudulent "Prefix 7" Invoices

41. Among the invoices that the Inyx Defendants submitted to Westernbank were a

group of invoices that bore a prefix number 7 (the “Prefix No. 7 Invoices”). The Prefix No. 7

Invoices purported to reflect large accounts receivable owed to the Inyx by a variety of

customers, including Dr. Ready Labs Limited (“Dr. Ready Labs”), Novozymesa Delta, UCB

Pharma Limited (“UCB”), Link Pharmaceutical Limited (“Link”), and McDormott Labs. A

number of these Prefix No. 7 Invoices, totaling more than £7 million, were submitted to

Westernbank, so that Inyx could obtain additional financing from Westernabank.

42. Most, if not all, of these Prefix No. 7 Invoices were fraudulent. Inyx’s internal

accounts receivable ledgers did not reflect these invoices. There is no evidence that these

invoices were ever sent to customers or that any of these invoices were ever paid, and in fact the

invoices were later canceled. Thus, these invoices did not reflect the actual accounts receivable

due to Inyx. The Inyx Defendants knowingly and intentionally created or caused others to create

these Prefix No. 7 Invoices, and submitted or caused others to submit these invoices to

Westernbank for the purposes of fraudulently obtaining financing under the Loan Agreements,

while at the same time fraudulently inflating the Company’s financial results and condition.

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43. The fraudulent Prefix No. 7 Invoices discovered to date are invoice 704007, dated

August 16, 2006, for approximately £124,500.00 to Dr. Ready Labs; invoice 704008, August 16,

2006, for approximately £286,000.00 to Dr. Ready Labs; invoice 704009, dated August 16,

2006, for approximately £125,000.00 to Dr. Ready Labs; invoice 704010, dated August 22,

2006, for approximately £467,000.00 to Novozymes; invoice 704011, dated August 25, 2006, for

approximately £540,000.00 to UCB; invoice 704012, dated August 30, 2006, for approximately

£450,000.00 to UCB; invoice 704013, dated July 9, 2006, for approximately £242,000.00 to

UCB; invoice 704014, dated July 9, 2006, for approximately £440,000.00 to Novozymes;

invoice 70415, dated September 15, 2006, for approximately £400,000.00 to Link; invoice

704016, dated September 19, 2006, for approximately £300,000.00 to UCB; invoice 704017,

dated September 20, 2006 for approximately £660,000.00 to Novozymes; invoice 704018, dated

October 5, 2006 for approximately £719,000.00 to UCB; invoice 704019, dated October 20,

2006, for approximately £326,000.00 to UCB; invoice 704020, dated October 24, 2006, for

approximately £115,000.00 to McDermott Labs; invoice 704021, dated October 24, 2006, for

approximately £444,000.00 to Novozymes; invoice 704022, dated October 26, 2006, for

approximately £476,000.00 to McDermott Labs; and invoice 704023, dated November 21, 2006,

for approximately £657,000.00 to UCB. All of the invoices were submitted to Westernbank to

obtain additional financing and were used to improperly inflate the Company’s financial results

and condition, but do not appear in the Inyx’s internal ledgers.

Re-Invoicing

44. The Inyx Defendants also engaged in a scheme of issuing multiple invoices for

the same projects. In furtherance of this scheme, they would cause Inyx to issue a single invoice

for the total amount a customer would owe once work on the project was completed. This

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invoice would then be sent to Westernbank, and recorded in the accounts receivable reports the

Inyx Defendants supplied or caused others to supply to Westernbank for the purpose of obtaining

funding under the revolving line of credit of the Loan Agreements, which in turn also resulted in

the Company’s artificial inflation of its financial results and condition.

45. Subsequently, the Inyx Defendants issued additional invoices on the same account

receivable that would subdivide the amount owed under the original invoice. The Inyx

Defendants submitted the new invoices to Westernbank for financing, and recorded these new

invoices, as they had with the original invoices, in the accounts receivable reports submitted to

Westernbank. As a result, the Inyx Defendants fraudulently obtained disbursements under the

Loan Agreements twice for the same accounts receivable.

46. This fraudulent practice continued throughout 2005 until June 2007 at the Inyx

Pharma facility in the United Kingdom, and pursuant to their scheme, the Inyx Defendants

submitted or caused others to submit invoices totaling at least approximately £3 million to

Westernbank for the purpose of fraudulently obtaining funding under the Loan Agreements, and

in turn, fraudulently inflating the Company’s financial results and condition.

47. For example, the Inyx Defendants issued invoice number OP/1001215 for

approximately £140,00.00 relating to Inyx Pharma’s customer Genpharm on July 14, 2006.

Invoice OP/1001215 was subsequently submitted to Westernbank for financing. Later, the Inyx

Defendants caused Genpharm invoice OP/1001354, dated November 20, 2006, for £68,964.00

and Genpharm invoice OP/1001369, dated November 24, 2006, for £66,472.00 to be issued and

submitted to Westernbank for financing. Invoices OP/1001354 and OP/1001369 were for the

same project as invoice OP/1001215. Later, the Inyx Defendants caused invoice OP/1001215 to

be canceled pursuant to a credit note dated January 25, 2007 for £140,00.00.

19

48. Another example of this scheme involved Inyx Pharma’s customer Ecolab

(formerly known as Adams Healthcare). The Inyx Defendants caused invoice OP/1001228,

dated July 27, 2006, for £162,108.37 and invoice OP/ 1001229, dated July 28, 2006, for

£200,776.42 to be issued and subsequently submitted to Westernbank for financing. Thereafter,

between August 2006 and February 2007, the Inyx Defendants caused the following invoices for

the same Ecolab/Adams Healthcare project to be created and submitted to Westernbank for

financing: OP/1001263 for approximately £18,000.00; OP/1001265 for approximately

£19,800.00; OP/1001276 for approximately £40,800.00; OP/1001374 for approximately



£40,700.00; and OP/1001464 for approximately £19,900.00. On January 24, 2007, the Inyx

Defendants caused credit notes to be issued canceling in full the original July 2006 invoices for

the Ecolab/Adams Healthcare project and also canceled the original invoices in the Inyx internal

ledgers, but these invoices had already been used to obtain additional funding from

Westernbank, and to fraudulently inflate revenue and accounts receivable.

Developmental Invoices

49. In furtherance of their fraudulent course of conduct, the Inyx Defendants engaged

in a practice involving the creation of invoices for so/called “developmental work” Inyx was

supposedly performing for customers. These “developmental” invoices were not part of the

normal invoicing practice for Inyx. For example, Inyx employees did not send these invoices

directly to customers, but instead delivered them to defendant Handley for distribution. Most of

these invoices were never submitted to customers, and most of the corresponding customer

quotes for the “developmental projects” did not have the required customer signatures. In fact,

20

the Inyx employees ordinarily responsible for developmental work in the Inyx’s United Kingdom

facilities have recently admitted that they never heard of the names of some of the customers

identified in these largely fictitious developmental invoices. The Inyx Defendants also instructed

Inyx employees, including their credit department employees, not to pursue payment from the

customers named on these “developmental” invoices. The Inyx Defendants did not seek

payment from these customers on the “developmental” invoices because the work was never

done and, if Inyx sought payment, the entire fraudelant invoice scheme could have come undone.

50. After the Inyx Defendants created or caused others to create the fraudulent

developmental invoices, they submitted or caused others to submit the invoices to Westernbank,

and to have the invoices reflected on the accounts receivable reports provided to Westernbank.

These invoices were submitted to Westernbank for the purpose of fraudulently obtaining funding

under the Loan Agreements. Subsequently, the Inyx Defendants canceled or caused others to

cancel the payments “owed” by the customers under the developmental invoices. Also, while the

£19.4 million in developmental invoices remained on the accounts receivable reports Inyx

submitted to Westernbank, the Inyx Defendants removed or caused others to remove the entries

for these invoices from Inyx’s internal accounts receivable ledgers. These fraudulent, deceptive

acts and devises were taken by the Inyx Defendants with full knowledge that the developmental

invoices were fictitious, and, thus, uncollectible, and that they fraudulently inflated the

Company’s financial results and condition.

51. For example, beginning in or around December 2005, Inyx Pharma generated

developmental invoices totaling £8 million for its customer King Pharmaceuticals that were used

by Inyx to secure additional financing from Westernbank through the revolving lines of credit.

Subsequently, the Inyx Defendants caused these invoices to be cancelled because the work for

21

the developmental invoices never existed. However, the invoices had already been used to

artificially inflate the Company’s financial results and condition.

52. Another example of the use of developmental invoices to inflate revenues was a

purported developmental project for MEDA. This scheme began around October 2005 and

continued until June 2006. The developmental invoices for MEDA, which covered technical

transfer fees associated with Ashton’s potential acquisition of a German pharmaceutical business

(which never materialized), totaled approximately £2.5 million. The MEDA developmental

invoices were canceled as of December 31, 2006. Furthermore, Zinn questioned whether the

accounts receivable balance from MEDA was collectible at all.

Inflated Invoices

53. The Inyx Defendants inflated the value of the invoices to enable Inyx to withdraw

additional funds from the revolving lines of credit, which in turn inflated the Company’s

reported financial results and condition, and created the false impression that the Company’s

operations were functioning well and permitting Inyx to finance its business when, in fact, Inyx

was financed with stolen money. Once again, the result of this practice was that the Inyx

Defendants fraudulently increased the amount of accounts receivable that they submitted or

caused others to submit to Westernbank for the purpose of fraudulently obtaining additional

funding under the Loan Agreements, and artificially inflated Inyx’s reported revenues and assets.

54. As an example of the Inyx Defendants’ use of inflated invoicing, in or around

May 2006, the Inyx Defendants caused the submission of invoices and accounts receivable

reports to Westernbank for invoices relating to the UCB-Ashton Contract Manufacturing

Agreement dated August 25, 2005 (the “UCB Agreement”). Pursuant to the UCB Agreement,

UCB owed Ashton a receivable per month based upon the level of sales of specific products sold

22

by Ashton to UCB. The UCB Agreement fixed the annual amount for the year ending August

31, 2006 at £4.2 million. The accounts receivable reports the Inyx Defendants submitted or

caused to be submitted to Westernbank identified three different invoices owed in May 2006 by

UCB to Ashton pursuant to the UCB Agreement. The total amount of these invoices the Inyx

Defendants submitted to Westernbank for financing was approximately £1.037 million.

However, the actual amount owed under the UCB Agreement for May 2006 was actually only

£437,564.00.

55. Another example of the use of inflated invoices involved the July 2006 invoices

under the UCB Agreement. By June 2006, the full amount for the year ending August 31, 2006

that UCB had to pay under the UCB Agreement (£4.2 million) had already been invoiced to

UCB. Therefore, Inyx was not entitled to any more receivables from UCB pursuant to the UCB

Agreement in July 2006. Nevertheless, the Inyx Defendants caused an invoice for £658,000.00,

represented to be for payment due under the UCB Agreement, to be submitted to Westernbank in

July 2006 for the purpose of fraudulently obtaining additional funding under the Loan

Agreements, and as a result, artificially inflating Inyx’s revenue and assets.

Diversions of Accounts Receivable Payments

56. Pursuant to the Loan Agreements, lock box accounts (“Lock Box Account(s)”)

were established into which the US and EU Borrowers were required to promptly deposit and

direct their account debtors, to directly remit all payments on receivables, including accounts and

all payments constituting proceeds of inventory, equipment or other collateral in the identical

form in which such payments are made, whether by cash, check or other mariner. The Loan

Agreements made all money required to be deposited into the Lock Box Accounts the property

of Westernbank.

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57. A further part of the Inyx Defendants’ fraudulent course of conduct was the

diversion of accounts receivable payments that were owned by Westernbank, and which should

have been deposited into a Lock Box Account, to other bank accounts controlled by the

Individual Defendants, rather than Westernbank. The Inyx Defendants caused the diversions of

these payments to take place with the full knowledge that Inyx had previously submitted invoices

to Westernbank for these accounts receivables to obtain financing under the Loan Agreements.

According to Zinn, the Lock Box non-compliance issue pre-existed his employment beginning in

May 16, 2006, and the “attitude” taken by each of the Individual Defendants was that it was how

they always did things. Around February 2007, according to Zinn, a customer check arrived in

Miami office even though there were no operations there. When Zinn told defendant

Goldschmidt that he was going to send the check with a letter to Westernbank to deposit,

defendant Goldschmidt told him not to send it because that would mess up everything.

Diversion Scheme at Invx Pharma

58. Another practice the Inyx Defendants employed was to cause payments from

customers of Inyx Pharma that were supposed to be made to a Lock Box Account to instead be

directed to Inyx Pharma’s operational account at Barclays Bank. Beginning in October 2006, the

Inyx Defendants knowingly and intentionally caused over £2 million belonging to Westernbank,

which should have been deposited in a Lock Box Account, to be diverted from and not paid into

the Lock Box Account.

59. For example, in furtherance of the Inyx Defendants’ overall scheme, on

December 12, 2006, defendant Handley instructed Generics UK, Ltd. to make a payment of

£352,926.53.00 to Account Number 00402087 at Barclays UK (Sort Code 2048-46) held in the

name of Inyx Pharma and controlled by the Inyx Defendants. On December 21, 2006, Generics

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UK confirmed that payment had been made to Inyx Pharma through wire transfer number

4600001574. That payment was the property of Westernbank and should have been made into a

Lock Box Account.

60. A further example of this practice, included at least £246,000.00 in accounts

receivable payments from Proctor & Gamble Pharma SARL (“P&G”) being diverted from the

Westernbank Lock Box Account between October 2006 and June 2007, and deposited into Inyx

Pharma’s account at Barclays Bank. Similarly, during this same time period, at least

£211,000.00 in accounts receivable payments from AstraZeneca AB were diverted away from

the Lock Box Accounts into accounts controlled by the Inyx Defendants.

61. At least thirteen Inyx Pharma customers have been identified whose payments the

Inyx Defendants diverted or caused to be diverted from and not paid into the Lock Box Account.

These customers are Medlock Medical Ltd., Generics (UK) Ltd., Bracey’s Pharmaceuticals Ltd.,

Merck SA, P&G, Chiesi Pharmaceuticals SpA, Animalcare, Manx Healthcare, UCB,

Bioprogress Technology Ltd., Alliance Pharmaceuticals Ltd., AstraZeneca AB and Antigen.

Diversion Scheme at Ashton

62. Also beginning in or around October 2006, the Inyx Defendants engaged in a

scheme to have customers of Ashton deposit payments directly into Ashton’s operational

accounts, rather than into the Lock Box Account.

63. For example, on January 25, 2007, defendant Handley instructed Richard Grethe

(“Grethe”) from Focus Pharmaceuticals Ltd. (“Focus”) to pay £178,048.00 to National

Westminster Bank account number 71111433, held in the name of Ashton and controlled by the

Inyx Defendants. Defendant Handley instructed Grethe to divert these funds to the Ashton

account, with full knowledge that this payment was the property of Westernbank. In

25

consideration for this diversion, defendant Handley extended Focus a discount of the payment.

64. Additionally, for the period from October 2006 to February 2007 at least

£262,500.00 in accounts receivable payments from Ashton’s customer Galen Ltd. were diverted

from the Lock Box Account into a bank account controlled by the Inyx Defendants. Similarly, in

this same time period, at least £146,800.00 in accounts receivable payments from Ashton’s

customer Kogen were diverted away from the Lock Box Account into accounts controlled by the

Inyx Defendants.

65. At least fifteen Ashton customers have been identified whose payments the Inyx

Defendants diverted or caused to be diverted from the Lock Box Account into accounts

controlled by the Inyx Defendants. These customers are UCB, Alliance Pharmaceuticals Ltd.,

Huntly Pharmaceuticals Ltd., Nordic Pharma (“Nordic”), Galen Ltd., Link, Kogen Ltd.,

Eumedica Pharmaceuticals AG, Delta, Typharm Ltd., Focus, Meda AB, Dales, Lidco Ltd., and

Dr. Ready Labs.

Diversion Scheme at Ashton Involving UCB Pharma Limited

66. UCB is one of Ashton’s largest customers, comprising approximately 40% of its

business. Beginning at least as early as December 2006, and continuing until at least May 2007,

the Inyx Defendants caused payments from UCB to be diverted to other bank accounts controlled

by the Inyx Defendants, including an Inyx EU account at HSBC, instead of to the Lock Box

Account. The HSBC account was separate from Ashton’s operational account. The signatories

for the HSBC Account were defendant Kachkar, defendant Goldshmidt, and Joseph Rose

(“Rose”), former Vice President of Finance for Inyx EU.

67. On December 4, 2006, defendant Handley directed Mark Hardy, UCB UK Vice

President of Corporate Services, to make wire payments into Account Number 32088681 held at

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FISBC (Branch Sort Code 40-03-28) in the name of Ashton and controlled by the Inyx

Defendants. As a further example of this diversion scheme, defendant Handley on February 1,

2007, caused UCB to again divert monies to Inyx EU account number 32088681. On March 5,

2007, defendant Handley directly instructed Steve Price of IJCB to remit payment into the HSBC

account. All of these payments should have been remitted to a Lock Box Account under the

terms of the Loan Agreements.

68. Defendants Handley and Kachkar on other occasions directed or caused others to

direct UCB to make wire payments to the HSBC account controlled by the Inyx Defendants

rather than make payments into the Lock Box Account. On at least one occasion, defendant

Handley agreed to give UCB a discount on its payment if UCB deposited its payment into the

HSBC Account controlled by the Inyx Defendants the same day.

69. The total amount of UCB payments diverted by the Inyx Defendants into the

HSBC account was in excess of £4.4 million.

70. As part of this scheme to divert funds from the Lock Box Account, the Inyx

Defendants submitted or caused others to submit to Westernbank an accounts receivable report

dated March 31, 2007, in which it was intentionally misstated that the invoices paid by UCB to

the HSBC account remained unpaid.

71. The Inyx Defendants diverted or caused these diversions of funds with full

knowledge that the funds belonged to Westernbank, and not Inyx. For example, following

defendant Handley’s instructions to UCB, then Inyx EU Vice President of Finance, Rose, warned

defendant Handley that the money being paid by UCB “belongs to Westernbank and unless they

have agreed to the money going to the Inyx bank account in writing you cannot do this.”

Defendant Handley dismissed Rose’s warning and falsely represented to him that “there are

27

negotiations/discussions going on with [Westernbank] that you are not aware of and are highly

sensitive of nature that preclude your point.” In fact, no such negotiations/discussions were

going on. Instead, the Inyx Defendants were merely diverting funds to artificially inflate Inyx’s

cash position. Defendant Kachkar likewise misrepresented to Rose that the diversion of funds

was appropriate and permissible. In fact, however, the Inyx Defendants had no right to divert,

and never told Westernbank they were diverting, payments away from the Lock Box Account

into accounts controlled by the Inyx Defendants.

72. Despite the fact that the Inyx Defendants knew that all of the funds in the HSBC

account were the property of Westernbank and that they had obtained control over the funds by

fraud, the Inyx Defendants caused these funds to be disbursed not to Westernbank, but to the

Inyx Defendants. To date, it has been determined that out of the £4,475,591.00 of payments of

UCB that was diverted into the HSBC account, £4,473,399.00 has been distributed to Inyx and

defendant Kachkar, including at least £1.64 million that was paid out to Inyx and over

£493,000.00 that was paid out to defendant Kachkar personally.

Offset Scheme

UCB Deferred Consideration and Working Capital Adjustment Offset

73. Starting no later than August 2005, the Inyx Defendants devised and engaged in

fraudulent conduct involving Inyx EU. As with the diversion of funds described above, the

purpose and result of this conduct was to avoid having accounts receivable payments that should

have been deposited into the Lock Box Account owned and controlled by Westernbank from

being deposited into that Lock Box Account, and thereby artificially inflating Inyx’s revenue,

assets, and cash position.

74. With respect to Inyx EU, the Inyx Defendants caused the customers to offset other

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obligations owed by Inyx to such customers against accounts receivables that had been assigned

to Westernbank, and which should have been paid into the Lock Box Account. The net effect of

this offset would be that the customer’s accounts receivable owed to Inyx was reduced by a

certain amount and Inyx’s debt or obligation to the customer was reduced by the same amount,

all without any money for the relevant account receivable being paid into or passing through the

Lock Box Account. Furthermore, as a result of the scheme, the Company’s financial results and

condition was artificially inflated. Corroboration was provided by Zinn, who stated that the

offsetting was taking place “way before he arrived at Inyx,” on May 15, 2006.

75. The largest part of this offset scheme discovered to date involved Ashton’s

biggest customer, UCB. On August 25, 2005, Inyx EU entered into a share purchase agreement

to acquire Ashton (then known as Celltech Manufacturing Services Limited (“Celltech”)) from

UCB (the “Celltech Purchase Agreement”). The agreed consideration for the share purchase was

€27.5 million (approximately £16 million or USD $32 million). A payment of €8 million was

deferred to be paid in installments to UCB over the course of the twelve months following the

date of purchase. The Celltech Purchase Agreement also provided that Inyx EU would pay an

additional amount in excess of £3.9 million to UCB, depending on the level of working capital

reported by Celltech at the date of completion of the acquisition.

76. Between October 2006 and January 2007, Ashton and UCB offset approximately

£4.5 million of the deferred compensation owed by Inyx EU to UCB under the Celltech Purchase

Agreement by offsetting these amounts against accounts receivable IJCB owed to Ashton. The

Inyx Defendants, however, had already caused invoices for these accounts receivable to be

submitted to Westernbank for the purpose of obtaining funding under the Loan Agreements,

Westernbank had already provided additional funding based on the accounts receivable, and the

29

accounts receivable had already been assigned as security to Westernbank. Accordingly, Inyx

had no right to offset these accounts receivable against their debts owed to IJCB or any other

customer. As a result of this conduct, the Company’s reported revenue and assets were already

artificially inflated.

77. On March 31, 2007, the Inyx Defendants submitted to Westernbank another

accounts receivable report that misrepresented the accounts receivable involved in the offsetting

described in the prior paragraph as still outstanding, even though the Inyx Defendants knew that

the invoices had been effectively paid through the offset.

78. The Inyx Defendants engaged in a further practice from around November 2005

to around February 2006 whereby they caused Inyx to offset approximately £2.6 million in

accounts receivable owed by UCB to Ashton against an amount owed by Inyx EU to UCB, as a

result of a working capital adjustment under the Celltech Purchase Agreement. Once again,

however, the Inyx Defendants had already caused invoices for these accounts receivable to be

submitted to Westernbank to obtain funding under the Loan Agreements, Westernbank had

provided additional funding based on the accounts receivable, and the accounts receivable had

been assigned to Westernbank as security. Inyx had no right to offset these accounts receivable

against their debts owed to UCB or any other customer. As a result of this conduct, the

Company’s financial results and condition were already artificially inflated.

Offsets of Claims Owed by Nordic Pharmaceuticals

79. In furtherance of the Inyx Defendants’ overarching fraudulent scheme, on or

about July 2006, the Inyx Defendants caused accounts receivable owed by Nordic to Ashton

totaling approximately £900,000.00 to be offset. Payment of the £900,000.00 Nordic accounts

receivable was required to be made into the Westernbank Lock Box Account per the Loan

30

Agreements.

80. The Nordic offset also involved UCB. Nordic had a claim against UCB for

approximately £900,000.00, while Inyx EU still owed UCB an amount over £900,000.00 under

the Celltech Purchase Agreement. To effectuate the scheme, the Inyx Defendants caused Ashton

to cancel Nordic’s £900,000.00 account receivable invoice in exchange for Nordic dropping its

£900,000.00 claim against UCB, and UCB, in turn, canceling £900,000.00 in debt owed to UCB

by Inyx EU. As with the above offset examples, however, the £900,000.00 receivable that the

Inyx Defendants used for this offset had already been submitted (and assigned as security) by

Inyx to Westernbank to obtain funding under the Loan Agreements, and Westernbank had

already provided additional funding based on the accounts receivable. Furthermore, as a result

of this conduct, the Company’s reported revenue and assets were already artificially inflated.

Offsets of Claims Owed by Innovata

81. In addition, the Inyx Defendants, beginning on or about August 2005 and ending

around June 2006, offset accounts receivable owed by Innovata PLC (“Innovata”), both a

customer and supplier of Ashton, to Ashton against accounts payable due to Innovata from

Ashton. At least £213,000.00 of Innovata accounts receivable used in these offsets had

previously been submitted (and assigned as security) by Inyx to Westernbank to obtain funding

under the Loan Agreements, so Ashton had no right to offset these receivables against amounts it

owed Innovata. Furthermore, as a result of this conduct, the Company’s reported revenue and

assets were already artificially inflated.

Multiple Sets of Accounts Receivable Records

82. The Inyx Defendants also engaged in the practice of keeping different sets of

books. Specifically, they engaged in a practice of submitting accounts receivable reports to

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Westernbank that materially differed from the accounts receivable ledgers Inyx kept internally,

and as a result, to continue their scheme, the reported revenues and assets were artificially

inflated during the Class Period. This practice was confirmed by Zinn. For example, Zinn

identified an incident in June of 2007 when during a meeting with Westernbank, Zinn realized

that Inyx’s internal records showed collateral value that was six times less than what had been

represented by the Inyx Defendants to Westernbank.

83. Under the Loan Agreements, Inyx was required to submit accurate accounts

receivable reports to Westernbank as a precondition to receiving additional financing under the

revolving credit lines. The Inyx Defendants were fully aware that money would only be

available to Inyx under the lines of credit if supported by, among other things, the collateral

shown on the accounts receivable reports submitted by Inyx. Accordingly, the Inyx Defendants

made sure the reports submitted to Westernbank would reflect inflated accounts receivable based

upon fraudulent invoices, canceled invoices, duplicate invoices, and invoices that had already

been paid or offset without funds being properly paid into a Lock Box Account.

84. For example, in one instance an entry on the report sent to Westernbank was

significantly larger in amount than the same entry listed in the Inyx internal ledgers. In that

instance, the Inyx internal accounts receivable ledgers listed an invoice from UCB as

£78,000.00. The same UCB invoice was recorded as £658,000.00 in the accounts receivable

reports that the Inyx Defendants caused to be submitted to Westernbank.

85. Inyx’s use of different sets of books was in furtherance of the scheme the Inyx

Defendants used to defraud investors and Westernbank. The magnitude of the discrepancies

between the two sets of books is shown by comparing the different sets of books as of March 31,

2007. The accounts receivable reports as of that date the Inyx Defendants submitted or caused to

32

be submitted to Westernbank reported £51,770,982.00 as the outstanding accounts receivable for

the Ashton and Inyx Pharma entities, whereas the Inyx internal accounts receivable ledgers

recorded only £8,007,709.00 as the actual amount owed to Ashton and Pharma. The difference

in these two amounts is due to the Inyx Defendants’ fraud as described above.

The Collapse of the Invx Defendants' Fraudulent Scheme

86. Starting in September 2006 and continuing through at least May 2007, the Inyx

Defendants repeatedly misled Westernbank by advising it that they were finalizing arrangements

with other sources of funding either to buy out or significantly pay down Inyx’s debt to

Westernbank. The Inyx Defendants falsely assured Westernbank on numerous occasions that

financing agreements had been reached, were in the final stages of negotiation, they doing due

diligence, and trying to get the best deal for the Company. For example, Westernbank was

informed by the Inyx Defendants that defendant Kachkar was negotiating with Al-Saadi Qadhafi

of Libya concerning a partnership arrangement in which Mr. Qadhafi would provide a multi-

hundred-million dollar investment which would be used to pay off the Westernbank loans.

However, Westernbank, after trying to confirm the transaction with the Sahara Bank, learned that

the Sahara Bank knew nothing of the transaction.

87. In May 2007, Westernbank finally learned of a collateral deficiency under the

Loan Agreements in excess of $80 million because of uncollectible accounts receivable.

According to Zinn, in May of 2007, Westernbank was informed by Zinn, that at least $82.5

million of the purported accounts receivable securing the Company’s loans to Inyx would

“probably” not be collected. According to Montanez, during several conversations with Zinn

throughout the month of May, Zinn confirmed the “inaccuracies” in Inyx’s accounts receivable.

Various Inyx officers, including defendants Kachkar, Green and Goldshmidt, thereafter gave

33

false assurances to Westernbank in June 2006 that the collateral deficiency was substantially less

than this sum, the accounts receivable identified as uncollectible were in fact collectible, and/or

that the collateral deficiency would be covered by other assets.

88. As of June 28, 2007, Westernbank had made loans to Inyx in the amount of

$142,778,299.77 under the Loan Agreements.

89. On June 28, 2007, administrators were appointed for Inyx Pharma, Ashton, and

Inyx Europe.

90. On July 2, 2007, Inyx USA, as well as another Inyx subsidiary, Exaeris, filed

voluntary petitions for relief under Chapter 11 of the United States Code in the United States

Bankruptcy Court for the District of Delaware.

Recent Revelations About How the Invx Defendants Ran Invx and Its Subsidiaries.

91. Following Inyx USA filing for bankruptcy protection in the United States, Inyx

Pharma, Inyx EU and Ashton being placed into administration in the United Kingdom, and

various court proceedings taking place, additional information has surfaced about the manner in

which, and means by which, Inyx and its subsidiaries were run.

92. The Inyx Defendants used Westernbank property for their own benefit. One

instance is reflected in the bank records for the HSBC account into which the Inyx Defendants

diverted customer payments that were Westernbank property and were required to be paid into

the Lock Box Account. Those records reveal that defendant Kachkar personally received

£493,496.00 of these diverted funds directly from the HSBC Account.

93. Now that several of the Inyx operating companies are in bankruptcy or

administration, it has become clear that the funding was not allocated to the operating

subsidiaries in proportion to their accounts receivable used as collateral for the funding. To the

34

contrary, despite the fact that Inyx is supposedly a mere holding company that does not have

ongoing manufacturing operations, large sums of money were routinely retained in Inyx that had

been collected from the Westernbank revolving lines of credit and from payments on

subsidiaries’ accounts receivable, which Inyx Defendants had fraudulently diverted away from

the Lock Box Accounts. These diverted (essentially stolen) funds were used, inter alia, to

personally compensate the Individual Defendants.

94. Further, the Individual Defendants routinely participated in the operating,

financial, and onsite management decisions of Inyx’s operating subsidiaries without regard to

what positions they held in those subsidiaries (or whether they held any formal position at all

with the companies). For example, defendant Handley, who held no position in several of the

Inyx subsidiaries, required the managers of all the Inyx subsidiaries to submit to him daily cash

flow reports for the companies. Moreover, while defendant Handley did not have a formal

position within Ashton, he would routinely direct the operations and finances of Ashton. As part

of the fraudulent scheme described above, defendant Handley would also issue instructions to

Ashton customers informing them to which bank accounts they should to make payments.

FALSE AND MISLEADING STATEMENTS DURING THE CLASS PERIOD

95. On March 31, 2005 Inyx, financed by Westernbank’s loan, carried out the

purchase of Sanofi/Aventis’ business in Manati, Puerto Rico. Inyx and Inyx USA also entered

into the Loan Agreement, discussed above, with Westernbank, which was signed by defendant

Kachkar and defendant Goldschmidt. Under the Loan Agreement, Westernbank agreed to lend

$46 million to Inyx, consisting of a $10 million revolving loan and four separate term loans in

the aggregate amount of $36 million. The Loan Agreement was to finance the acquisition of

Aventis Pharmaceuticals Puerto Rico Inc. (“Aventis”) from Aventis Pharmaceuticals, Inc., and

35

for working capital, as well as other corporate purposes. Westernbank was granted a security

interest over almost all of Inyx’s assets, including, but not limited to: all accounts; all present and

future general intangibles; all inventory; all equipment; all real property and fixtures; all chattel

paper; all documents; all deposit accounts, all letters of credit; and all records. Westernbank and

Inyx also executed other security agreements to guarantee payments, including Corporate

Guarantee; Patent Security Agreement; Guarantor General Security Agreement; Collateral

Assignment of Licenses; and Collateral Assignment of Manufacturing Agreements. Inyx also

executed a Mortgage Note Pledge and Security Agreement, dated March 31, 2005, which

provided for certain collateral to Westernbank in event of default.

96. Inyx issued two press releases on March 31, 2005 regarding the acquisition. The

first press release entitled “Inyx Completes Acquisition ofAventis Pharmaceuticals Puerto Rico,”

announced that Inyx had “completed its acquisition of certain assets and business of Aventis

Pharmaceuticals Puerto Rico Inc. from Aventis Pharmaceuticals, Inc.” The press release also

announced that the “approximate $19.7 million acquisition price was financed through non-

dilutive, asset-based funding provided by Westernbank Business Credit Division of Westernbank

Puerto Rico.” The press release quoted defendant Kachkar as stating that: “This acquisition is

truly a ‘transforming event’ for Inyx. We have acquired materially valuable assets and several

significant new business contracts and strategic new customers and partnering relationships.”

97. The second press release was entitled “Inyx Secures $46 Million in Available

Non-Dilutive, Asset-Based Financing From Westernbank Puerto Rico.” The press release

announced that Inyx had secured non-dilutive, asset-based funding facilities totaling up to $46

million from Westernbank Business Credit Division of Westernbank Puerto Rico, Puerto Rico’s

second largest bank and a wholly owner subsidiary of W Holding Company, Inc., to fund the

36

acquisition of a drug manufacturing plant in Puerto Rico. The press release stated, in part, the

following:

Inyx has received from Westernbank ten-year and five-year asset-based termloans, secured by land, buildings and equipment owned by Inyx, bearing aninterest rate of 2% above the prime rate. From these credit facilities,approximately $19.7 million in funding has been utilized by Inyx to close todayits acquisition of certain assets and business of Aventis Pharmaceuticals PuertoRico Inc. from Aventis Pharmaceuticals, Inc., a member of the sanofi-aventisGroup.

* * *

Westernbank has also provided Inyx with an asset-secured capital expenditureline of $5 million at an interest rate of prime plus 2% and a $5 million mezzanineline with 15% annual interest as well as a revolving credit facility, secured againstaccounts receivable and inventory, at prime plus 1 %.

98. Defendant Kachkar commenting on the press release stated, in part, the following:

The new credit facilities from Westernbank provides Inyx with the fundingflexibility to prudently operate and grow our new base in the United States fromPuerto Rico as well as our base in Europe from the United Kingdom. We are verygratified in the faith that Westernbank has in Inyx.

99. The announcement of the Westernbank line of credit was well received by the

investing public as an indication of Inyx’s financial health and positive future prospects.

However, investors did not know that the Inyx Defendants intended to use the Westernbank

credit facility as their personal piggy-bank through the series of deceptive and fraudulent

devices, schemes, and practices described above to siphon off funds.

100. On April 6, 2005, Inyx filed its Form 8-K regarding the acquisition of Aventis,

signed by defendant Kackhar. The Form 8-K stated, in part, the following:

On March 31, 2005, the acquisition of the assets from APR was closed, andRegistrant assumed possession and control of the operations at such facilities.Such assets consisted of approximately 140,000 square feet of improved realproperty in five buildings located on 9.5 acres in Manati, Puerto Rico, togetherwith all installed and existing equipment and fixtures. A total of $2,334,327 ofinventory was included.

37

The assets were acquired from APR, a subsidiary of the sanofi aventis Group.There was no pre-existing relationship between Registrant, any of its affiliates,any director or officer of registrant or any associate of any such director orofficer, and the seller. Following the closing, Registrant will engage in certaincontract manufacturing activities for sanofi-aventis.

The consideration for the purchase was $19.7 million, which was obtained fromthe proceeds of a credit facility provided by Westernbank Business CreditDivision of Westernbank Puerto Rico (“Westernbank”) that is discussed in aseparate Current Report on Form 8-K filed on April 6, 2005.

On April 1, 2005, as part of the Asset Purchase Agreement with APR, theRegistrant received from APR a general assignment of all right, title andinterest in, to and under all of the acquired assets.

101. Inyx, also on or about April 6, 2005, filed another Form 8-K, also signed by

defendant Kachkar, describing its Loan Agreement with Westernbank. The Form 8-K stated, in

part, the following:

On March 31, 2005, the Registrant entered into a new non-dilutive, asset baserevolving credit, term loan and security agreement (“Debt Agreement”)totaling $46 million with Westernbank Business Credit Division ofWesternbank Puerto Rico, Puerto Rico’s second largest bank and a wholly ownedsubsidiary of W Holding Company, Inc. The Debt Agreement provides up to$10.0 million under a revolving line of credit (the “Revolver”) secured byaccounts receivables and inventory and up to $36.0 million under a series offour term loans (the “Term Loans”) secured by the Assets of the Registrant andit’s subsidiary Inyx USA. The Term Loans consist of up to $5.0 million undera 5 year Term Loan for purchases of new Property, Plant and Equipment, a$14.2 million, 5 year Term Loan on existing on Equipment, an $11.8 million,15 year Term Loan on Real Property and a $5.0 million mezzanine Term linesecured by all other assets of the Registrant.

102. The statements referenced above in the two March 31, 2005 press releases and the

two April 6, 2005 Form 8-Ks were each materially false and misleading when issued because

they misrepresented and failed to disclose the following material adverse facts:

(a) that even prior to the signing of the Loan Agreement, upon learning the

terms of the Loan Agreement, the Inyx Defendants began planning the fraudulent conduct

38

alleged above to access additional funds from Westernbank;

(b) that as early as April 2005 (and definitely prior to May 2005), the Inyx

Defendants began to engage in a series of practices involving the submission of duplicate,

inaccurate, altered, and/or fictitious invoices to Westernbank in order to fraudulently increase

their accounts receivable for the purpose of inflating the Company’s financial position and

operating results. This information was not disclosed, yet was necessary and material for a

proper understanding and evaluation of the Company’s operating performance;

(c) that because of the scheme, the Company would be violating GAAP and

its own publicly stated accounting policies by fraudulently representing the Company’s ability to

collect cash thereby. Inyx would also be improperly recognizing revenue in the absence of

product delivery, the satisfaction of its contractual obligations, and reasonable assurance of

collectability; and

(d) that Inyx suffered from a serious lack of legitimate controls over its

financial reporting which rendered the Company’s financial reporting inherently corrupt, subject

to manipulation and unreliable, further making each of statements that Inyx’s financial results

complied with GAAP materially false and misleading.

103. On or about April 2005, Inyx and Westernbank entered into a First Amendment to

the Loan Agreement (from March 31, 2005) by which Inyx’s voluntary repayment amount was

increased.

104. On April 15, 2005, Inyx issued two press releases. The first press release was

entitled, “Inyx Receives Exclusive Contract From Kos Pharmaceutical To Produce Azmacort

Inhaler.” The second press release, entitled, “Inyx Reports 2004 Year-End Results,” announced

Inyx’s financial results for the fourth quarter and year ended December 31, 2004, and issued

39

guidance for 2005. The press release stated, in part, the following:

For 2004, revenues totaled $15.7 million versus $13.1 million the prior year,which covered less than a full-year period of March 7, 2003 to December 31,2003. There was a net loss in 2004 of $16.9 million, or $.52 per share, comparedwith a net loss in 2003 of $13.4 million, or $0.59 a share.

For the 2004 fourth quarter, revenues were $4.2 million versus $5.0 million in the2003 period. The 2004 fourth-quarter net loss was $7.0 million, or $0.18 pershare, as opposed to a 2003 last period loss of $6.2 million, or $0.27 per share.

105. Defendant Kachkar, commenting on the results, stated, in part, the following:

Our revenues in 2004 were approximately $10 million less than originallyanticipated because of the delay in two contracts that were initially scheduled tostart last year but didn’t because the required government and regulatoryapprovals were not secured and not in Inyx’s control. One of the delayed contractsis now scheduled to start production in the fourth quarter of this year with fullramp-up in 2006. It is anticipated that the other delayed contract also willcommence later this year.

Furthermore, we have very significant contractual relationships commencing thissecond quarter with two new clients, which will have a materially positive impacton 2005 results.

One new relationship is with Kos Pharmaceuticals, Inc. (Nasdaq: KOSP), withwhich Inyx signed a 10-year agreement for Inyx to produce Kos’ Azmacort®Inhalation Aerosol product line. This contract is expected to generate about $10million in annual revenues to Inyx.

Based on Kos and a new contractual partnering relationship with another leadingspecialty pharmaceutical company with which we have agreement and expect toexecute before the end of this month, as well as the commencement and ramp-upthis year of several existing contracts, Inyx expects revenues in 2005 to total inexcess of $50 million and to record sound net earnings. These same contracts,plus the introduction of Inyx's own initial proprietary products, should ramp-uprevenues to over $75 million and net earnings to more than $7 million in 2006,based on current roll-out schedules. 3

106. The statements referenced above in the second April 15, 2005 press release

regarding the 2005 and 2006 guidance were materially false and misleading when issued because


3 All emphasis in italics and bold added, unless stated otherwise.

40

(a) that as early as April 2005 (and prior to May 2005), the Inyx Defendants

were beginning to engage in fraudulent conduct, involving the submission of duplicate,

inaccurate, altered, and/or fictitious invoices to Westernbank in order to fraudulently increase

accounts receivable for the purpose of inflating the Company’s financial position and operating

results. This information was not disclosed, yet was necessary and material for a proper

understanding and evaluation of the Company’s operating performance;

(b) that the Company was already violating GAAP and its own publicly stated

accounting policies by improperly recognizing revenue in the absence of a reasonable assurance

of collectability, and improperly accounting for accounts receivable, related accounts receivable

reserves, and bad debt expense; and

(c) that Inyx suffered from a serious lack of legitimate controls over its

financial reporting throughout the Class Period which rendered the Company’s financial

reporting inherently corrupt, subject to manipulation and unreliable, further making each of

statements that Inyx’s financial results materially false and misleading.

107. On April 15, 2005, Inyx filed its Form 10-K for the year ended December 31,

2004 with the SEC, which was signed by defendants Kachkar and Handley (the “2004 Form 10-

K”). The 2004 Form 10-K included Inyx’s financial statements for the year ended December 31,

2004, which were represented to have been presented in conformity with GAAP by the Inyx

Defendants and Berkovits. In addition, the 2004 10-K represented that:

The Company recognizes revenue when (1) persuasive evidence of anarrangement exists; (2) product delivery has occurred or services rendered; (3)the fee is fixed or determinable; and (4) collectability is reasonably assured^Revenues are recognized FOB (freight-on-board) shipping point, when productsare shipped, which is when legal title and risk of loss is transferred to theCompany’s customers, and is recorded at the net invoiced value of goods suppliedto customers after deduction of sales discounts and sales and value added tax,where applicable. In situations where the Company receives payment in advance

41

of the performance of research and development services, such amounts aredeferred and recognized as revenue as the related services are performed.

Non-refundable fees are recognized as revenue over the term of the arrangement,based on the percentage of costs incurred to date, estimated costs to complete andtotal expected contract revenue. Product returns are not accepted.

* * *

Accounts receivable are stated at realizable value, net of an allowance fordoubtful accounts. Periodically, management reviews all accounts receivable andbased on an assessment of whether they are collectible, estimates the portion, ifany, of the balance that will not be collected in order to establish an allowance fordoubtful accounts. Such allowance was based on the specific identification ofaccounts deemed uncollectible as of each period end. The provision for theallowance for doubtful accounts is included in general and administrativeexpenses in the accompanying consolidated statements of operations.

* * *

The consolidated financial statements are prepared in conformity withaccounting principles generally accepted in the United States of America. Thepreparation of consolidated financial statements, in conformity with generallyaccepted accounting principles, requires management to make estimates andassumptions. Those estimates and assumptions affect the reported amounts ofassets and liabilities, the disclosure of contingent assets and liabilities at the dateof the financial statements, and the reported amounts of revenues and expensesduring the reporting period. The more significant estimates are those used bymanagement to measure the recoverability of intangible assets, the value of itsdeferred tax asset, the allowances for doubtful accounts and inventory reserves.Actual results could differ from those estimates.

108. As to the internal controls, the 2004 Form 10-K stated, in part, the following:

Within the 90-day period prior to the date of this report, we carried out anevaluation, under the supervision and with the participation of our management,including the Chief Executive Officer and acting Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures pursuant to Rule 13a-14 of the Exchange Act. Based upon thatevaluation, the Chief Executive Officer and acting Chief Financial Officerconcluded that our disclosure controls and procedures are effective in timelyalerting them to material information relating to the Company (including itconsolidated subsidiaries) required to be included in our Exchange Act filings.

109. The statements referenced above in the April 15, 2005 Form 10-K were each

42

materially false and misleading when issued because they misrepresented and failed to disclose

the following material adverse facts:

(a) that the Company was violating GAAP and its own publicly stated

accounting policies by improperly recognizing revenue in the absence of a reasonable assurance

of collectability, and improperly accounting for accounts receivable, related accounts receivable

reserves, and bad debt expense; and

(b) that Inyx suffered from a serious lack of legitimate controls over its




110. On May 11, 2005, Inyx and Westernbank entered into a Second Amendment to

the Loan and Security Agreement (from March 31, 2005) by which Inyx was granted permission

to use part of Westernbank’s loan to fund operations of a related entity, Inyx Pharma.

111. On May 23, 2005, Inyx issued a press release, entitled “Inyx Reports 2005 First-

Quarter Results,” announcing its financial results for the first quarter of 2005, the period ended

March 31, 2005. For the quarter, revenues were $2.7 million versus $4.5 million for the year-

ago period. Defendant Kachkar commented on the results, reaffirmed the Company’s 2005

guidance, and stated, in part, the following:

Our operating results in this year’s first quarter were impacted by revenuesdeferred until the second half of 2005 and one-time refinancing costs related toour recent Puerto Rico acquisition.

In addition, there were delays in two client contracts that were originally expectedto start earlier but didn’t because the required regulatory approvals and otherclient issues were not resolved on schedule. These delayed contracts are nowscheduled to start production in the third and fourth quarters of 2005, which weexpect will add approximately $4 million to revenues in the second half of thisyear. Moreover, as a result of our recent acquisition of assets and business ofAventis Pharmaceuticals from Sanofi-Aventis Group (NYSE: SNY), we have

43

gained significant contractual relationships with two new clients that will have amaterially positive impact on 2005 results.

Based on these new business relationships, as well as the commencement andramp-up this year of several existing contracts, Inyx reaffirms the financialguidance given last month.

112. On May 23, 2005, Inyx filed its March 31, 2005 Form 10-Q with the SEC,

certified by defendant Kachkar, which repeated Inyx’s previously announced financial results for

the quarter. The Form 10-Q included Inyx’s financial statements for the quarter ended March

31, 2005, which were represented to have been presented in conformity with GAAP, and stated,

in part, as follows:

The accompanying consolidated financial statements for the three months endedMarch 31, 2005 and 2004 are unaudited but, in the opinion of management,include all necessary adjustments (consisting of normal, recurring in nature) for afair presentation of the financial position, results of operations and cash flow forthe interim periods presented.

113. As to Inyx’s internal controls, the Form 10-Q stated, in part, the following:

Within the 90-day period prior to the date of this report, we carried out anevaluation, under the supervision and with the participation of our management,including the Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the“Exchange Act”). Based upon that evaluation, the Chief Executive officer andChief Financial Officer concluded that our disclosure controls and proceduresare effective in timely alerting them to material information relating to theCompany required to be included in our Exchange Act filings. The two ExecutiveOfficers responsible for the financial reporting and disclosure are in direct controlof the books and records of the Company and are involved first-hand in thedecision making process for material transactions.

114. The statements referenced above in the May 23, 2005 press release and the March

31, 2005 Form 10-Q were each materially false and misleading when issued because they

misrepresented and failed to disclose the following material adverse facts:

(a) that even prior to the signing of the Loan Agreement, upon learning the

terms of the Loan Agreement, the Inyx Defendants began planning the fraudulent conduct

44

alleged above to access additional funds from Westernbank;

(b) that as early as April 2005 (and prior to May 2005), the Inyx Defendants

already began to engage in a scheme and course of conduct involving the submission of

duplicate, inaccurate, altered, and/or fictitious invoices to Westernbank in order to fraudulently

increase accounts receivable for the purpose of inflating Inyx’s financial position and operating

results, and, therefore, the Company’s resulting increases in revenues and accounts receivable (in

2005 and 2006) would be due to the creation of these false and fraudulent invoices. This

information was not disclosed, yet was necessary for a proper understanding and evaluation of

the Company’s operating performance;

(c) that the Company was violating GAAP and its own publicly stated

accounting policies by fraudulently representing the Company’s ability to collect cash thereby.

The Inyx Defendants were improperly recognizing revenue in the absence of product delivery,

the satisfaction of its contractual obligations, and reasonable assurance of collectability; and





115. On August 19, 2005, Inyx issued a press release, entitled “Inyx Reports Sharp

Increase in Second-Quarter Results,” announcing its financial results for the second quarter of

2005, the period ending July 31, 2005. For the quarter, the Company reported revenues of $8.5

million. Defendant Kachkar commented on the results, reaffirmed the Company’s 2005 financial

guidance, and stated, in part, the following:

The strong increase in second-quarter revenues is due to increased businessfrom our Puerto Rico acquisition on March 31, 2005. We also had higher

45

operating expenses and financing costs as a result of the acquisition. Contributingto the increased loss in this year’s first half was a reduction in our core revenuesduring the period due to regulatory delays experienced by two customers and avendor qualification delay on a third customer at our United Kingdom site. Thesedelays, which have since been resolved, have resulted in approximately $8.0million in committed contract revenues being deferred from the first half to thesecond half of 2005.

Based on new business relationships that we have been cultivating, as well asthe commencement and ramp-up of several existing contracts in this secondhalf, Inyx reaffirms the 2005 financial guidance given earlier in the year.

116. On August 19, 2005, Inyx filed its June 30, 2005 Form 10-Q with the SEC, which

repeated Inyx’s previously announced financial results for the quarter. The Form 10-Q was

certified by defendant Kachkar. The Form 10-Q included Inyx’s financial statements for the

quarter ended June 30, 2005, which were represented to have been presented in conformity with

GAAP, and stated, in part, the following:

The accompanying consolidated financial statements for the three and six monthsended June 30, 2005 and 2004 are unaudited but, in the opinion of management,include all necessary adjustments (consisting of normal, recurring in nature) for afair presentation of the financial position, results of operations and cash flow forthe interim periods presented.

117. In terms of internal controls, the Form 10-Q stated, in part, the following:

Within the 90-day period prior to the date of this report, we carried out anevaluation, under the supervision and with the participation of our management,including the Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the“Exchange Act”). Based upon that evaluation, the Chief Executive Officer[Kachkarl and Chief Financial Officer [John Hamerski: concluded that ourdisclosure controls and procedures are effective in timely alerting managementto material information relating to the Company required to be included in ourExchange Act filings. The two Executive Officers responsible for the financialreporting and disclosure are in direct control of the books and records of theCompany and are involved first-hand in the decision making process for materialtransactions.

118. The statements referenced above in the August 19, 2005 press release and the

46

June 30, 2005 Form 10-Q were each materially false and misleading when issued because they


(a) that the Company’s resulting increases in revenues and accounts

receivable were due to the creation of fictitious and fraudulent invoices, that were used to receive

additional funding under Westernbank’s revolving lines of credit. This information was not

disclosed, yet necessary for a proper understanding and evaluation of the Company’s operating

performance;

(b) that the Company was violating GAAP and its own publicly stated


The Inyx Defendants improperly recognized revenue in the absence of product delivery, the

satisfaction of its contractual obligations, and reasonable assurance of collectability; and





119. On August 26, 2005, Inyx issued a press release entitled “Inyx Announces

Strategic U.K. Acquisition of Celltech Manufacturing Services Limited From UCB,” announcing

that it and UCB, a Belgian pharmaceutical company, signed a definitive agreement whereby Inyx

would acquire from UCB all the outstanding shares of Celltech Manufacturing Services Limited

(CMSL), a UCB subsidiary based in Ashton, England. The purchase price was 27.5 million

Euros and would be financed through an asset-based funding facility. Another Loan and

Security Agreement, dated August 30, 2005, was signed with Westernbank to finance the

acquisition. The press release stated that the acquisition, expected to close on August 31, 2006,

47

would add “in excess of $50 million with high profit margins to Inyx over the first 12 months,

which are expected to build in the future.”

120. Defendant Kachkar commented on the acquisition, and stated, in part, the

following:

This strategic acquisition will make a material contribution to Inyx’s revenue baseand profitability immediately and going forward. Moreover, CMSL greatlyenhances Inyx’s operations and capabilities in Europe, augmenting our existingbase in the U.K., and complements our recently established operating base in theUnited States.

CMSL provides Inyx with both a base of new customers and new developmentand production capabilities, which include expertise in dry powder inhalers thatcomplements Inyx’s expertise in metered dose inhalers and aerosol sprays, givingInyx a comprehensive inhalation/therapy platform.

121. The statements referenced above in the August 26, 2005 press release were each



(a) that Inyx Defendants were engaged in a scheme involving the submission

of duplicate, inaccurate, altered, and/or fictitious invoices to Westernbank in order to

fraudulently increase their accounts receivable so that Westernbank would make additional

funding available to Inyx under the Loan Agreements’ revolving lines of credit;

(b) that the Company’s resulting increases in revenues and accounts

receivable would be due to improper creation of the false and fraudulent invoices, for the

purpose of inflating Inyx’s financial position and operating results. This information was

necessary for a proper understanding and evaluation of the Company’s operating performance;




48






122. Inyx issued another press release on August 31, 2005, entitled “Inyx Completes

Strategic U.K. Acquisition of Celltech Manufacturing Services Limited From UCB,” announcing

the completing of the acquisition.

123. On September 13, 2005, Inyx issued a press release, entitled “Inyx Updates

Financial Guidance For 2005 and 2006,” increasing its revenue and earnings guidance for 2005

and 2006. The press release stated, in part, the following:

Inyx now expects 2005 revenues to well exceed $50 million, up from earlierguidance of approximately $50 million. The company now expects to haveearnings before interest and taxes approaching $3 million for full year 2005. Inyxexpects to have a net loss in the range of $7 million for 2005, primarily because ofincreased interest expenses and one-time costs related to both the U.K. acquisitionand a U.S. acquisition this past March. In 2004, Inyx had revenues of $15.7million and a $16.9 million net loss.

124. Commenting on the guidance, defendant Kachkar stated, in part, the following:

As a result of our company’s strategic United Kingdom acquisition of the Celltechmanufacturing operation two weeks ago and our strategic alliance with KingPharmaceuticals announced last week, Inyx’s industry positioning has changedand been enhanced significantly. Inyx’s mid-term financial outlook also has beenincreased materially.

Inyx now expects consolidated revenues in 2006 to exceed $125 million withearnings before interest and taxes approaching 20% and net after-tax earnings ofbetter than 10%. Previously, the company’s guidance expected 2006 revenues tobe in the range of $75 million with net earnings of about $7 million.

* * *

Because our new U.K. acquisition will only contribute four months of earnings

49

and revenues to Inyx in 2005, and because our strategic alliance with KingPharmaceuticals will not start to make a material contribution to Inyx’s operatingresults until 2006, our increased interest expenses will not be offset until nextyear. We will also benefit from the expected introduction of Inyx’s first twoproprietary products in 2006.

125. The statements referenced above in the September 13, 2005 press release were

each materially false and misleading when issued because they misrepresented and failed to

disclose the following material adverse facts:


receivable were due to the creation of the fictitious and fraudulent invoices, for the purpose of

inflating Inyx’s financial position and operating results. This information was not disclosed, yet










126. On November 21, 2005, Inyx issued a press release entitled “Inyx Announces

Third-Quarter Revenues Tripled,” announcing its financial results for the third quarter of 2005,

the period ended September 30, 2005. For the quarter the Company reported revenue of $12.9

million. Defendant Kachkar commented on the results, reaffirmed the 2005 revenue guidance of

$50 million, increased the Company’s 2006 revenue outlook to $135 million, and stated, in part,

50

the following:

The strong increase in third-quarter revenues is due largely to our two acquisitionsthis year. These acquisitions have contributed significantly to our revenues,diversified and grown our client base, expanded our development andmanufacturing capabilities, and enlarged our overall scope of business.

Even though our two United Kingdom-based operations are presently impacted bya lower currency exchange, as the U.S. Dollar has been stronger against the GreatBritain Pound in the second half, we still expect revenues for 2005 to total around$50 million and to achieve profitability at the plant operating level by year-end.

Moreover, because of increasing business at our new Puerto Rico site as well asour greatly expanded U.K. base, plus our new strategic collaboration with KingPharmaceuticals, Inc.(NYSE:KG), our outlook for 2006 has increased.

127. On November 23, 2005, Inyx filed its September 30, 2005 Form 10-Q with the

SEC, signed by defendant Goldschmidt and certified by defendants Kachkar and Goldschmidt,

which repeated Inyx’s previously announced financial results for the quarter. The Form 10-Q

included Inyx’s financial statements for the quarter ended September 30, 2005 which were

represented to have been presented in conformity with GAAP, stated, in part, the following:

The accompanying consolidated financial statements for the nine and threemonths ended September 30, 2005 and 2004 are unaudited but, in the opinion ofmanagement, include all necessary adjustments (consisting of normal, recurring innature) for a fair presentation of the financial position, results of operations andcash flow for the interim periods presented. Interim results are not necessarilyindicative of results for a full year.

128. The Form 10-Q also discussed internal controls, and stated, in part, the following:

Based on information presented to them by our management team, the twoExecutive Officers responsible for the financial reporting and disclosure areinvolved in the decision making process for our Company’s material transactions.Within the 90-day period prior to the date of this report, we carried out anevaluation, under the supervision and with the participation of our managementand independent board members of the effectiveness of the design and operationof our disclosure controls and procedures pursuant to Rule 13a-14 of theSecurities Exchange Act of 1934 (the “Exchange Act”). Based upon thatevaluation, we have concluded that our disclosure controls and procedures areeffective in timely alerting management to material information relating to ourCompany required to be included in our Exchange Act filings.

51

129. The statements referenced above in the November 21, 2005 press release and the

September 30, 2005 Form 10-Q were each materially false and misleading when issued because



receivable were due to the improper creation of fictitious and fraudulent invoices, for the purpose

of inflating Inyx’s financial position and operating results. This information was not disclosed,

yet necessary for a proper understanding and evaluation of the Company’s operating

performance;









130. On March 31, 2006, Inyx filed its Form 10-K for the year ended December 31,

2005 with the SEC, which was signed by defendants Kachkar, Handley, and Goldschmidt, and

certified by defendants Kachkar and Goldschmidt (the “2005 Form 10-K”). The 2005 Form 10-

K included Inyx’s financial statements for the year ended December 31, 2005, which were

represented to have been presented in conformity with GAAP by the Inyx Defendants and

Berkovits. In addition, the 2005 10-K represented that:

The Company recognizes revenue when (1) persuasive evidence of an

52

arrangement exists; (2) product delivery has occurred or services have beenrendered; (3) the fee is fixed or determinable; and (4) collectability isreasonably assured. Revenues are recognized FOB shipping point, when productsare shipped, which is when legal title and risk of loss is transferred to theCompany’s customers, and is recorded at the net invoiced value of goods suppliedto customers after deduction of sales discounts and sales and value added tax,where applicable. In situations where the Company receives payment in advanceof the performance of research and development services, such amounts aredeferred and recognized as revenue as the related services are performed.

* * *Non-refundable fees are recognized as revenue over the term of the arrangement,based on the percentage of costs incurred to date, estimated costs to complete andtotal expected contract revenue. Product returns are not accepted.

* * *

Accounts receivable are stated at realizable value, net of an allowance fordoubtful accounts. Periodically, management reviews all accounts receivable and,based on an assessment of whether they are collectible, estimates the portion, ifany, of the balance that will not be collected in order to establish an allowance fordoubtful accounts. Such allowance was based on the specific identification ofaccounts deemed uncollectible as of each period end. The provision for theallowance for doubtful accounts is included in general and administrativeexpenses in the accompanying consolidated statements of operations.

* * *

The consolidated financial statements are prepared in conformity withaccounting principles generally accepted in the United States of America. Thepreparation of consolidated financial statements, in conformity with generallyaccepted accounting principles, requires management to make estimates andassumptions. Those estimates and assumptions affect the reported amounts ofassets and liabilities, the disclosure of contingent assets and liabilities at the dateof the financial statements, and the reported amounts of revenues and expensesduring the reporting period. The more significant estimates are those used bymanagement to measure the recoverability of intangible assets, the allowances fordoubtful accounts and inventory reserves. Actual results could differ from thoseestimates.

131. The statements referenced above in the Form 10-K filed on March 31, 2006 were

each materially false and misleading when issued because they misrepresented and failed to

disclose the following material adverse facts:

53


receivable were due to the creation of the fictitious and fraudulent invoices, for the purpose of

inflating Inyx’s financial position and operating results. This information was not disclosed, yet










132. On April 3, 2006, Inyx issued a press release entitled “Inyx Reports Strong

Increase in Revenues and Pending Acquisition & New Strategic Collaboration,” announcing its

financial results for the fourth quarter of 2005, the period ended December 31, 2005. For the

quarter the Company reported revenue of $25.5 million. For the year, Inyx reported $49.6

million in revenue. The Company also increased the 2006 revenue guidance to $150 million and

increased the 2007 revenue outlook to $250 million. Defendant Kackar commented on the

results, and stated, in part, the following:

The strong increase in 2005 fourth-quarter and full-year revenues is due largely toadditional business as a result of two, strategic acquisitions made last year. Theincreased net loss in 2005 is due primarily to higher operating expenses createdby those acquisitions that won’t start to be offset until the second half of 2006, aswell as $3.0 million in one-time, non-recurring charges related to the acquisitionsand $3.9 million in non-cash charges.

In 2006, Inyx is making additional investments to both produce and manage

54

accelerating future growth. We are very excited about the future because, as aresult of Inyx’s niche drug delivery expertise and expanding relationships in thepharmaceutical industry, we expect to have a breakout year in 2007.

133. The statements referenced above in the April 3, 2006 press release were each




receivable were due to the improper creation of the fictitious and fraudulent invoices, for the

purpose of inflating Inyx’s financial position and operating results. This information was not

disclosed, yet necessary for a proper understanding and evaluation of the Company’s operating

performance;









134. On May 16, 2006, Inyx issued a press release entitled “David Zinn, CPA joins

Inyx as Vice President, Finance,” announcing that Zinn commenced employment on May 15,

2006.

135. On May 17, 2006, Inyx issued a press release entitled “Inyx Reports First-Quarter

Operating Results,” announcing its financial results for the first quarter of 2006, the period ended

55

March 31, 2006. For the quarter, revenues were $21.4 million versus $2.7 million for the year-

ago period. The Company also reaffirmed revenue guidance for 2006 and 2007 of $150 million

and $250 million, respectively. Defendant Kachkar commented on the results, and stated, in


The gross profit for the first quarter was $8.3 million, equal to a gross margin of39%. The improved gross profitability is the result of several factors, includingthe achievement of development milestones in the quarter on several newcustomer contracts related to high-margin, technical transfer work required priorto the commencement of commercial manufacturing. In addition, we commencedcommercial production on two material contracts in the quarter. This resulted inincreased utilization of capacity at our manufacturing facilities. Furthermore,Inyx’s new marketing arm, Exaeris, Inc., also commenced formal operations inthis year’s first quarter and, in turn, has started to contribute to our company’soverall gross margin.

As a result of the improved gross profitability, earnings before income taxes,deprecation and amortization in this year’s first quarter amounted toapproximately $1.6 million, which is the first time Inyx has achieved positiveEBITDA in our company’s three-year history.

136. Also on May 17, 2006, Inyx filed its March 31, 2006 Form 10-Q with the SEC,

which was signed by defendant Goldschmidt and certified by defendants Kachkar and

Goldschmidt. The March 31, 2006 Form 10-Q repeated Inyx’s previously announced financial

results for the quarter. The Form 10-Q included Inyx’s financial statements for the quarter ended

March 31, 2006, which were represented to have been presented in conformity with GAAP, and

stated, in part, the following:

The accompanying consolidated financial statements for the three months endedMarch 31, 2006 and 2005 are unaudited but, in the opinion of management,include all necessary adjustments (consisting of normal, recurring in nature) for afair presentation of the financial position, results of operations and cash flows forthe interim periods presented.

137. In regard to the internal controls, the Form 10-Q stated, in part, the following:

Within the 90-day period prior to the date of this report, we carried out anevaluation, under the supervision and with the participation of our management,

56

including the Chief Executive Officer and acting Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the“Exchange Act”). Based upon that evaluation, the Chief Executive officer andChief Financial Officer concluded that our disclosure controls and proceduresare effective in timely alerting them to material information relating to theCompany required to be included in our Exchange Act filings. The two ExecutiveOfficers responsible for the financial reporting and disclosure are in direct controlof the books and records of the Company and are involved first-hand in thedecision making process for material transactions.

138. The statements in the May 17, 2006 press release and the March 31, 2006 Form

10-Q were each materially false and misleading when issued because they misrepresented and

failed to disclose the following material adverse facts:


receivable were due to improperly accelerating development revenue and creating fictitious and

fraudulent invoices, for the purpose of inflating Inyx’s financial position and operating results.

This information was not disclosed, yet necessary for a proper understanding and evaluation of



accounting policies by creating false invoices and fraudulently representing the Company’s

ability to collect cash thereby. The Inyx Defendants were improperly recognizing revenue in the

absence of product delivery, the satisfaction of its contractual obligations, and reasonable

assurance of collectability; and




statements that Inyx’s financial results complied with GAAP materially false and misleading.

139. On August 7, 2006, Inyx issued a press release entitled “Inyx to Acquire 6 Eye-

57

Care Products from AMO,” announcing that it has signed a definitive agreement to acquire six

eye-care products from Advanced Medical Optics, Inc, with an expected closing date of August

31, 2006. Commenting on the acquisition, defendant Kachkar stated that “[o]ne of the other

benefits of this acquisition is that most of these products can also be produced in-house at Inyx,

which should further enhance their profit margins as well as increase capacity utilization and, in

turn, profitability of Inyx’s manufacturing business.”

140. On August 21, 2006, Inyx issued a press release entitled “Inyx Report Second-

Quarter Operating Results,” announcing its financial results for the second quarter of 2006, the

period ending June 30, 2006. Inyx also announced that revenues for 2006 were now expected to

total in the $140 million range, down from a previous target of $150 million. For the quarter, the

Company reported revenues of $20.1 million versus $8.5 million for the same quarter in 2005.

Defendant Kachkar commented on the results, and stated, in part, the following:

The gross profit in the second quarter was $7.6 million, equal to a gross margin of38%. The increased net loss was due mostly to the increased non-cash chargesand the cash expenses related to the pending acquisitions. We will incuradditional onetime, non-recurring expenses and related restructuring charges inthe third quarter, however, both acquisitions should be accretive to Inyx once theyare completed.

141. On August 21, 2006, Inyx also filed its June 30, 2006 Form 10-Q with the SEC,

certified by defendant Kachkar, which repeated Inyx’s previously announced financial results for

the quarter. The Form 10-Q included Inyx’s financial statements for the quarter ended June 30,

2006 which were represented to have been presented in conformity with GAAP, and stated, in


The accompanying unaudited consolidated financial statements of Inyx havebeen prepared in accordance with generally accepted accounting principles forinterim financial information and with the instructions for Form 10-Q andRule 10-01 of Regulation S ->^ They do not include all information and notesrequired by generally accepted accounting principles for complete financial

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statements and should be read together with the audited financial statements andnotes thereto included in our annual report on Form 10-K for the year endedDecember 31, 2005. The balance sheet data as of December 31, 2005 was derivedfrom audited financial statements but does not include all disclosures required bygenerally accepted accounting principles. Certain reclassifications have beenmade to conform to the 2006 presentation. The financial information furnishedreflects all adjustments, consisting only of normal recurring accruals, which are,in the opinion of management, necessary for a fair presentation of the financialposition, results of operations and cash flows for the quarterly periods presented.

142. In terms of internal controls, the Form 10-Q stated, in part, the following:

Within the 90-day period prior to the date of this report, we carried out anevaluation, under the supervision and with the participation of our management,including the Chief Executive Officer and acting Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the“Exchange Act”). Based upon that evaluation, the Chief Executive Officer andActing Chief Financial Officer concluded that our disclosure controls andprocedures are effective in timely alerting them to material information relatingto our Company required to be included in our Exchange Act filings. The twoExecutive Officers responsible for the financial reporting and disclosure are indirect control of the books and records of our Company and are involved first-hand in the decision making process for material transactions.

143. The statements referenced above in the August 21, 2006 press release and the

June 30, 2006 Form 10-Q were each materially false and misleading when issued because they



receivable were due to improperly accelerating development revenue and creating false and


This information was not disclosed, yet necessary and material for a proper understanding and

evaluation of the Company’s operating performance;


accounting policies by creating fictitious invoices and fraudulently representing the Company’s


59







144. On September 28, 2006, Inyx issued a press release entitled “ Inyx to Acquire

Pharmapac UK Ltd.,” announcing that it had entered an agreement to acquire Pharmapac UK

Ltd., for £9 million (approximately $17 million) in cash financed by debt “based on European

interest rates that are significantly lower than U.S. rates.” The acquisition expected to be

completed by November 14, 2006. In 2006, Pharmapac expected revenues to reach about £7.3

million with earnings before interest, taxes, depreciation and amortization (EBITDA) of

approximately £1.5 million. Inyx expected to grow Pharmapac’s 2007 revenues to around £10

million and EBITDA to near £2.3 million. Defendant Kachkar commented on the acquisition,

and stated, in part, the following:

This is another strategic acquisition for Inyx. Pharmapac is highly profitable and astrong cash generator, and it has a network of complementary distribution andpackaging customers. The addition of Pharmapac’s dedicated ‘state-of-the-art’packaging facility will enable Inyx to provide a dynamic secondary-packagingresource for a wide range of dosage forms needed to serve high-demandrespiratory, allergy, dermatology and topical product sectors. Pharmapacincreases Inyx’s capabilities to provide innovative packaging designs for newformulations and drug delivery systems being utilized today by our clients as wellas by Inyx.

We expect growth to be derived from the cross-selling of our respective clientbases. The combining of our two companies will make Inyx an even strongerpresence in the U.K., the second largest healthcare market in Europe. Moreover,Pharmapac’s secondary-packaging capabilities enhance Inyx’s abilities to servethe pan-European pharmaceutical industry.

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145. On November 24, 2006, the Company issued a press release entitled “Inyx

Reports Management-Led Group Has Approached Board About Going Private; Other Material

Developments Reported,” announcing that its Board of Directors had been approached by a

group comprised of Inyx senior management and others about taking Inyx private. The press

release stated, in part, the following:

.... a group comprised of Inyx senior management and strategic outside investorsthis week approached the company’s board of directors about taking the companyprivate. The Inyx board has formed a special committee comprised of threeindependent directors, which will evaluate any specific proposal. The committeewill retain an independent investment-banking firm to review the fairness of anyproposed offer made by the group. The group, which includes Jack Kachkar,M.D., Chairman & CEO of Inyx, and Steve Handley, President of Inyx, said thatit intends to make an offer that “it believes will be in the best interests of all Inyxshareholders.” Yesterday, Dr. Kachkar informed the special committee that hewill work to secure new debt financing for Inyx before the group tries to finalizefinancing for any going-private offer.

Inyx reported that the company this week informed Westernbank Puerto Rico itintended to pay off the loan amounts owed to Westernbank by December 31,2006; this debt now totals approximately $120 million and Dr. Kachkar haspledged a personal guarantee against a portion of that amount.

Inyx also reported revised guidance for 2006. The company now expects revenuesfor the year to total approximately $85 million, up from $49.6 million in 2005,with net losses for 2006, based on two pending acquisitions now not beingcompleted this year.

146. The statements referenced above in November 24, 2006 press release were each



(a) that the statements about finalizing arrangements with other sources of

funding either to buy out or significantly pay down Inyx’s debt to Westernbank were false. The

Inyx Defendants falsely assured Westernbank on numerous occasions that financing agreements

had been reached and were in the final stages of negotiation. However, these representations

were proven false after due diligence by Westernbank;

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(b) that the Company’s guidance was false and misleading because any

resulting increases in revenues and accounts receivable were due to improperly accelerating

development revenue and creating fictitious and fraudulent invoices, for the purpose of inflating

Inyx’s financial position and operating results. This information was not disclosed, yet










147. On December 4, 2006, Inyx issued a press release entitled “ Inyx Reports Third-

Quarter Operating Results,” announcing its financial results for the third quarter of 2006, the

period ended September 30, 2006. For the quarter, the Company reported revenue of $18.0

million, versus $12.9 million reported for the comparable quarter in 2005 million. The Company

also reaffirmed the 2006 revenue guidance of $85 million. The press release stated, in part, the

following:

The growth in revenues during the first nine months was not as strong as thecompany had expected because certain business has been delayed due toadditional regulatory documentation and testing procedures that several of itsclients have to complete before commercialization or transfer of their products toInyx’s sites can commence; this business is now expected to start up in the fourthquarter and early 2007. Moreover, two pending acquisitions, which the companyoriginally expected to complete in the 2006 second half, have been delayed.

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148. On December 4, 2006, Inyx also filed its September 30, 2006 Form 10-Q with the

SEC, certified by defendant Kachkar, which repeated Inyx’s previously announced financial

results for the quarter. The Form 10-Q included Inyx’s financial statements for the quarter ended

September 30, 2006, which were represented to have been in conformity with GAAP. In

addition, the Form 10-Q reported that as of September 30, 2006, Inyx was in violation of certain

covenants in connection with its Westernbank loan and security agreements, casting doubt on the

Company’s ability to continue as a “going concern.” The Form 10-Q stated, in part, the

following:

The accompanying consolidated financial statements have been prepared inconformity with accounting principles generally accepted in the United States ofAmerica, which contemplates continuation of the Company as a going concern.The Company has experienced recurring operating losses, and has an accumulateddeficit and negative working capital.

The Company has been financing operations primarily through (i) creditfacilities with its primary lender, Westernbank of Puerto Rico, a wholly-ownedsubsidiary of W Holding Company, Inc. ("Westernbank"); (ii) revenues frommulti -year and short- term contract manufacturing, product developmentcontracts and purchase orders; (iii) the sale of equity securities includingproceeds from option and warrant exercises; (iv) stockholder advances, loansandfinancial guarantees.

The Westernbank credit facilities, consisting of both short-term and long-termdebt, are due through 2008 and are automatically renewable on maturity in March2008, on a year-to-year basis, unless terminated by Westernbank or the Company.On November 21, 2006, the Company informed Westernbank that it intends topay off the loan amounts by December 31, 2006. As a result, on its September 30,2006 balance sheet, the Company has classified as current liabilities, the amountsdue under its credit facilities with the bank. As of November 21, 2006, theCompany owed Westernbank approximately $120.0 million.

As of September 30, 2006, the Company had approximately $119.4 million inloan obligations, including approximately $108.2 million relating to the creditfacilities with Westernbank, with the balance of the obligations, amounting toapproximately $11.2 million, relating to the balance due to UCB PharmaLimited ("UCB Pharma") as a result of the purchase of the Ashton businessfrom UCB. The Company's annual debt service requirements are approximately$14.4 million (which includes approximately $4.9 million of interest). Such debt

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is collateralized by all the existing and future assets of the Company and itssubsidiaries.

As of September 30, 2006, the Company was in violation of certain financialcovenants in connection with its Westernbank loan and security agreements. Asit has previously done when requested so by the Company, Westernbank haswaived, through December 15, 2006, certain requirements such that theCompany's noncompliance with its covenants under such agreements has notresulted in an event of default by the Company. There can be no assurances theCompany will meet such covenants in the future or that Westernbank willcontinue to grant such waivers.

149. In addition, the notes to the consolidated financial statements included in the

Form 10-Q represented the following concerning the Company’s revenue recognition policies

and practices:

Revenue Recognition

The Company recognizes revenue in accordance with the SEC's StaffAccounting Bulletin Topic 13, "Revenue Recognition". Revenue is recognizedwhen all of the following criteria are met. (1) persuasive evidence of anarrangement exists; (2) delivery has occurred or services have been rendered;(3) the seller's price to the buyer is fixed and determinable; and (4) collection isreasonably assured. Revenue is recognized when products are shipped and arerecorded at the invoiced value of goods supplied to customers net of discounts,sales tax and value-added tax. Development revenue in the form of products andservices is recognized using the proportional-performance model, wherebyrevenue is recognized as performance occurs based on the relative value of theperformance that has occurred to that point in time. The Company fulfillsobligations for development revenue over a period of time as its customersreceive value throughout the performance period.

The Company allocates revenue to separate elements in multiple elementarrangements based on the guidance in Emerging Issues Task Force No. 00-21(“EITF 00-21”), "Accounting for Revenue Arrangements with MultipleDeliverables. " Revenue is allocated to a delivered product or service when all ofthe following criteria are met. (1) the delivered item has value to the customeron a stand alone basis; (2) there is objective and reliable evidence of the fairvalue of the undelivered item; and (3) if the arrangement includes a generalright of return relative to the delivered item, delivery, or performance of theundelivered item is considered probable and substantially in our control. TheCompany uses the relative fair values of the separate deliverables to allocaterevenue.

The Company obtains detailed credit evaluations of customers and establishes

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credit limits as required, generally without requiring collateral. Exposure to losseson receivables is principally dependent on each customer’s financial condition.The Company monitors its exposure for credit risk losses and maintains anallowance for anticipated losses.

Multiple Deliverables

The Company has revenue arrangements whereby it delivers to the customermultiple products and services. Such arrangements have generally included somecombination of the following: product commercialization services; licensed rightsto technology, patented products, compounds, data and other intellectual property;and development services. In accordance with EITF 00-21, the Company analyzesour multiple element arrangements to determine whether the elements can beseparated. The Company performs its analysis at the inception of the arrangementand as each product or service is delivered. If a product or service is not separablewhen it is delivered, no revenue is allocated. When a delivered product or service(or group of delivered products or services) meets the criteria in EITF 00-21, theCompany allocates revenue. The Company determines the fair value of a separatedeliverable using the price it charges other customers when it sells that product orservice separately; however, if the Company does not sell the product or serviceseparately, it uses third-party evidence of fair value.

The Company considers licensed rights or technology to have stand-alone valueto its customers if the Company or others have sold such rights or technologyseparately or the Company’s customers can sell such rights or technologyseparately without the need for our continuing involvement.

License Arrangements

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

Non-refundable, up-front fees that are not contingent on any future performanceby the Company, and require no consequential continuing involvement on its part,are recognized as revenue when the license term commences and the licenseddata, technology and/or compound is delivered. Such deliverables may includephysical quantities of compounds, design of the compounds and structure-activityrelationships, the conceptual framework and mechanism of action, and rights tothe patents or patents pending for such compounds. The Company defersrecognition of non-refundable up-front fees if it has continuing performanceobligations without which the technology, right, product or service conveyed inconjunction with the non-refundable fee has no utility to the licensee that isseparate and independent of the Company’s performance under the other elementsof the arrangement. In addition, if the Company has continuing involvementthrough development services that are required because its know-how andexpertise related to the technology is proprietary to the Company, or can only be

65

performed by the Company, then such up-front fees are deferred and recognizedover the period of continuing involvement.

Development Services

Payments related to substantive, performance-based milestones in adevelopment arrangement are recognized as revenue upon the achievement ofthe milestones as specified in the underlying agreements when they representthe culmination of the earnings process. Revenue from development services isrecognized during the period in which the services are performed and is basedupon the number of fulltime-equivalent personnel working on the specificproject at the agreed-upon rate. Payments received in advance are recorded asdeferred revenue until the development services are performed, costs includinglabor, materials and overhead are incurred, or a milestone has been achieved.

150. As to the internal controls, the Form 10-Q stated, in part, the following:

Within the 90-day period prior to the date of this report, we carried out anevaluation, under the supervision and with the participation of our management,including the Chief Executive Officer and Principal Accounting Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the“Exchange Act”). Based upon that evaluation, Company's management,including the Chief Executive Officer and Principal Accounting Officer,concluded that our disclosure controls and procedures are effective in enablingthe Company to record, process, summarize and report information required to beincluded in the Company’s periodic Securities and Exchange Commission filingswithin the required time period.

151. The statements referenced above in the December 4, 2006 press release and the

September 30, 2006 Form 10-Q were each materially false and misleading when issued because


(a) that on or around May 2006, the Inyx Defendants submitted inflated

invoices and accounts receivable reports to Westernbank for invoices relating the UCB

Agreement. Pursuant to the Agreement, UCB owed Ashton a receivable per month based upon

the level of sales of specific products sold by Ashton to UCB. The UCB Agreement fixed the

annual amount for the year ending August 31, 2006 at £4.2 million. The accounts receivable

reports the Inyx Defendants submitted or caused to be submitted to Westernbank identified three

66

different invoices owed in May 2006 by UCB to Ashton pursuant to the UCB Agreement. The

total amount of these invoices the Inyx Defendants submitted to Westernbank for financing was

approximately £1.037 million. However, the actual amount owed under the UCB Agreement for

May 2006 was only £437,564.00;

(b) that by June 2006, the full amount for the year ending August 31, 2006

that UCB had to pay under the UCB Agreement (£4.2 million) had already been invoiced to

UCB. Therefore, Inyx was not entitled to any more receivables from UCB pursuant to the UCB

Agreement in July 2006, and Inyx’s internal accounts receivable reports do not record any such

invoices. Nevertheless, the Inyx Defendants caused an invoice for £658,000.00, represented to

be for payment due under the UCB Agreement, to be submitted to Westernbank in July 2006 for

the purpose of fraudulently obtaining additional funding under the Loan Agreements;

(c) that the Company’s resulting increases in revenues and accounts

receivable were due to improperly accelerating development revenue and creating false and

fraudulent invoices, for the purpose of inflating Inyx’s financial position and operating results,

which was necessary for a proper understanding and evaluation of the Company’s operating

performance. This information was not disclosed, yet necessary for a proper understanding and

evaluation of the Company’s operating performance;

(d) that the Company was violating GAAP and its own publicly stated





(e) that Inyx suffered from a serious lack of legitimate controls over its

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152. On January 25, 2007, Inyx issued a press release entitled “Inyx Reports Update on

Corporate Matters,” announcing that defendant Kachkar was “finalizing” financing to take the

Company private and would present an offer to Inyx’s Board in February. The press release

further stated that Inyx retained a “leading consulting firm” to examine recapitalization of the

Company’s debt and represented that its $120 million outstanding debt to Westernbank would be

repaid by March 31, 2007. Inyx also stated that financing for the acquisition of Pharmapac,

originally expected to close in November 2006, was now in place and would go forward in

February 2007. The press release stated, in part, the following:

The company said its senior management group, led by Inyx Chairman and CEOJack Kachkar, M.D., and Inyx President Steve Handley, interested in taking thecompany private is finalizing its financing, arranged through Dr. Kachkar andseveral strategic outside investors. Dr. Kachkar said the buyout group iscompleting its valuation of Inyx, which will take about three to four weeks tocomplete, and the group now intends to present “an attractive cash buyout offer”in February. The Inyx board of directors has a special committee comprised ofthree independent directors that will evaluate the fairness of any buyout-offermade.

Inyx also reported that financing has been arranged for Inyx’s pending acquisitionof Pharmapac UK Ltd., one of the leading contract pharmaceutical packagingproviders in the United Kingdom. The acquisition is now expected to becompleted also in February, following confirmation of Inyx’s integration plans forPharmapac. The purchase price is 9.0 million pounds Sterling cash at closing,with a non-refundable deposit of 750,000 pounds already paid, plus 1.5 millionpounds in cash to be held in escrow to pay out if certain milestones are met in2007 and 2008. In 2006, Pharmapac had revenues of about 7.3 million poundswith EBITDA of approximately 1.5 million pounds.

Inyx further reported that it is retaining a leading consulting firm to assist inrecapitalizing the company’s balance sheet and in other strategic initiatives.Related to the recapitalization, Inyx said it now intends to pay off the loanamounts owed Westernbank Puerto Rico by March 31, 2006; this debt totals

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approximately $120 million and Dr. Kachkar has pledged a personal guarantyagainst a portion of that amount.

153. The statements referenced above in the January 25, 2007 press release were each







were proven false after due diligence by Westernbank;














154. David Zinn, Inyx’s Vice President of Finance and Principal Accounting Officer

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joined the Company on May 15, 2006 to take over for defendant Goldschmidt who, although she

acted as the Company’s Chief Financial Officers during the Class period before Zinn arrived,

had very limited experience with SEC filings. According to Zinn, Berkovits characterized as

defendant Goldschmidt as incompetent. Prior to joining Inyx, Zinn served as Audit Partner at

the accounting firm of Infante and Company where he led the firm’s Securities and Exchange

Commission practice. Prior to that position, he served as Chief Financial Officer of Electrolytic

Technologies Corporation. His career in public accounting included auditing small and large

public companies. Zinn also previously held the positions of Manager at Arthur Andersen, LLP

and Senior at Price Waterhouse Coopers, LLP.

155. In the first several months of his employment, Zinn was not involved in the

preparation of the SEC filings. At that time, he concentrated solely on the Company’s

acquisitions. Therefore, although he took responsibility for signing off on the Form 10-Q for the

second quarter of 2006, he relied on defendants Green, Kachkar, Handley, and Goldschmidt’s

representations as to the accuracy of the financial statements and received approval from

Berkovits when signing off on the Form 10-Q.

156. The third quarter of 2006 was the period for which, for the first time, Zinn took

active responsibility for the preparation and the filing of the Form 10-Q. As he familiarized

himself with the Company’s internal financial documents, he became quickly concerned about

numerous accounting issues that made him question the Company’s accounting and financial

controls, and he immediately alerted Berkovits to his concerns about these issues. Most of

Zinn’s concerns related to pre-existing issues that Berkovits knew or should have known about,

including revenue recognition problems. Furthermore, according to Zinn, he learned that at least

as far back as 2005, Berkovits began complaining that defendant Goldschmidt was not providing

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it with sufficient or timely information, yet Berkovits took no action in response to this clear red

flag alerting it to inadequate internal controls. Further, Berkovits repeatedly complained that

defendant Goldschmidt was not competent, yet once again, it took no action to remedy the

situation and purported to rely upon defendant Goldschmidt notwithstanding Berkovit’s lack of

confidence in her abilities and her failure to provide timely or complete accurate financial or

accounting information when requested by Berkovits. Zinn confirmed that Berkovits also knew

that defendant Kachkar was aware of the situation and was not planning to take any action

regarding these clear accounting red flags.

157. As Zinn continued working on preparing the Form 10-Q for the third quarter of

2006, he became extremely concerned over certain open items for which he did not have enough

information and that should have been readily available. After several failed requests to

defendant Goldschmidt for information regarding Inyx’s general ledger, including missing

documentation to support $18 million dollars in entries, and the failure of the other Individual

Defendants to assist Zinn in his efforts to document the various accounting entries, Zinn was

forced to begin expressing his concerns about the Company’s internal controls to Joe Rotmil

(“Rotmil”), the Chairman of Inyx’s Audit Committee and, ultimately, to the Board of Directors.

Zinn stated that when he requested information internally, it was untimely and incomplete, and

this increased his suspicion that the Company did not have proper internal controls. Zinn

expressed that he was fighting a constant battle to get the information and was forced to take a

more aggressive approach. As his concerns grew over not receiving requested information and

as the time to sign off on the third quarter Form 10-Q neared, he sent an email to senior

management formally requesting the information.

158. The November 16, 2006 email was sent by Zinn to defendant Kachkar, with a

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copy to defendant Goldschmidt, defendant Green, Hunter and defendant Handley. In the email,

Zinn expressed concern over certain open items for which he was not given information, which

he needed in order to sign off on the upcoming 10-Q. The list included: (1) integrity of the

general ledger for the Company in Toronto office; (2) accounting of disbursements of wire

transfers; (3) pending site certification letter not yet signed; and (4) auditor’s open item list/letter

attached. Zinn was suspicious of the accuracy of the general ledger because it was inconsistent,

and he could not account for approximately $18 million in entries due to insufficient

documentation. Zinn was also concerned that wire transfers related to Zircon and the LYNX

investments were unusual and very suspicious because there were multiple wire transfers to

Zircon (some on the same day) for the same investment for weeks. Finally, Zinn was also

concerned that the subsidiaries would not certify their financial results. According to Zinn,

based on his conversations with Berkovits, Berkovits was aware of matters.

159. Also on November 16, 2006, Zinn insisted on a conference call to deal with the

open items in the email with Rotmil, and defendants Kachkar, Green, Handley and Goldschmidt.

He stated that he would not sign off on the third quarter Form 10-Q without it. The tone of the

conference call was heated, and Zinn was promised the information that he needed. Zinn

believes that the Inyx Defendants were worried that Zinn would not sign off on the Form 10-Q.

160. Between November 2006 and February 2007, both Berkovits and Zinn were

working on the year-end audit. As Zinn became more familiar with the Company’s financials,

he continued to find significant problems. He consistently alerted Berkovits to these problems,

and based on the nature of the issues and Berkovits’ reactions, Zinn believed that many of the

problems were already known or should have been known to Berkovits as the Company’s

auditor. Zinn believed these issues, upon inspection of the Company’s internal books and

72

records to which he was able to gain access, were relatively obvious and should have raised

significant concerns to any accountant that reviewed the Company’s books and records in

connection with an audit.

161. Following several months of complaints to Berkovits by Zinn regarding the

Company’s financial controls, the unavailability of supporting documentation, and the lack of

apparent finical or accounting controls, and with Inyx’s full-year 2006 audit needing to be

completed for the Company to file its 2006 Form 10-K, Zinn indicated he would not sign off

without resolving these apparent long-standing accounting and financial control issues. Thus,

Berkovits was left with no choice but to write to Joe Rotmil, the Audit Committee Chairman, on

February 19, 2007. The February 19 letter discussed pertinent, unresolved issues material to

completion of Inyx’s 2006 audit and its ability to file its Form 10-K by April 2, 2007 (“Open

Items”). The February letter, however, simply and belatedly reflected all the issues about which

Zinn had alerted Berkovits and the Audit Committee in the past, and most of the of the issues

involved deficiencies and other weaknesses in internal controls that pre-existed Zinn’s tenure

with the Company and were of significant magnitude and materiality, such that it was apparent to

Zinn from even a cursory review of the limited internal financial information provided to him by

the Individual Defendants, that Berkovits was or should have been aware of the deficiencies and

weaknesses in internal controls in the prior years in which Berkovits provided unqualified audit

opinions that were publicly disseminated as part of Inyx’s financial reports. Due to Zinn’s

pressing both Berkovits and Rotmil to take these issues up with the full board of directors of

Inyx, Berkovits knew or should have known that to have any ability to preserve the appearance

of independence and protect itself after Zinn would not stop pushing them to address the Open

Items and was going to Rotmil with the information, Berkovits needed to address these financial

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and accounting deficiencies and weaknesses with the Audit Committee. Zinn believed from

information he gathered through his tenure at Inyx that between 20% and 30% of Berkovits’ (and

as much as a third of Berkovits’ audit partner Lago’s) business involved work for Inyx. Thus,

Zinn believed that Berkovits’ independence may be suspect.

162. In the February 19, 2007 letter, Berkovits expressed concern about not having

enough documentation for its audit related to a $7.5 million investment in LYNX, a $1.5 million

investment in Zircon (which Berkovits believed was related to Lynx). Berkovits also addressed

concerns over a $1.4 million investment in Project Invar relating to equipment purchases in

2005, a year for which Berkovits signed off on the audit. Zinn was unable to confirm the

existence of such equipment. Berkovits also expressed concern about documentation related to a

$2.2 million dollar investment in property defendant Kachkar own personally and reimburse

Inyx in the future. Berkovits also was in need of documentation related to a deferral of a $2.3

million investment in a project called Tropon.

163. Further, after reviewing the revenue recognition policy Inyx had in place prior to

his tenure, Zinn rewrote the policy because the policy was inadequate. However, after

examining the rewritten policy, Zinn realized that the Company was not in compliance with it in

at least the first nine months of 2006, and that the financial statements related to that period

would most likely need to be restated. After bringing this to the attention of Berkovits, Berkovits

addressed the issued in the February 19 letter and stated that it needed evidentiary support related

to revenue recognition for deliverables because no amounts of revenue for deliverables were

taken in the fourth quarter. To Zinn’s knowledge, Berkovits never questioned the Company’s

revenue recognition policy until Zinn brought same to its attention.

164. Further, in the February 19 letter, Berkovits also questioned whether the accounts

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receivable from a project called MEDA were collectible (worth approximately $4.4 million).

Zinn believed and alerted Berkovits to the fact that they would not be collectible because the

work was supposed to be off-set against the purchase price of the Tropon acquisition that itself

was deferred. According to the Middup Affidavit, Inyx was also involved in an invoice scheme

related to a purported developmental project for MEDA that began around October 2005, and

continued until June 2006. The developmental invoices for MEDA, which covered technical

transfer fees associated with Ashton’s potential acquisition of a German pharmaceutical business

(which never materialized), totaled approximately £2.5 million.

165. In addition, in regard to the Open Items, Berkovits inquired into the procedures

taken to evaluate impairment of long-lived assets. Issues related to FIN #46 in connection with

an airplane also had to be addressed, issues related to inventory invoiced but not shipped, and

$4.4 million of VAT that had not been paid. Berkovits stated in the letter that it needed all

documentation by March 12, 2007. A copy of the letter was sent to defendants Kachkar,

Goldschmidt, Green, and Handley. Berkovits was becoming especially concerned about these

Open Items as Zinn kept bringing them to its attention, and Berkovits knew that it could no

longer ignore these matters or delay action and still preserve the pretext of being an independent

auditor.

166. On March 5, 2007, Zinn sent a seven-page memorandum to the audit committee

(Joe Rotmil and Douglas Brown) with a copy to the Board of Directors, including defendants

Kachkar and Handley. The memorandum provided a summary of the status of Open Items raised

in the February 19, 2007 letter regarding the 2006 audit.

167. Zircon was a separate legal entity that was to receive fund transfers to pay for

Inyx’s investment in the LINX project, which was a $7.5 million investment. Zinn stated that it

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was a significant investment of about 5 to 10 percent of the Company’s assets, which was a joint

venture investment for development of new products and technologies. However, Zinn did not

have sufficient confirmation for the year-end audit that the investment was ever consummated.

Furthermore, the wire transfers referenced above related to Zircon and LYNX were very

suspicious.

168. Project Invar was an investment in hydrofluoroalkane (“HFA”) equipment in

2005 and was on the balance sheet in 2005, the financial statements that Berkovits audited.

However, when Zinn went to England to look at the equipment, which was a $1.4 million

investment on the balance sheets, he could not figure out where the equipment was, and what he

did see did not satisfy him that it was worth $1.4 million. Therefore, although the equipment

was on the balance sheets since 2005, part of financial statements that were audited by Berkovits,

the investment was never questioned prior to Zinn bringing it to the attention of Berkovits in

2006.

169. Regarding the intended purchase by defendant Kachkar of an office building in

Florida, Zinn stated that the funds were being held in escrow while it is determined whether the

Company should continue with the acquisition. In terms of revenue recognition, Zinn stated that

management was still reviewing the new policy Zinn put in place beginning with the second

quarter of 2006 for proper implementation and compliance and to make sure revenue was

properly recognized in 2006. According to Zinn, final determination of whether revenue would

have to be restated would completed by the time of the filing of the 10-K. As to the MEDA

project, issues of collectability had not been yet resolved. For the HFA equipment, management

still needed to evaluate

170. On March 16, 2007, Inyx filed its Form 12b-25 with the SEC, notifying the

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commission that it was unable to complete the filing of its Form 10-K for the year ended

December 31, 2006. The Form 12b-25, signed by defendant Kachkar, provided for a 15-day

extension to file, and stated, in part, the following:

Management has been focused on a number of transactions that the Company iscurrently involved in and therefore needs additional time to assemble andcomplete all financial and audit related matters as of December 31, 2006.

171. On March 19, 2007, Inyx issued a press release entitled “Inyx Reports Update on

Corporate Matters,” announcing that the senior management group announced to the Board of

Directors that it is finalizing its offer to take the Company private. The press release stated, in


The company said its senior management group, led by Inyx Chairman and CEOJack Kachkar, M.D, has informed the board of directors of Inyx that it expects tofinalize over the next several days the financing to formally make its offer to takethe company private. As a result, the group expects to present its going-privateoffer by the end of this week to a special committee of the Inyx board of directors,comprised of three independent directors. The special committee, with assistanceof an independent investment banking firm, will evaluate the fairness of thegroup’s offer and make a recommendation to Inyx shareholders. When the specialcommittee receives the buyout offer, it will be announced publicly in a pressrelease.

Inyx also reported that Dr. Kachkar expects to finalize over the next several daysthe financing to enable the company to recapitalize its balance sheet and tocomplete other strategic initiatives. Related to the recapitalization, Inyx said itexpects to shortly pay off the loan amounts owed Westernbank Puerto Rico; thisdebt totals approximately $125 million, against a portion of which Dr. Kachkarhas issued a personal guaranty.

172. On March 26, 2007, after the market closed, Inyx issued a press release entitled

"13.01 Per Share All-Cash, Go-Private Offer for Inyx,” announcing that on Sunday, March 25,

2007, its Board received a $3.01 per share cash offer from defendant Kachkar and “a strategic

outside investor” to take the Company private. The press release stated, in part, the following:

The proposal, which has the support of Inyx President Steve Handley and thecompany’s other senior executives, is an all-cash offer priced at $3.01 per share.

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* * *The capital for this offer will be provided by a partnership being formed by anoutside investor and members of Inyx senior management and their familyholdings. Inyx reported that this partnership is also providing the funding forInyx to pay back the loans, totaling currently approximately $130 million, owedWesternbank Puerto Rico, and the liens held by the bank on Inyx assets will besimultaneously transferred to the partnership.

Additional financing from the partnership is also available to Inyx for certainother strategic business initiatives currently being pursued by the company.

173. Defendant Kachkar, commenting on the press release, stated, in part, the

following:

The $3.01 buyout price matches the all-time-high closing price for Inyx’scommon stock recorded on March 23, 2006. The $3.01 represents a 24% premiumover the $2.42 average closing price during the year period since then, a 31 %premium over the $2.30 average closing price for Inyx’s shares during this firstquarter of 2007 and 15% above the $2.61 closing price on Friday.

174. The statements referenced above in the March 19, 2007 and March 26, 2007 press

releases were each materially false and misleading when issued because they misrepresented and

failed to disclose the following material adverse facts:





were false;




This information was necessary for a proper understanding and evaluation of the Company’s

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operating performance;









175. On March 27, 2007, Inyx filed its Form 8-K with the SEC, stating that Company

had identified “internal control weaknesses” during its year-end audit of 2006 financial

statements and would be unable to complete the audit and file its Form 10-K with the SEC by

April 2, 2007. The Form 8-K, stated, in part, the following:

Management has not yet been able to properly collect and complete all theinformation required by its auditors in order to file its Form 10-K annual report ona timely basis. During the course of its audit process and its efforts to comply withSection 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), managementhas identified internal control weaknesses that it has to fully assess in theprocess of completing its audit under PCAOB standards. The Company hasinformed its independent audit committee and current independent auditors,Berkovits, Lago & Company LLP, that at this time, it is not in a position tocomplete its financial statements for the year ended December 31, 2006 andprovide the supporting documents requested by the independent auditors in timefor the Company to file its Form 10-K for such reporting period by April 2, 2007.

The Company has commenced an internal review to ascertain the full extent ofthe internal control weaknesses and whether management will be able to concludeas to the effect on the audit of the Company’s financial statements as of December31, 2006. At this time, the Company does not know if it will be required torestate its financial results for prior periods in 2006, and therefore anyestimated losses that may impact such previous periods reported on during 2006cannot be determined at this time. A restatement may result in lower revenues, agreater loss or an impairment of assets in 2006.

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In 2006, as an accelerated filer, the Company commenced a comprehensive effortto comply with Section 404. The Company’s Section 404 compliance effortsinclude documentation, evaluation, and the design and testing of the operatingeffectiveness of its internal control over financial reporting.

The Company continues to assess its findings and has not reached a conclusion asto whether there are likely to be any other internal control weaknesses to reportunder Section 404 for the year ending December 31, 2006. Since management hasnot completed its testing and evaluation of the Company’s internal control overfinancial reporting, and with respect to any control deficiencies identified to date,the Company's management may ultimately identify additional controldeficiencies. The Company will conclude its analyses and report its findings priorto filing its Annual Report on Form 10-K for the year ending December 31, 2006.

176. The statements referenced above in the Form 8-K were each materially false and

misleading when issued because they misrepresented and failed to disclose the following

material adverse facts:














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177. A meeting was held on March 29, 2007 with management and Inyx’s audit

committee to discuss the status of the Open Items. The meeting was attended by Joe Rotmil,

defendant Kachkar, defendant Handley, and Zinn. As a result of the meeting, the Inyx

Defendants agreed to provide the Audit Committee with certain documentation related to the

Open Items.

178. On April 6, 2007, Inyx filed an amended Form 8-K, stating that the Company

would restate its financial results for the first, second and third quarters of 2006. The Form 8-

K/A stated that the restatement arose from `previously issued financial statements with respect

to the Company's internal control over financial reporting, including, at a minimum, the

revenue recognition policy for development revenue earned during 2006." To date, the

Company’s investigation has not been completed and the restated financial statements have not

been filed with the SEC.

179. On April 10, 2007, a staff accountant from the SEC sent a letter addressed to Zinn

and asked that the April 6, 2007 Form 8-K/A be revised. The letter stated, in part, the following:

Please revise your Item 4.02 Form 8-K/A to expand the disclosure in your filingto provide more detailed information regarding the errors in your financialstatements resulting from the internal control weakness surrounding your revenuerecognition policy for development revenue earned during 2006. Specificallyaddress what the errors are, how they occurred and how the correction of theerrors will impact the restated financial statements. In addition, please discuss anyadditional errors identified during the ongoing review of the internal controlweaknesses.

180. On April 23, 2007, defendant Goldschmidt was removed as the authorized

signatory on any bank accounts of the corporation.

181. On April 27, 2007, the Company filed its Form 8-K/A, in which it reported that

on April 25, 2007, the Company received notification from the National Association of

Securities Dealers that it was delinquent with respect to filing its Annual Report on Form 10-K

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for 2006. The Company had until May 18, 2007 to clear the delinquency, but has not done so.

Accordingly, the securities of the Company are not eligible for quotation on the OTC Bulletin

Board. The Company’s common stock currently trades on the Pink Sheets under the symbol

“IYXI.”

182. Also, in the same April 27, 2007 Form 8-K/A, in response to SEC staff comments

regarding the adequacy of the Company’s description of the revenue misstatement giving rise to

the restatement included in Inyx’s April 6, 2007 Form 8-K, the Company provided additional

information to their previous statement, which stated, in part, the following:

The Company’s development revenue for products and services is recognizedusing the proportional-performance model that recognizes revenue asperformance occurs based on relative value of the products delivered or servicesrendered. With respect to one customer, development revenue was recognized in2006 before the customer received value for the related development servicesand management currently believes that it should not have recognized suchrevenue. This matter was identified through review and testing for management’sassessment of internal control over financial reporting and in consultation with theaudit committee and independent auditors as part of the year-end audit of theCompany’s 2006 financial results.

The Company currently expects revisions to its previously reported financialresults to reflect a reduction in revenue and an increase in net loss of aminimum of approximately $1.8 million, $347,000 and $1.9 million for the first,second and third quarters of 2006, respectively, or an aggregate increase in netloss of a minimum of approximately $4.0 million for the nine month periodended September 30, 2006.

The foregoing are estimates and subject to change until management completes itsreview of internal control over financial reporting and the audit of its financialstatements for the year ended December 31, 2006. The Company will complete itsanalyses and report its findings prior to filing its Annual Report on Form 10-K for2006.

Management has been in communication with the audit committee of the boardof directors and has discussed with its independent auditors the mattersdisclosed in the Initial Form 8-K and this Form 8 -KHA. However, the Companyhas not yet completed its analyses and, accordingly, the Company has notdetermined whether any additional restatements may be required.

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183. The statements referenced above in April 6, 2007 Form 8-K and the April 27,

2007 Form 8-K/A were each materially false and misleading when issued because they









The Company was improperly recognizing revenue in the absence of product delivery, the

satisfaction of its contractual obligations, and reasonable assurance of collectability; and





184. On May 10, 2007, a letter was sent by Berkovits to Joe Rotmil, with a copy to

defendants Kachkar, Green, Handley and Goldschmidt, stating that the Open Items in the

February 19, 2007 memorandum were not resolved except for the payment of the VAT tax and

the processing of the quit claim deed on the office building. Further, the letter stated that it was

communicated to them by Zinn that he did not have the documentation for the LINX investment

or the investment in the Zircon project. Berkovits also stated that it appears that Inyx will be

delisted because it will be unable to file Form 10-K by the May 18, 2007 deadline.

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185. On May 11, 2007, Inyx filed its Form 12b-25 with the SEC, notifying the

Commission that Inyx was unable to complete the filing of its Form 10-Q for the period ended

March 31, 2007. The Form 12b-25, stated, in part, the following:

The Company was unable to file its Quarterly Report on Form 10-Q for thequarter ended March 31, 2007 by the prescribed date of May 10, 2007 withoutunreasonable effort or expense because additional time was required in order forthe Company to assure that adequate internal controls were in place tocomplete its assessment of the results of operations for the quarter, and for theCompany's independent registered public accounting firm to complete itsreview of the results thereof. The Company intends to file its Quarterly Report onForm 10-Q for the quarter ended March 31, 2007 as soon as practicable.

186. On June 4, 2007, defendant Kachkar sent an email to Zinn, with a copy to

defendant Green and Handley, in which he stated, in part, the following:

Further to the email you sent to WB [Westernbank] this morning, I just got wordfrom them that you have been speaking to them. I am on the phone with Mikenow. Please don't communicate with them anymore until you and I discuss itfirst—we need to be consistent as to what we say and I am at a disadvantage asI am not privy to your conversations with them. We also need to be careful asto how we present things as we are at a critical stage in the negotiation processand I don't want to lose leverage ...

187. On June 5, 2007, Zinn sent an email to defendant Kachkar, with a copy to

defendants Green and Handley, in which he stated that he told Westernbank that the amount to

be collateralized is approximately $80 million; that in providing the bank with “AR Aging

reports I will not be relying on information provided by Rima” and that he has “made significant

progress on the customer cash collections reconciliation and it will be ready for presentation and

discussion purposes during the meetings we have planned with Westernbank in Miami.”

188. Then on July 2, 2007, after the market opened, news services carried a report that

Inyx USA and Exaeris, two of Inyx’s U.S. subsidiaries, had filed for Chapter 11 protection in the

U.S. Bankruptcy Court for the District of Delaware.

189. In response to this announcement, the price of Inyx common stock plummeted,

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falling from $2.44 per share on June 29, 2007 to a close of $0.35 per share on July 2, 2007, on

extremely heavy trading volume of more than 7.7 million shares, and continuing to drop to $0.31

per share on July 3, 2007, on a volume of more than 13.74 million shares.

Post-Class Period Disclosures

190. On July 3, 2007, Inyx, in an SEC filing on Form 8-K, confirmed that its primary

operating subsidiaries in the U.S. and U.K. had entered bankruptcy proceedings following

notification by the Company’s asset-based lender, Westernbank, that the Company was in default

on its $130 million debt to the bank. The Form 8-K stated, in part, the following:

On June 28, 2007, the Company’s three United Kingdom (U.K.) subsidiaries,Inyx Pharma Limited, Inyx Europe Limited and Ashton Pharmaceuticals Limited(the “UK Companies”) received a letter from the Company’s principal lender,Westernbank Puerto Rico (“Westernbank”), alleging that the UK Companies werein default under the loan and security agreements with Westernbank as a result offailing to comply with certain covenants under such agreements. Westernbankinformed the UK Companies that it was accelerating the loans and appointingan Administrator over the business of the UK Companies. As a result, a U.K.court- appointed Administrator has taken over control of the UK Companies.The Company does not admit that it is in default and is reviewing with U.K. legalcounsel its available options and remedies in this matter.

On June 29, 2007, the Company and its wholly-owned subsidiary Inyx USA, Ltd.(collectively, the “Inyx Parties”), together with the Company’s Chairman andChief Executive Officer, Dr. Jack Kachkar, and his wife, filed suit againstWesternbank in New York State Supreme Court, asserting various causes ofaction seeking no less than $500 million in compensatory damages, as well aspunitive damages. The complaint alleges, among other things, that Westernbankacted in bad faith and in a commercially unreasonable manner by blocking theflow of funds from the Inyx Parties’ customers to the Company, and preventingthe Inyx Parties from paying their debts. The complaint asserts causes of actionfor breach of contract and breach of the implied covenant of good faith and fairdealing, promissory estoppel, wrongful dishonor of checks, wrongful impairmentof collateral, tortious interference or impairment with prospective businessrelations, and third-party beneficiary of contract and of tortious interference withcontracts and prospective business relations.

On June 29, 2007, Westernbank issued a demandfor the immediate payment bythe Company and its U.K. and U.S. subsidiaries for all outstanding loans andall other obligations claimed under the loan documents with the Bank.

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On July 2, 2007, as an additional measure to protect the Company againstfurther potential damaging actions by Westernbank, the Company placed itsnon-UK subsidiaries, Inyx USA, Ltd. and Exaeris Inc, ("US Companies'% inChapter 11 bankruptcy protection filings made in the US Bankruptcy Court inthe District of Delaware, case numbers Ch-11 07-10888 and Ch-11 07-10887,respectively. Inyx, Inc., the Registrant, is not itself a party to such Chapter 11filings.

191. The Form 8-K also stated that Inyx Defendants Handley and Goldschmidt, as well

as several of Inyx’s directors, resigned from their positions with the Company:

Effective June 29, 2007, Rima Goldshmidt, Vice President - Treasurer andcorporate Secretary, resigned from her positions with the Company.

Effective June 30, 2007, Douglas Brown resigned as a director, chairman of theCompensation Committee and member of the Audit Committee.

Effective July 1, 2007, Peter Littmann and Roger Harrison resigned as directors ofthe Company, and Joseph Rotmil resigned as director, chairman of the AuditCommittee and member of the Compensation Committee. The Registrant believesthe resignations of Messrs. Brown, Harrison, Littman and Rotmil were occasionedby the controversy with the Company’s lender and the desire to avoid becominginvolved in the litigation that has been commenced by the Company.

Effective July 2, 2007, David Zinn resigned as the Company’s Vice President ofFinance and principal accounting officer.

Effective July 2, 2007, Steven Handley and Colin Hunter resigned as Directors ofthe Company. The Company believes that the resignations of Messrs. Handleyand Hunter were due to the possible conflict of interest they may face in servingon the Board while continuing to manage the UK Companies under the control ofthe Administrator.

192. On July 11, 2007, the Company filed its Form 8-K with the SEC, signed by

defendant Kachkar, which stated that Berkovits has resigned its position. The Form 8-K stated,

in part, the following:

On July 5, 2007, Registrant was informed by its certifying public accountants,Berkovits, Lago & Company, LLP, that such firm was resigning such positioneffective immediately. The Former Auditors’ audit report on the Company’sconsolidated financial statements for each of the past two fiscal years endedDecember 31, 2005, did not contain an adverse opinion or disclaimer of opinion,

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and was not qualified or modified as to uncertainty, audit scope or accountingprinciples. From January 1, 2004 until the date of this report, there have beenno disagreements between the Company and the former accountant on anymatter of accounting principles or practices, financial statement disclosure, orauditing scope or procedure, which disagreements, if not resolved to thesatisfaction of the former accountant, would have caused the formeraccountant to make reference to the subject matter of the disagreements inconnection with its report.

The Company has provided the Former Auditors with a copy of the disclosures inthe Current Report on Form 8-K prior to its filing with the Securities andExchange Commission (the “SEC”) and has requested that the Former Auditorsfurnish it with a letter addressed to the SEC stating whether the Former Auditorsagree with the above statements and if not, stating the respects in which it doesnot agree. A copy of such letter, dated July 10, 2007, is filed as Exhibit 16.1hereto.

193. The attached letter to the July 11, 2007 Form 8-K was signed by Berkovits and

stated the following: “We have read the statements made by Inyx, Inc. (copy attached), which

we understand will be filed with the Commission, pursuant to Item 4.01 of Form 8-K, as part

of the Company's Form 8-K report dated July 5, 2007. We agree with the statements

concerning out Firm in such Form 8 -K.”

194. On July 17, 2008, Inyx filed its Form 8-K with the SEC, signed by defendant

Kachkar, stating that the U.S. Bankruptcy Court for the District of Delaware issued an interim

order. The Form 8-K stated, in part, the following:

On July 11, 2007, the U.S. Bankruptcy Court for the District of Delaware in thecase filed by Registrant’s subsidiaries Exaeris Inc. and Inyx USA, Ltd., issued anInterim Order (I) To Authorize Secured Postpetition Financing; (II) To Grant aSuper-Priority Administrative Claim and Postpetition Liens; and (III) ToSchedule a Final Hearing. The order approves the Debtors to use the proceeds ofDebtor-in-Possession (DIP) Financing from Dr. Jack Kachkar in the amount of$2.1 million, of which $750,000 will be advanced on or before July 13, 2007 andthe balance on or before July 18, 2007. The order grants Dr. Kachkar a securityinterest in all of the Debtors’ unencumbered property not subject to valid,perfected security interests granted to other parties including Westernbank and asuper-priority administrative claim.

195. During a Delaware Bankruptcy Court hearing in July 2007, evidence was

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presented that Inyx forged sales invoices during the Class Period in order to overstate the value

of it accounts receivable pledged as collateral for the asset-based credit facilities. In particular,

Inyx engaged in a massive scheme involving “pre-billing,” a euphemism for false invoices

created by Inyx, and fraudulently represented in the Company’s financial statements as being

real, while in fact they were created before the items were billable and had not actually been

issued to customers. Based on evidence presented to the Court, it is estimated that Inyx

overstated its assets and revenues by more than $100 million during the Class Period. The

details of this conduct and the proceedings are described in this Complaint in the “Fraudulent

Conduct During The Class Period” section.

OTHER POST-CLASS PERIOD DEVELOPMENTS

196. On July 10, 2007, inpharmatechnologist.com published an article entitled

“Charting the Course of Inyx' Downfall.” The article detailed Inyx’s various financial problems

throughout the Class Period and discussed the “pre-billing” allegations also alleged in this

Complaint. The article stated, in part, the following:

In September that year [2006] the company was already in trouble. According to aSecurities & Exchange Commission (SEC) filing, it was “in violation of certainfinancial covenants pursuant to our Westernbank loan and security agreements.”These violations were not new, and the company was only not in default of thebank loan due to waivers continually granted by Westernbank.

"There can be no assurances the company will meet such covenants in the futureor that Westernbank will continue to grant such waivers @ chairman and CEO DrJack Kachkar said at the time.

In November, Inyx Inc. informed Westernbank that it intended to pay off thepayments it owed the bank by December 31. At this point the amount borrowedby Inyx Inc. totalled $120m.

In order to pay the debt, the company said it was "currently working to securenew financing, @ although how it intended to do so remains a mystery. All thecompany's debt was already collateralised by all the existing and future assets ofthe company and its subsidiaries. In addition, deferred financing costs, such as

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bank fees and legal costs were also mounting up, as were interest payments on theborrowings, which were due in cash.

Meanwhile, Westernbank was not the only organisation owed money by Inyx Inc.As of September 2006, the company still owed UCB $11.1m following thepurchase of Ashton Pharma, which it was also promising to settle by December31.

Financial details beyond December are hazy, because the company thenannounced that it would need to restate previously issued financial statementsfor the quarters ended March, June and September 2006, and it subsequentlydelayed indefinitely filing its annual report on Form 10-K with the SEC for thefiscal year ended December 2006. As a result, it became delisted and to thisdate, has not filed the annual report. It is known though that the Westernbankloan repayments were notpaid.

* * *Meanwhile, the company was already billing some customers in advance forproducts and services to be provided, which at the end of September 2006amounted to $5.9m. In addition, it had purchase obligations of $3.3m formanufacturer's components and inventory items.

However, at the time the company still insisted that it "continues to be in aposition to issue new equity or debt securities to assist funding its operations andgrowth plans."

Although it admitted that "there is currently no formal financing plan in place torepay the [already existing) Westernbank debt or provide additional funding tothe company, and there can be no assurances that either senior management orthe company will be successful in achieving its financing plans or that additionalfinancing will be obtained on acceptable terms or at all. "

"If funding requirements are not available, the company may have to delay,reduce in scope, or terminate business development activities, capital expenditureplans, proprietary product development, marketing and commercialisationinitiatives."

* * *As reported in Outsourcing-Pharma.com yesterday, on 6 July Westernbanklaunched a lawsuit in the Puerto Rico District Court in San Juan, against a raft ofsenior Inyx Inc. management. The nature of the lawsuit is for "RacketeerInfluenced and Corrupt Organizations," under section 18 of the 1964Racketeering (RICO) Act, according to the court filing. $240,000.00 in damagesare also being sought. [Emphasis in italics is in original].

197. On July 12, 2007, inpharmatechnologist.com published another article entitled

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"Dejd Vu? Inyx Tale Parallels The Past." The article detailed defendant Kachkar’s past

business dealings of now defunct companies, his past relationship with defendant Handley and

how he came to be an Officer and Director of Inyx. The article, stated, in part, the following:

Inyx Inc. chairman and CEO Dr Jack Kachkar used to majority/own and manageCanadian firm Miza Pharmaceuticals, Inc., which during his tenure created hadthree operating subsidiaries, Miza Pharmaceuticals (UK), Ltd., Miza Ireland Ltd.,and Miza Pharmaceuticals USA, Inc. All are now defunct.

Miza UK was incorporated in September 2000 as a wholly owned subsidiary ofMiza Pharma Inc. In May 2001, for $20m, Miza UK, acquired the development andmanufacturing business of UK firm CCL Pharmaceuticals, a division of Canadianfirm CCL Industries Inc., which also happened to be a part owner of Miza PharmaInc. at the time.

Dr Kachkar resigned as a director of Miza UK in August 2002 and the followingmonth, Miza UK’s lenders asked for an administrator to supervise the orderlyliquidation of the company's assets for purposes of paying outstanding liabilities.

It remained in administration until 7 March 2003, when most of the company'sinventory, fixed assets and operating leases were sold to a company called InyxPharmaceuticals for $8.36m.

Inyx Pharma had only been established a month before the sale, and wasactually set up by two former CCL and current Miza employees, Steven Handleyand Colin Hunter, who owned 8.75 per cent and 3.5 per cent respectively.

On March 3, days before the purchase of the Miza assets, Ontario Limited, aCanadian entity owned by Jordon Slatt, acquired 8.75 per cent of Inyx Pharma forservices and 65 per cent as trustee for the JEM Family trust, whose beneficiarieswere actually Dr. Kachkar and his family.

A few weeks later, the owner of a horseracing company called Doblique, sold it toMedira Investments, which was actually a private company wholly-owned by DrKachkar's wife, Viktoria Benkovitch. Days after, Dr. Kachkar was appointed asCEO and Director.

The following month (April), Doblique, now headed by Dr Kachkar, acquiredInyx Pharma (formerly Miza UK) and Doblique's name was changed to Inyx Inc.At this point, Dr Kachkar also became chairman of Inyx Pharma and appointedSteve Handley, who was already Director of Operations for Inyx Pharma, to theposition of President of Inyx Inc. At the end of April, Dr Kachkar was the soledirector and officer ofInyx Inc.

As we now know, Inyx Pharma has since suffered the same fate as Miza UK afterit was put into administration last month.

198. On July 20, 2007, an article was published entitled “W Holding Company Takes

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Excessive Hit on Inyx Banktuptcy.” The article detailed defendant Kachkar’s past dealings which

caused him to be barred from serving as a director of any public Irish Company and the

allegations of forgery and money laundering. The article stated, in part, the following:

Inyx got started when the wife of Armenian-Canadian businessman and InyxCEO Dr. Jack Kachkar acquired a public shell company with the intention ofrunning a horse breeding company. We are not sure what happened to the horses,but the shell soon purchased the assets of Miza Pharmaceuticals out of that firm’sbankruptcy. Miza was a pharmaceutical company that had been run by Kachkar inIreland. The Miza failure led an Irish court to bar Kachkar and an associate fromserving as a director of a public Irish company. Kachkar is appealing. SinceInyx does not file proxy statements, there is no disclosure about this detail in itsfilings.

* * *

Kachkar is a colorful character with numerous businesses interests. In addition tohis failed venture at Miza, which left creditors with losses of 23 million euros,he runs another publicly traded pharmaceutical shell company, KarverInternational. Earlier this year, he made a bid to acquire leading French soccerclub Olympique de Marseille for 115 million euros. French press quote himclaiming he owned castle Château Grimaldi not far from the club’s home town ofMarseille, a claim quickly refuted by that castle’s current owner. Apparently,Kachkar’s wife had toured the property, but it was not even for sale. Kachkar’sown bid for Olympique de Marseille has collapsed amid reports that Frenchanti-money laundering authorities have launched a probe into the origin ofKachkar's funds. In the meantime, the soccer club's owner has sued Kachkarfor the payment of an 8 million euro breakup fee, French Prosecutors haveopened an inquiry over alleged forgery of bank records, and a manager at aFlorida bank has signed an affidavit denying that the bank ever issued aguaranty for the 115 million euro purchase price.

Kachkar’s wife Viktoria Benkovitch, of the race horse breeding enterprise, is hisbusinesses partner in most ventures. If warrants and shares held by a Swisstrading company are counted, she owns more Inyx shares than Kachkar.However, disclosures of Inyx ownership remain murky, because it claims thatits directors are not required to file form 4 reports. Its 10-K lists only holdings ofcommon stock, but not warrants and stock options, of which plenty appear to beoutstanding. Nktoria Benkovitch is the ex-wife of Kachkar associate AlexandreBenkovitch, who has been investigated in connection with the disappearance ofIMF funds destined to prop up Russia's struggling economy in the mid-1990s.He has been linked to mafia kingpin Semion Mogilevich, but no charges werebrought against him.

199. The July 20, 2007 article further detailed Inyx’s financial problems and related

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party transactions. The article stated, in part, the following:

Inyx's largest financial problem appears to be outsized General andAdministrative Expenses - “overhead” in plain English. Selling expenses amountto a mere 6% of sales, but General and Administrative exoenses amount to almosthalf of sales. Despite gross margins of close to 30%, such inflated costs are recipefor disaster. The exact reason for the large costs are not known, but a closereading of the company’s filings gives some clues:

“[ ... ]Kachkar Air allowed Inyx to utilize such leased aircraft for the Company’scorporate travel requirements. [ ... ] For the year ended December 31, 2005, theCompany paid approximately $680,000 to Priester Aviation for the use, serviceand maintenance of the Kachkar Air private aircraft.”

“[ ... ] the Company paid $1.47 million to Aldo Union for pharmaceutical productdossiers. [ ... ] we are not absolutely certain whether these dossiers will have adefinitive benefit to future periods. Dr. Santiago Calzada, who owns 100,000shares in the Company as of December 31, 2005 is a principal of Aldo-Union.”

In total, such related -party transactions amount to over 8% of sales in 2005, thelast year for which numbers are available. Another 2-3% are spent on executivecompensation, excluding options. The U.K. And Puerto Rico operations appearto run near break-even and cashflow positive and cashflow neutral, respectively;the losses and drain on cash stem from the enormous overhead attributable to theU.S. parent.

200. The June 20, 2007 article also mentioned allegations by Inyx employees for non-

payment of suppliers. The article stated, in part, the following:

Employees of Inyx have been complaining in internet chat rooms about non-payment of suppliers, who in some cases had to go to court and get bailiffs inorder to get paid. This may well just be unverifiable internet chat room talk, but itfits into the big picture and leaves us with a strange feeling of deja vu. If theseallegations were true, then the large corporate overhead could be explained bytransfers of assets out of Inyx under the disguise of expenses, or simplycorporate waste. It also makes Inyx’s pre-bankruptcy announcement of a plan tostart a Dubai office look less like a just another bad management decision, andmore like yet another questionable one.

201. Finally, the June 20, 2007 article discussed the Chapter 11 bankruptcy

proceedings, which may also be part of defendant Kachkar’s fraudulent conduct. The article

stated, in part, the following:

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We are not quite clear why Kachkar let Inyx end up in chapter 11, even thoughhe had offered to take the firm private for $3Hshare. Maybe he thought he couldget an easy exit like in Miza's collapse, and then repurchase Inyx's assets onthe cheap out of bankruptcy with his Karver shell. The bankruptcy court hasalready allowed him to take a first step in that direction: he was allowed toprovide debtor-in-possession financing to Inyx and now has a priority claim toall of its assets, over the objection of Westernbank ... Many investors boughtInyx stock after Kachkar’s buyout proposal under the assumption that a buyoutstops detailed scrutiny of related-party transactions and is preferred by managersto chapter 11 filings. It is not clear what different logic Kachkar subscribes to.

202. On August 2, 2007, an article was published by in-pharmatechnologist.com

entitled “Latest Twists and Turns In Inyx Saga^” The article detailed some of the fraud

allegations that were brought to light during the bankruptcy proceedings. The article stated, in


Stipes [the president of Westernbank] has been very vocal in the local PuertoRican media on allegations of fraudulent activity perpetrated by Inyx’management.

“Here there are clear and incontrovertible acts of fraud”, he alleged in theinterview with El Vocero.

“The last visit to Inyx showed more than $40m in fraudulent invoices withoutverification and Inyx also diverted $14m to non-authorised accounts, from whichWesternbank could not recover the debt,” Stipes alleged.

203. The August 2, 2007 article also discussed a possible connection between Karver

International and Inyx. The article, stated, in part, the following:

Outsourcing-Pharma.com previously reported that amidst all the insolvency andother financial problems with Inyx Inc., there is another shell pharma company towatch, called Karver International, which is currently being operated by the twohead honchos in Inyx Inc., Dr. Kachkar and Jay Defendant Green.

Now it has been reported in a weblog by an undetermined blogger that the formerInyx Canada office in Toronto has now been renamed to Karver.

"The door sign got renamed instantly from Inyx Canada to Karver". anotherunidentified blogger wrote.

Reportedly Rima Goldshmidt, former vice president, treasurer and corporatesecretary of Inyx Inc.; Randa Kachkar (Dr. Kachkar’s sister); and Marc Couturier,

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former Vice President of Finance at Inyx Inc; are all now employed at thislocation. It was also said that Steve Handley, who was president and director ofInyx Inc. and director of operations at Inyx Pharma (which he had helped set up);and Colin Hunter, executive vice president of Inyx Pharma (which he had alsohelped set up); may soon be joining their former colleagues at the Canadianlocation.

The Inyx spokesperson denied this, stating that Inyx Canada used to lease officespace off a company called Karver Capital Canada, although this is no longer thecase because Inyx Canada is virtually defunct.

Commenting on the employees, the spokesperson said that Goldshmidt (whoresigned from Inyx Inc. following the initiation of the lawsuit) is now an"independent consultant" who does work for both Inyx and Karver in Canada, asis Randa Kachkar.

Courtier works for Inyx Inc. although he lives in Canada so sometimes worksfrom the office in Canada; Handley and Hunter (who resigned as directors of Inyxfollowing the lawsuit) are both still employed by Inyx Inc. and it is not plannedthat they will work in Canada, said the spokesperson.

In addition, the spokesperson also said that Karver Capital Canada is a privatelyowned company, with "no affiliation whatsoever" to Karver International, InyxInc. or Dr Kachkar. The spokesperson would not disclose the owner.

However, a 2006 SEC filing reveals that there very much appears to be an"affiliation" indeed. Jay Defendant Green, Inyx Inc.'s vice president, treasurer,corporate secretary and a director; and Dr Kachkar's spouse, Viktoria Benkovitch,are co/owners of Karver Capital Holdings, a private investment holding companyincorporated in the British Virgin Islands, of which Karver Capital Canada is asubsidiary.

"Karver Capital Holdings is not a stockholder of Inyx but is a stockholder ofKarver International... a publicly-held health services holding company', thefiling states.

"Dr Kachkar and Defendant Green are also stockholders, officers and directorsofKarver International".

The filing continues: "...certain Inyx employees located at the company's [Inyx 'Foffice in Toronto, Canada provide information technology and book-keepingservices to Karver International".

Furthermore it was announced on 3 July that Karver Capital Holdings, inconjunction with Karver Capital Canada had completed the acquisition of thesecurities of International Wayside Gold Mines, a Canadian gold and mineral

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mine. The private placement was initiated by Dr Kachkar and involved the overalladvance by Karver of approximately $4.85m (€3.3m). [Emphasis in italics is inoriginal]

204. On March 5, 2008, an article was published by Bloomberg entitled “Interstate

Bakeries, Scotia/Palco, Tricom: Bankruptcy (Update 1).” The article quoted the Chapter 11

Trustee as stating that defendant Kachkar and Inyx defrauded Westernbank. The article stated, in


Exaeris Inc. filed a disclosure statement on March 3 explaining the company’sliquidating Chapter 11 plan that proposes to sell the assets to controllingshareholder Jack Kachkar in exchange for the $2.1 million loan he made tofinance the reorganization.

Kachkar will forgive debts the company owes him in return for the assets. He willalso pay $275,000 cash and another $145,000 to cover costs of the reorganizationand priority claims that must be paid in full to exit Chapter 11.

The liquidating plan says unsecured creditors with $5.5 million in claims will splitup available cash. The disclosure statement doesn't say how much creditors canexpect to receive.

* * *

The Chapter 11 trustee appointed in August for affiliate Inyx USA Inc.concluded that the parent company and Kachkar undertook ''an extensive,coordinated effort" to ''systematically defraud" secured lender WesternbankPuerto Rico, which is owed $142.8 million. The bank said early in the case thatInyx obtained loans based on almost $74 million in ''false and fraudulent"invoices or invoices that were presented to the bank more than once.

INYX DEFENDANTS' FINANCIAL STATEMENTS DURING THE CLASS PERIODWERE MATERIALLY FALSE AND MISLEADING AND VIOLATED GAAP

205. At all relevant times, the material misrepresentations and omissions particularized

in this Complaint directly or proximately caused or were a substantial contributing cause of the

damages sustained by Plaintiff and other members of the Class. As described herein, during the

Class Period, the Inyx Defendants made or caused to be made a series of materially false or

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misleading statements.

206. At all relevant times during the Class Period, the Inyx Defendants represented that

Inyx’s financial statements when issued were prepared in conformity with GAAP, which are

recognized by the accounting profession and the SEC as the uniform rules, conventions and

procedures necessary to define accepted accounting practice at a particular time. However, in

order to artificially inflate the price of Inyx’s stock, the Inyx Defendants used improper

accounting practices in violation of GAAP and SEC reporting requirements to falsely inflate its

revenues, earnings, and stockholders’ equity during the Class Period.

207. Inyx’s materially false and misleading financial statements resulted from a series

of deliberate senior management decisions designed to conceal the truth regarding the

Company’s actual operating results. Specifically, the Inyx Defendants caused the Company to

violate GAAP by:

(a) improperly accelerating development revenues by approximately $4

million during the nine months ended September 30, 2006, thus providing a misleading

impression of the Company’s results of operations for the present period;

(b) improperly recording revenues of approximately $74 million as a result of

fraudulent invoicing; and

(c) improperly overstating accounts receivable and understating bad debt

expense, as a result of recognizing accelerated developing revenues and recording fraudulent

invoices.

208. GAAP are those principles recognized by the accounting profession as the

conventions, rules, and procedures necessary to define accepted accounting practices at a

particular time. As set forth in Financial Accounting Standards Board (“FASB”) Statements of

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Concepts (“Concepts Statement”) No. 1, one of the fundamental objectives of financial reporting

is that it provide accurate and reliable information concerning an entity’s financial performance

during the period being presented. Concepts Statement No. 1, ¶42, states:

Financial reporting should provide information about an enterprise’s financialperformance during a period. Investors and creditors often use information aboutthe past to help in assessing the prospects of an enterprise. Thus, althoughinvestment and credit decisions reflect investors’ and creditors’ expectationsabout future enterprise performance, those expectations are commonly based atleast partly on evaluations of past enterprise performance.

209. As set forth in SEC Rule 4-01(a) of SEC Regulation S-X, “[f]inancial statements

filed with the [SEC] which are not prepared in accordance with [GAAP] will be presumed to be

misleading or inaccurate.” 17 C.F.R. § 210.4-01(a)(1). Management is responsible for preparing

financial statements that conform with GAAP. As noted by the AICPA professional standards:

financial statements are management’s responsibility . . . . [M]anagement isresponsible for adopting sound accounting policies and for establishing andmaintaining internal control that will, among other things, record, process,summarize, and report transactions (as well as events and conditions) consistentwith management’s assertions embodied in the financial statements. The entity’stransactions and the related assets, liabilities and equity are within the directknowledge and control of management . . . . Thus, the fair presentation offinancial statements in conformity with Generally Accepted AccountingPrinciples is an implicit and integral part of management’s responsibility.

The Inyx Defendants Materially And Fraudulently Recognized Revenues

210. During the Class period, the Inyx Defendants materially inflated the Company’s

reported revenues, accounts receivable, earnings and earnings per share by improperly

accelerating revenue in a myriad of ways. In order for revenue to be recognized, it must be

earned and realized or realizable. Concepts Statement No. 5 ¶83. Revenues are earned when the

reporting entity has substantially accomplished what it must do to be entitled to the benefits

represented by the revenues. Revenues are realizable when related assets received or held are

readily convertible to known amounts of cash or claims to cash. Id. ¶83. If collectability is not

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reasonably assured, revenues should be recognized on the basis of cash received. Id. ¶84g; see

also Accounting Research Bulletin (“ARB”) No. 43, (June 1943) Ch. 1A, ¶1; Accounting

Principles Board Opinion (“APB”) No. 10, Omnibus Opinion-1966 ¶12 (Dec. 1966). If payment

is subject to a significant contingency, revenue recognition is improper. See SFAS No. 5 ¶17.

211. The SEC’s Staff Accounting Bulletin Topic 13, Revenue Recognition (“SAB

Topic 13”) states that the recognition of revenue is proper only if the following criteria are met:

(i) persuasive evidence of an arrangement exists; (ii) delivery has occurred; (iii) the vendor’s fee

is fixed or determinable; and collectability is probable.

212. During the Class Period, the Inyx Defendants represented that Inyx’s revenue

recognition policies were consistent with GAAP. For example, in the Company’s 10-KSB for

fiscal 2005 Inyx Defendants asserted the following:

Revenue Recognition

The Company recognizes revenue when (1) persuasive evidence of anarrangement exists; (2) product delivery has occurred or services have beenrendered; (3) the fee is fixed or determinable; and (4) collectability is reasonablyassured. Revenues are recognized FOB shipping point, when products areshipped, which is when legal title and risk of loss is transferred to the Company’saccounts, and is recorded at the net invoiced value of goods supplied to accountsafter deduction of sales discounts and sales and value added tax, where applicable.In situations where the Company receives payment in advance of the performanceof research and development services, such amounts are deferred and recognizedas revenue as the related services are performed.

* * *

Non-refundable fees are recognized as revenue over the term of the arrangement,based on the percentage of costs incurred to date, estimated costs to complete andtotal expected contract revenue. Product returns are not accepted.

The Inyx Defendants Improperly Accelerated Revenue

213. Despite the foregoing representations, the Inyx Defendants materially inflated the

Company’s reported revenues, by improperly accelerating development revenue by

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approximately $1.8 million, $347,000 and $1.9 million for the first, second and third quarters of

2006, respectively, or an aggregate increase in net loss of a minimum of approximately $4.0

million for the nine month period ended September 30, 2006. During the Class Period, the Inyx

Defendants represented that “Development revenue in the form of products and services is

recognized using the proportional-performance model, whereby revenue is recognized as

performance occurs based on the relative value of the performance that has occurred to that point

in time. The Company fulfills obligations for development revenue over a period of time as its

customers receive value throughout the performance period.” See 2Q:2006 10-Q at F-5 (Aug.

21, 2006).

214. Under the Proportional Performance model, revenue recognition should focus on

the pattern of service provided to the customer, rather than on when resources or effort are

expended by the service provider. See 2005 Miller Revenue Recognition Guide at 6.08 (2004).

The SAB Topic 13 states that, “provided all other revenue recognition criteria are met, service

revenue should be recognized on a straight-line basis, unless evidence suggests that the revenue

is earned or obligations are fulfilled in a different pattern, over the contractual term of the

arrangement or the expected period during which those specified services will be performed,

whichever is longer.” The Inyx Defendants, however, improperly accelerated development

revenue, in contravention of GAAP and its own disclosed policies, by recognizing revenue

before the customer received value for the related development service.

Invx's False and Misleading Financial Statements were Material

215. Inyx’s improper acceleration of development revenues in contravention of GAAP

was material. According to GAAP, a retroactive restatement of financial statements is reserved

for material accounting errors “resulting from mathematical mistakes, mistakes in the application

of GAAP, or oversight or misuse of facts that existed at the time the financial statements were

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prepared.” SFAS No. 154, Accounting Changes and Error Corrections, ¶2h (May 2005). Since

GAAP allows only for correction of errors that are “material,” resulting from “mistakes in the

application of GAAP ... that existed at the time,” by restating its financial statements, the Inyx

Defendants admitted the materiality of the errors in its previously issued financial statements for

the quarters ended March 31, 2006, June 30, 2006 and September 30, 2006. Id. In that regard,

the Company disclosed, in its 8-K/A filed on April 27, 2007, in part, the following:

On April 2, 2007, management concluded that the Company should restatepreviously issued financial statements. The Company currently expects toamend its financial statements and, accordingly, is hereby notifying the publicthat the financial statements for the quarters ended March 31, 2006, June 30,2006 and September 30, 2006 should no longer be relied upon. Specifically, themodifications principally relate to revenue recognition and the Company'sownership interest in certain assets and related liabilities.

The Company’s development revenue for products and services is recognizedusing the proportional-performance model that recognizes revenue asperformance occurs based on relative value of the products delivered or servicesrendered. With respect to one customer, development revenue was recognized in2006 before the customer received value for the related development services andmanagement currently believes that it should not have recognized such revenue.This matter was identified through review and testing for management’sassessment of internal control over financial reporting and in consultation with theaudit committee and independent auditors as part of the year-end audit of theCompany’s 2006 financial results.

The Company currently expects revisions to its previously reported financialresults to reflect a reduction in revenue and an increase in net loss of aminimum of approximately $1.8 million, $347,000 and $1.9 million for the first,second and third quarters of 2006, respectively, or an aggregate increase in netloss of a minimum of approximately $4.0 million for the nine month periodended September 30, 2006.

216. Accordingly, as the Company belatedly admitted, the Inyx Defendants violated

GAAP by improperly recognizing revenue before the customer received value for the related

development services, thus overstating revenue and understating its net loss by approximately

$4.0 million, respectively, for the nine months ended September 30, 2006.

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The Invx Defendants Created False and Fraudulent Invoices

217. During the Class Period, Inyx also violated GAAP and its own publicly stated


ability to collect cash thereby. The Inyx Defendants caused Inyx to improperly recognize

revenue in the absence of product delivery, the satisfaction of its contractual obligations, and

reasonable assurance of collectability. For example, according to the Middup Affidavit, Inyx

reflected inflated accounts receivable based upon fraudulent invoices, cancelled invoices,

duplicate invoices and invoices that had already been paid.

Invx Defendants Overstated Accounts Receivable

218. Inyx’s reported accounts receivables were materially overstated due to the

recording of false and fraudulent revenue and improper acceleration of development revenues.

As a result, the Company’s financial position during the Class Period was also materially false

and misleading. In addition, by failing to write off receivables that Inyx had little or no chance

of collecting, Inyx’s financial statements contained materially false statements concerning its

expenses.

219. Accounting Research Bulletin (“ARB”) No. 43, Chapter 3, Section 9 provides that

the objective of providing for reserves against receivables is to assure that, “[a]ccounts

receivable net of allowances for uncollectible accounts ... are effectively stated as the amount of

cash estimated as realizable.”

220. According to SFAS No. 5 Accounting for Contingencies, paragraph 22:

The assets of an enterprise may include receivables that arose from credit sales,loans, or other transactions. The conditions under which receivables exist usuallyinvolve some degree of uncertainty about their collectibility, in which case acontingency exists ....

221. GAAP provides that an estimated loss from a loss contingency, such as the

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collectability of receivables, “shall be accrued by a charge to income” if: (i) information

available prior to issuance of the financial statements indicated that it is probable that an asset

had been impaired or a liability had been incurred at the date of the financial statements; and (ii)

the amount of the loss can be reasonably estimated. SFAS No. 5, ¶8.

222. Consistent with GAAP, in the Company’s 10-KSB for fiscal 2005, Inyx

Defendants represented that:

Accounts receivable are stated at realizable value, net of an allowance fordoubtful accounts. Periodically, management reviews all accounts receivable andbased on an assessment of whether they are collectible, estimates the portion, ifany, of the balance that will not be collected in order to establish an allowance fordoubtful accounts. Such allowance was based on the specific identification ofaccounts deemed uncollectible as of each period end. The provision for theallowance for doubtful accounts is included in general and administrativeexpenses in the accompanying consolidated statements of operations.

223. In order to falsely and materially inflate earnings, however, during the Class

Period, Inyx violated GAAP and its own disclosed policies by failing to record additional

provisions for uncollectible receivables in its financial statements related to its fraudulent

invoices. The Company’s failure to properly account for and disclose Inyx’s uncollectible

accounts receivables was materially misleading to investors.

224. Indeed, as a result of the revenue inflation scheme, Inyx accumulated millions of

dollars of aging receivables, some of which were bogus, on its balance sheet. Large aged

accounts receivable were not being paid and, as a result, days sales outstanding (“DSO”),

accounts receivable turnover (“ART”), and other important indicators of Inyx’s financial health

were deteriorating, resulting in eventual bankruptcy.

225. DSO is the average number of days it takes a company to collect its accounts

receivable. It is an analytical tool used by financial analysts and investors to track the age of a

company’s aggregate accounts receivable and to assess the quality of a company's receivables

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and, ultimately, its revenue. The common formula for calculating DSO is accounts receivable

divided by average daily sales. A comparatively high DSO figure is by contrast unfavorable as it

indicates that accounts are paying their bills slowly, thereby lengthening the average time an

unpaid account remains on the entity’s books.

226. The ART ratio for a given period is calculated by dividing sales made on credit by

the average accounts receivable; when sales made on credit is not disclosed, total sales may be

used instead as a proxy. A comparatively high ART ratio is favorable as it indicates that an

entity is collecting money from its accounts rapidly, thereby lowering the average accounts

receivable balance with respect to sales.

227. The following table presents Inyx’s quarterly sales and gross and net accounts

receivable with allowance for doubtful accounts disaggregated. It then shows the ART ratio and

DSO calculated with both gross and net accounts receivable; total sales is used in the calculation.

(IN THOUSANDS) 4Q:2004 1Q:2005 2Q:2005 3Q:2005 4Q:2005 1Q:2006 2Q:2006 3Q:2006

Revenue $ 4,150 $2,677 $ 8,501 $12,908 $25,479 $21,412 $20,142 $18,006

A/R gross 1,849 1,038 2,144 20,824 22,620 25,428

11,503 23,771doubtful accounts (152) (176)allowance (56) (89) (1,042) (379) (582) (2,638)A/R net $ 1,697 $ 862 $ 2,088 $11,414 $19,782 $22,241 $23,189 $22,790

Gross ART 1.85 5.34 1.89 1.58 0.99 0.87 0.73Net ART 2.09 5.76 1.91 1.63 1.02 0.89 0.78

Gross DSO 196.82 68.31 192.95 231.55 370.28 420.33 498.66Net DSO 174.46 63.33 190.90 223.45 358.17 411.63 466.02

228. The table indicates serious deterioration in Inyx’s operating activities with respect

to collection of accounts receivable. The gross ART ratio decreased from 1.85 at 1 Q:2005 to

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0.99 at 1 Q:2006, an annual decline of 46.4%; it then further decreased to 0.73 by the end of the

Class Period. The decline is even more pronounced in the net ART. Also, the DSO increased

rapidly from approximately half a year at the beginning of the Class Period to approximately 1.3

years at the end of the Class Period.

229. The severely adverse trend in ART and DSO reflects the deterioration of accounts

receivable, as a result of the accelerated development revenues and fraudulently recorded

invoices. The fact that gross Days Sales Outstanding had increased 153% over the Class Period

to 1.3 years indicates that the Company did not take accrue sufficient reserves for its accounts

receivable and thereby overstated the amount likely to be collected.

230. Accordingly, the Inyx Defendants violated GAAP and SEC rules by failing to

record additional provisions for uncollectible receivables in its financial statements related to its

accelerated development revenues and fraudulently recorded invoices. The Company’s failure to

properly account for and disclose Inyx’s uncollectible accounts receivables was materially

misleading to investors.

Violations of SEC Regulations

231. Item 7 of Form 10-K and Item 2 of Form 10-Q, Management's Discussion and

Analysis of Financial Condition and Results of Operations (“MD&A”) require the issuer to

furnish information required by Item 303 of Regulation S-K [17 C.F.R. 229.303]. In discussing

results of operations, Item 303 of Regulation S-K requires the registrant to:

[d]escribe any known trends or uncertainties that have had or that the registrantreasonably expects will have a material favorable or unfavorable impact on netsales or revenues or income from continuing operations.

The Instructions to Paragraph 303(a) further state:

The discussion and analysis shall focus specifically on material events anduncertainties known to management that would cause reported financialinformation not to be necessarily indicative of future operating results ...

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232. For example, in its 2005 10-KSB, Inyx stated the following: “Net revenues for the

year ended December 31, 2005 were approximately $49.6 million as compared to net revenues of

approximately $15.7 million for the year ended December 31, 2004.” Inyx, however, failed to

state that the reasons for Inyx’s revenue increase was due to false and fraudulent invoices.

233. Similarly, in Inyx’s third quarter Form 10-Q for 2006, Inyx represented the

following, “Net revenues for the nine months ended September 30, 2006, increased by

approximately $35.5 million or 147% to approximately $59.6 million from net revenues of

approximately $24.1 million for the nine months ended September 30, 2005.” Inyx, however,

failed to state that approximately $4 million of the revenue increase or 11 percent was the result

of improper acceleration of development revenues.

234. In addition, the SEC, in its May 18, 1989 Interpretive Release No. 34-26831, has

indicated that registrants should employ the following two-step analysis in determining when a

known trend or uncertainty is required to be included in the MD&A disclosure pursuant to Item

303 of Regulation S-K:

A disclosure duty exists where a trend, demand, commitment, event or uncertaintyis both presently known to management and is reasonably likely to have amaterial effect on the registrant's financial condition or results of operations.

235. The MD&A requirements are intended to provide, in one section of a filing,

material historical and prospective textual disclosure enabling investors and other users to assess

the financial condition and results of operations of the registrant, with particular emphasis on the

registrant's prospects for the future. As the Securities Act Release No. 6711 states:

The Commission has long recognized the need for a narrative explanation of thefinancial statements, because a numerical presentation and brief accompanyingfootnotes alone may be insufficient for an investor to judge the quality of earningsand the likelihood that past performance is indicative of future performance.MD&A is intended to give the investor an opportunity to look at the company

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through the eyes of management by providing both a short and long-term analysisof the business of the company ...

236. Section 229.303 (Item 303) Management’s discussion and analysis of financial

condition and results of operations states:

To the extent that the financial statements disclose material increases in net salesor revenues, provide a narrative discussion of the extent to which such increasesare attributable to increases in prices or to increases in the volume or amount ofgoods or services being sold or to the introduction of new products or services.

237. According to Securities Act Release No. 6349, supra n. 5, at 964:

[i]t is the responsibility of management to identify and address those key variablesand other qualitative and quantitative factors which are peculiar to and necessaryfor an understanding and evaluation of the individual company.

238. Nonetheless, Inyx’s Class Period Forms 10-K and 10-Qs failed to disclose that the

Company’s resulting increases in revenues and accounts receivable were due to improperly

accelerating development revenue and creating false and fraudulent invoices, for the purpose of

inflating Inyx’s financial position and operating results, which was necessary for a proper

understanding and evaluation of the Company’s operating performance and an informed

investment decision.

Invx's False and Misleading Class Period Financial Statements Were Material

239. As a result of the foregoing accounting improprieties, the Inyx Defendants caused

Inyx’s reported financial results to violate, among other things, the following provisions of fair

financial reporting for which each defendant is necessarily responsible:

(a) The principle that financial reporting should provide information that is

useful to present and potential investors in making rational investment decisions and that

information should be comprehensible to those who have a reasonable understanding of business

and economic activities (Concepts Statement No. 1, ¶34);

(b) The principle of materiality, which provides that the omission or

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misstatement of an item in a financial report is material if, in light of the surrounding

circumstances, the magnitude of the item is such that it is probable that the judgment of a

reasonable person relying upon the report would have been changed or influenced by the

inclusion or correction of the item (Concepts Statement No. 2, ¶132).

(c) The principle that financial reporting should provide information about

how management of an enterprise has discharged its stewardship responsibility to owners

(stockholders) for the use of enterprise resources entrusted to it. To the extent that management

offers securities of the enterprise to the public, it voluntarily accepts wider responsibilities for

accountability to prospective investors and to the public in general. (Concepts Statement No. 1,

¶50);

(d) The principle that financial reporting should provide information about an

enterprise’s financial performance during a period. Investors and creditors often use information

about the past to help in assessing the prospects of an enterprise. Thus, although investment and

credit decisions reflect investors’ expectations about future enterprise performance, those

expectations are commonly based at least partly on evaluations of past enterprise performance.

(Concepts Statement No. 1, ¶42);

(e) The principle that financial reporting should be reliable in that it

represents what it purports to represent. The notion that information should be reliable as well as

relevant is central to accounting. (Concepts Statement No. 2, ¶¶58/59);

(f) The principle of completeness, which means that nothing is left out of the

information that may be necessary to ensure that it validly represents underlying events and

conditions. (Concepts Statement No. 2, ¶80);

(g) The principle that conservatism be used as a prudent reaction to

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uncertainty to try to ensure that uncertainties and risks inherent in business situations are

adequately considered. The best way to avoid injury to investors is to try to ensure that what is

reported represents what it purports to represent. (Concepts Statement No. 2, ¶¶95, 97); and

(h) The principle that contingencies that might result in gains are not reflected

in accounts since to do so might be to recognize revenue prior to its realization and that care

should be used to avoid misleading investors regarding the likelihood of realization of gain

contingencies. (SFAS No. 5).

INYV S LACK OF INTERNAL CONTROLS

240. In addition to the foregoing accounting impropriety, Inyx suffered from a serious

lack of controls over its financial reporting throughout the Class Period which rendered the

Company’s financial reporting inherently corrupt, subject to manipulation and unreliable, further

making each of the Class Period statements that Inyx’s financial results complied with GAAP

materially false and misleading.

241. Although the Company, due to the fact that its market capitalization was under

$75 million, was exempt from section 404 of the Sarbanes-Oxley Act (“SOX 404”), which

requires stringent procedures for “establishing and maintaining internal controls,” nevertheless

the Inyx Defendants made numerous representations about the efficacy of Inyx’s internal

controls. In each 10-Q filed during the Class Period, the Inyx Defendants stated:

Within the 90-day period prior to the date of this report, we carried out anevaluation, under the supervision and with the participation of our management,including the Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of our disclosure controls andprocedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the“Exchange Act”). Based upon that evaluation, the Chief Executive Officer andChief Financial Officer concluded that our disclosure controls and proceduresare effective in timely alerting management to material information relating to theCompany required to be included in our Exchange Act filings. The two ExecutiveOfficers responsible for the financial reporting and disclosure are in direct control

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of the books and records of the Company and are involved first/hand in thedecision making process for material transactions.

242. Defendant Kachkar further certified that “[a]ll significant deficiencies in the

design or operation of internal controls which could adversely affect the [Company’s] ability to

record, process, summarize and report financial data and have identified for the [Company’s]

auditors any material weaknesses in internal controls” and that Inyx’s auditor and audit

committee had been apprised of “[a]ny fraud, whether or not material, that involves management

or other employees who have a significant role in the registrant's internal controls over financial

reporting.”

243. The Inyx Defendants further certified that they had, with respect to their joint

responsibility to for establishing and maintaining disclosure controls and internal control over

financial reporting:

(a) Designed such disclosure controls and procedures, or caused such

disclosure controls and procedures to be designed under our supervision, to ensure that material

information relating to the registrant, including its consolidated subsidiaries, is made known to

us by others within those entities, particularly during the period in which this report is being

prepared;

(b) Designed such internal control over financial reporting, or caused such

internal control over financial reporting to be designed under our supervision, to provide

reasonable assurance regarding the reliability of financial reporting and the preparation of

financial statements for external purposes in accordance with generally accepted accounting

principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and

procedures and presented in this report our conclusions about the effectiveness of the disclosure

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controls and procedures, as of the end of the period covered by this report based on such

evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over

financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s

fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably

likely to materially affect, the registrant's internal control over financial reporting; and

244. Furthermore, the Company’s March 2006 Code of Ethics for Senior Financial

Officer, filed as an exhibit to the fiscal 2005 10-K, stated:

The Officers are responsible for full, fair, accurate, timely and understandabledisclosure in all periodic reports and financial disclosures required to be filedby the Company with the Securities and Exchange Commission or disclosed tothe public. Accordingly, the Officers should observe the most stringent standardsin keeping our books and records. All Company records must be complete andmust accurately record and properly describe the transactions they reflect. Allassets, liabilities, revenues, and expenses shall be recorded in compliance withgenerally accepted accounting procedures. The Officers are expected to cooperatefully with our internal and external auditors.

The Officers should immediately bring to the attention of the Company’s AuditCommittee any material information of which he or she may become aware thataffects the disclosures made by the Company in its public filings and assist theAudit Committee in fulfilling its responsibilities.

245. Contrary to the Inyx Defendants’ previous statements and SEC requirements, the

Inyx Defendants either failed to implement and maintain an adequate financial reporting control

system, or knowingly and/or recklessly tolerated the failure to use existing controls in a manner

that would ensure non-compliance with GAAP.

246. On March 27, 2007, the Company filed its 8-K current report stating

management’s inability “to properly collect and complete all the information required by its

auditors in order to file its [2006] Form 10-K annual report on a timely basis.” The Inyx

Defendants further stated:

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During the course of its audit process and its efforts to comply with Section 404of the Sarbanes-Oxley Act of 2002 (“Section 404”), management has identifiedinternal control weaknesses that it has to fully assess in the process ofcompleting its audit under PCAOB standards. The Company has informed itsindependent audit committee and current independent auditors, Berkovits, Lago &Company LLP, that at this time, it is not in a position to complete its financialstatements for the year ended December 31, 2006 and provide the supportingdocuments requested by the independent auditors in time for the Company to fileits Form 10-K for such reporting period by April 2, 2007.

The Company has commenced an internal review to ascertain the full extent ofthe internal control weaknesses and whether management will be able to concludeas to the effect on the audit of the Company’s financial statements as of December31, 2006. At this time, the Company does not know if it will be required to restateits financial results for prior periods in 2006, and therefore any estimated lossesthat may impact such previous periods reported on during 2006 cannot bedetermined at this time. A restatement may result in lower revenues, a greater lossor an impairment of assets in 2006.

247. An additional 8-K filed on April 6, 2007 updated the results of the Company’s

assessment of its material internal control weaknesses:

Management’s review of internal control weaknesses is still in process and hasnot been completed. However, on April 2, 2007 the Company, in consultationwith its independent audit committee and current independent registered publicaccounting firm, Berkovits, Lago & Company LLP, determined that arestatement of prior period financial statements would be required undergenerally accepted accounting principles with respect to the Company's internalcontrol over financial reporting, including, at a minimum, the revenuerecognition policy for development revenue earned during 2006.

The Company expects to restate its financial results for the first, second and thirdquarters of 2006. Accordingly, the financial statements and related audit reportsfor these interim periods . . . no longer be relied upon[.]

248. On April 10, 2007, Dana M. Hartz (“Hartz”), Staff Accountant of the Division of

Corporation Finance of the Securities and Exchange Commission, sent a letter to the Company

requesting further information from Inyx. Hartz stated:

Please revise your Item 4.02 Form 8-K/A to expand the disclosure in your filingto provide more detailed information regarding the errors in your financialstatements resulting from the internal control weakness surrounding your revenuerecognition policy for development revenue earned during 2006. Specifically

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address what the errors are, how they occurred and how the correction of theerrors will impact the restated financial statements. In addition, please discuss anyadditional errors identified during the ongoing review of the internal controlweaknesses.

249. Indeed, Inyx’s lack of internal controls led to material misstatements in the

Company’s financial statements as admitted in the April 27, 2007 8-K/A. In this regard, the

Company stated:

On April 2, 2007, management concluded that the Company should restatepreviously issued financial statements. The Company currently expects to amendits financial statements and, accordingly, is hereby notifying the public that thefinancial statements for the quarters ended March 31, 2006, June 30, 2006 andSeptember 30, 2006 should no longer be relied upon. Specifically, themodifications principally relate to revenue recognition and the Company’sownership interest in certain assets and related liabilities.

The Company’s development revenue for products and services is recognizedusing the proportional-performance model that recognizes revenue asperformance occurs based on relative value of the products delivered or servicesrendered. With respect to one customer, development revenue was recognized in2006 before the customer received value for the related development services andmanagement currently believes that it should not have recognized such revenue.This matter was identified through review and testing for management’sassessment of internal control over financial reporting and in consultation with theaudit committee and independent auditors as part of the year-end audit of theCompany’s 2006 financial results.

The Company currently expects revisions to its previously reported financialresults to reflect a reduction in revenue and an increase in net loss of a minimumof approximately $1.8 million, $347,000 and $1.9 million for the first, second andthird quarters of 2006, respectively, or an aggregate increase in net loss of aminimum of approximately $4.0 million for the nine month period endedSeptember 30, 2006.

BERKOVITS' FALSE AND MISLEADING STATEMENTS

250. According to Zinn, Berkovits was intimately involved with the preparation of the

10-Qs. In fact, Lago, who was a partner at Berkovits during the Class Period, had also done

other personal projects and assignments for defendant Kachkar. Upon information and belief the

resignation of Berkovits and the reorganization of the firm, including the departure of Lago was

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a direct and consequent result of the conduct of Defendants alleged herein.

251. According to Zinn, during a conversation with defendant Green in Miami,

defendant Green told Zinn “not to worry about Jesus [Lago].” Zinn took this to mean that Lago

could be manipulated and would look the other way. From all that Zinn observed, including

from visits to Berkovits’ office, based on numerous communications with Berkovits’ employee,

and based on Zinn’s own experience as an accountant, Zinn believed that Inyx represented as

much as 20 to 30 percent of Berkovits’ business and as much as one-third of Berkovits’ partner’s

Lago’s business. Thus, Zinn had reason to question the independence of Berkovits.

252. Zinn expressed greater concern than he believed was shown by Berkovits about

the Open Items. Zinn viewed each Open Item as a “red flag” from an accounting and financial

control perspective. In fact, on May 10, 2007 the Open Items remained unresolved even though

the annual report on Form 10-K needed to be filed by May 18, 2007.

253. Berkovits knew or recklessly ignored that it falsely represented that Inyx’s annual

financial statements for at least the years ended 2004 and 2005 were presented in conformity

with GAAP. In fact, Berkovits knew that the person responsible for the financial reporting,

defendant Goldschmidt, was not experienced with SEC filings. In a conversation with Zinn

around April and/or May of 2007, Lago told Zinn that he questioned Rima’s competence because

she is slow with providing information and did not have experience with SEC filings. In

addition, Berkovits knew or recklessly ignored that it falsely represented that its audits of such

financial statements had been performed in accordance with Generally Accepted Auditing

Standards (“GAAS”) and the standards of the Public Company Accounting Oversight Board

(“PCAOB”).

254. Berkovits issued the following false and misleading unqualified audit report,

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dated April 12, 2005, on Inyx’s financial statements for the year ended December 31, 20044:

To the Board of Directors Inyx, Inc. (formerly known as Doblique, Inc.)

We have audited the consolidated balance sheets of Inyx, Inc. (formerly known asDoblique, Inc.) (the “Company”) as of December 31, 2004 and 2003, and therelated consolidated statements of operations, changes in stockholders’ equity(deficit) and cash flows for the year ended December 31, 2004 and for the periodfrom March 7, 2003 through December 31, 2003. These consolidated financialstatements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these consolidated financial statementsbased on our audits.

We conducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. The Company hasdetermined that it is not required to have, nor were we engaged to perform, anaudit of its internal control over financial reporting. Our audit includedconsideration of internal control over financial reporting as a basis for designingaudit procedures that are appropriate in the circumstances, but not for the purposeof expressing an opinion on the effectiveness of the Company’s internal controlover financial reporting. Accordingly, we do not express such an opinion. Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the consolidated financial position of Inyx, Inc.(formerly known as Doblique, Inc.) as of December 31, 2004 and 2003, and theresults of operations and cash flows for the year ended December 31, 2004 andfor the period from March 7, 2003 through December 31, 2003, in conformitywith accounting principles generally accepted in the United States.

/s/Berkovits, Lago & Company, LLPFort Lauderdale, FloridaApril 12, 2005

255. Berkovits issued the following false and misleading unqualified audit report,

dated March 29, 2006, on Inyx’s financial statements for the year ended December 31, 2005:

4 Berkovits’ false and misleading audit reports on Inyx’s 2004 and 2005 year/end financialstatements were included in the Company’s filings with the SEC during the Class Period.

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To the Board of Directors Inyx, Inc.

We have audited the consolidated balance sheets of Inyx, Inc. (the “Company”) asof December 31, 2005 and 2004, and the related consolidated statements ofoperations, changes in stockholders’ equity (deficit) and cash flows for the yearsended December 31, 2005 and 2004 and for the period from March 7, 2003through December 31, 2003. We have also audited the statements of operations,changes in stockholders’ equity (deficit) and cash flows of Miza Pharmaceuticals(UK) Ltd. (the predecessor to Inyx, Inc.) (the “Company”) for the period fromJanuary 1, 2003 through March 6, 2003. These consolidated financial statementsare the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. The Company hasdetermined that it is not required to have, nor were we engaged to perform, anaudit of its internal control over financial reporting. Our audit includedconsideration of internal control over financial reporting as a basis for designingaudit procedures that are appropriate in the circumstances, but not for the purposeof expressing an opinion on the effectiveness of the Company’s internal controlover financial reporting. Accordingly, we do not express such an opinion. Anaudit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the consolidated financial position of Inyx, Inc. asof December 31, 2005 and 2004, and the results of operations and cash flows forthe years ended December 31, 2005 and 2004 and for the period from March 7,2003 through December 31, 2003 and the results of operations and cash flows ofMiza Pharmaceuticals (UK) Ltd. (the predecessor to Inyx, Inc.) for the periodfrom January 1, 2003 through March 6, 2003, in conformity with accountingprinciples generally accepted in the United States.

/s/Berkovits, Lago & Company, LLPFort Lauderdale, FloridaMarch 29, 2006

256. The above/noted Berkovits reports were materially false and misleading because,

as alleged in detail herein, Inyx’s Class Period financial statements, by its own admission,

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violated GAAP in numerous respects, including: (1) Inyx’s accounting revenue violated GAAP;

(2) Inyx’s accounting for accounts receivable and related accounts receivable reserves and bad

debt expense violated GAAP; and (3) Inyx’s recognized revenue when customer payment was

not reasonably assured. Furthermore, according to Zinn, Berkovits had a lot of difficulties

confirming the accounts receivables and collectibles for their 2005 audit. Furthermore, soon

after the Aventis acquisition in March of 2005, and upon information and belief, as early as April

2005, the Inyx Defendants began to engage in a series of schemes involving the submission of

duplicate, inaccurate, altered, and/or false invoices to Westernbank in order to fraudulently

increase their reported accounts receivable for the purpose of inflating Inyx’s financial position

and operating results. Berkovits knew or recklessly ignored that the Company’s resulting

increases in revenues in 2005 and accounts receivable were due to the improper creation of the

false and fraudulent invoices.

257. In addition to the foregoing violations of GAAS, Berkovits violated at least the

following provisions of GAAS in “auditing” Inyx’s financial statements during the Class Period:

(a) Auditing standard AU §316, which required Berkovits to plan and perform

its audits in a manner which reasonably assured that Inyx’s Class Period financial statements

were free from misstatements caused by error or fraud. Berkovits failed to adequately plan and

perform its audit procedures in a manner reasonably designed to identify the numerous financial

improprieties alleged herein. Such failure permitted Inyx to issue materially false and misleading

financial statements over a multi/year period. Moreover, Section 10A of the Exchange Act

required Berkovits to “determine” whether, in the course of its audits, an illegal act occurred and

to notify the SEC if it became aware of information indicating that an illegal act occurred if

Inyx’s management or Board of Directors failed to take appropriate remedial action with respect

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to the illegal acts. Berkovits knew or recklessly ignored that it violated Section 10A of the

Exchange Act in the performance of its audits of Inyx’s 2004 and 2005 year end financial

statements;

(b) General Standard No. 3, which requires that due professional care be

exercised by the auditor in the performance of the audit and the preparation of the audit report.

Due professional care also requires that the auditor maintain professional skepticism in the

course of auditing a client’s financial statements. Berkovits conducted its audits of Inyx’s

financial statements with such lack of care that it permitted systemic internal control deficiencies

to exist over a multiyear period;

(c) Auditing standard AU §342, which required that Berkovits perform the

audit procedures necessary to determine that Inyx’s accounting estimates were reasonable during

the Class Period. AU §342 provides that in establishing the reasonableness of an accounting

estimate, the auditor normally concentrates on key factors and assumptions, including the

significance of the accounting estimate and its susceptibility to misstatement and bias;

(d) Auditing standard AU §431, which provides that if management omits

from the financial statements, including the accompanying notes, information that is required by

GAAP, the auditor should express a qualified or an adverse opinion and should provide the

required undisclosed information in its audit report;

(e) GAAS Standard of Reporting No. 1, which requires the audit report to

state whether the financial statements are presented in accordance with GAAP. Berkovits’

opinion falsely represented that Inyx’s 2004 and 2005 financial statements were presented in

conformity with GAAP when they were not for the myriad reasons herein alleged;

(f) GAAS Standard of Reporting No. 4, which requires that, when an opinion

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on the financial statements as a whole cannot be expressed, the reasons therefore must be stated.

Berkovits was required to state that no opinion could be issued by it on Inyx’s 2004 or 2005

financial statements or issue an adverse opinion stating that such financial statements were not

fairly presented in conformity with GAAS. Berkovits’ failure to make such a qualification,

correction, modification and/or withdrawal of its audit opinions was a violation of GAAS,

including the fourth standard of reporting. Berkovits also failed to require Inyx to restate its

Class Period financial statements to correct the numerous violations of GAAP alleged herein:

(g) GAAS General Standard No. 2, which requires that independence in

mental attitude is to be maintained by the auditor in all matters related to the audit. In this

regard, Berkovits knew or recklessly disregarded that Inyx was significant to the firm in terms of

fees and status, impairing independence. Indeed, the approximate $500,000 in annual fees

related to the Inyx audit was a significant portion of the audit partner, Lago’s, book of business.

In addition, Berkovits knew or recklessly disregarded other business relationships between the

firm, Inyx and Kachkar that impaired its independence. For example, Berkovits audited Karver

International, Inc., a shell company run by defendants Kachkar and Green, further increasing the

financial significance of the client and impairing Berkovits’ ability to stay independent;

(h) GAAS General Standard No. 1, which requires that audits be performed

by persons having adequate technical training and proficiency;

(i) GAAS Standard of Field Work No. 1, which requires that the audit is to be

adequately planned and that assistants should be properly supervised; and

(j) GAAS Standard of Reporting No. 2, which requires that the audit report

identify circumstances in which GAAP has not been consistently observed.

258. In certifying Inyx’s financial statements, defendant Berkovits falsely represented

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that it conducted its audits of Inyx’s financial statements in accordance with each of the above/

noted auditing standards.

LOSS CAUSATION

259. As the chart below demonstrates, Class members suffered economic losses when

the news services carried a report that Inyx USA and Exaeris had filed for Chapter 11 protection

in the U.S. Bankruptcy Court in Delaware on July 2, 2007:

Inyx, Inc.

3.5

3 ill 6/29i2007, $2.44

2.55^

t

." 2UaOAG

[3

1.5 ^l

1 ^ f

0.5

7/212007, $0.35w

0

Mar-05 Jul-05 Oct-05 Jan-06 May-06 Aug-06 Nov-06 Feb-07 Ani-07

260. Since July 2, 2007, Inyx securities have not traded above the prices at which Class

members purchased those securities prior to July 2, 2007 during the Class Period. As a result,

members of the Class who purchased Inyx securities during the Class Period and continue to

hold those securities, have sustained economic injury resulting from the decline(s) in the value of

Inyx securities resulting from the revelations of Defendants’ misstatements and/or omissions

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during the Class Period.

261. Moreover, members of the Class who purchased Inyx securities during the Class

Period, and sold such securities after the news of the Chapter 11 bankruptcy and the deteriorating

financial condition misrepresented and/concealed by the Defendants during the Class Period was

revealed, have suffered economic injury caused by Defendants’ misrepresentations and/or

omissions during the Class Period that were not revealed until July 2, 2007.

262. Finally, members of the Class who purchased Inyx securities during the Class

Period, and sold those securities after the end of the Class Period, have suffered economic injury

caused by Defendants’ misrepresentations and/or omissions during the Class Period that were not

revealed until July 2, 2007.

263. Thus, the damage suffered by Plaintiff and other members of the Class was a

direct result of Defendants’ fraudulent scheme to artificially inflate the price of Inyx securities

and the subsequent significant decline in the value of Inyx securities when Defendants’ prior

misrepresentations and other fraudulent conduct were revealed.

264. The foregoing allegations describe Plaintiff’s general theory of damages,

demonstrate that Plaintiff’s damages were caused by the scheme to defraud as alleged herein,

and negate any inference that Plaintiff’s losses were the result of general market conditions or

other factors wholly unrelated to Defendants’ false and misleading statements alleged herein.

Upon further investigation and expert analysis, Plaintiff may assert that there were additional

inflationary or corrective events that caused or contributed to the damages Plaintiff incurred.

ADDITIONAL SCIENTER ALLEGATIONS

265. As alleged herein, the Individual Defendants acted with scienter in that they knew

that the public documents and statements issued or disseminated in the name of the Company

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were materially false and misleading; knew that such statements or documents would be issued

or disseminated to the investing public; and knowingly and substantially participated or

acquiesced in the issuance or dissemination of such statements or documents as primary

violations of the federal securities laws. As set forth elsewhere herein in detail, the Individual

Defendants, by virtue of their receipt of information reflecting the true facts regarding Inyx, their

control over, and/or receipt and/or modification of Inyx’s allegedly materially misleading

misstatements and/or their associations with the Company which made them privy to

confidential proprietary information concerning Inyx, participated in the fraudulent scheme

alleged herein.

266. According to Zinn, defendant Kachkar made most of the decisions involving

Inyx, and therefore knew fully about the fraud alleged. In fact, defendant Kachkar, with

defendant Handley, directed defendant Goldschmidt to create and execute the fraudulent

invoicing, which resulted in the artificial inflation of the Company’s financial results and

statements. According to the Middup Affidavit, defendant Kachkar sent an email to defendant

Handley stating, “What we say to WB [Westernbank] and what we do are two different things.”

267. This is not the first time one of defendant Kachkar’s companies has been placed

in bankruptcy. From 1996 until December 2002, defendant Kachkar was President and CEO of

Miza Pharmaceuticals, Inc. (“Miza”), a Canadian corporation in Toronto, Ontario. Defendant

Handley also had an interest in Miza. Miza is now inactive. While in operation, Miza had three

operating subsidiaries, Miza Pharmaceuticals (UK), Ltd. (“Miza UK” ), Miza Ireland Limited

(“Miza Ireland”) and Miza Pharmaceuticals USA, Inc. (“Miza USA”). Defendant Kachkar was

involved in the management of all four companies, although he resigned as an officer of Miza in

December 2002 and as a director in May 2003, prior to that company becoming inactive; he

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resigned as a director of Miza UK in August 2002 and was never an officer; he resigned as a

director of Miza Ireland in October 2002 and was never an officer; and he resigned as an officer

of Miza USA in March 2003 and as a director in April 2003. Miza UK sold its assets in March

2003 to Inyx Pharma; Miza Ireland’s assets were sold by a court/appointed liquidator during

2003; Miza USA was placed into Chapter 11 bankruptcy proceedings by its new owners in May

2003 under the name Carr Pharmaceuticals, Inc., and was then subsequently liquidated by its

secured lenders.

268. Further, defendant Goldschmidt was named on all of Inyx’s accounts, and was

involved in managing Inyx’s affairs, including being directly involved in the financing obtained

from Westernbank and the allocation and use of the Westernbank financing and the payments

Inyx received from their customers. However, according to Zinn, defendant Goldschmidt would

not do anything without defendant Green, who also was directly involved with the dealings with

Westernbank, and would approve her actions. Furthermore, according to Zinn, defendant

Kachkar helped defendant Goldschmidt buy her house.

269. Additionally, defendant Handley was responsible for dealing with accounts

receivable for Inyx. According to the Middup Affidavit, many of the irregular development

invoices were initiated by defendant Handley. The diversion of funds from the Lock Box

Accounts and the offsetting scheme was also based on instructions from defendant Handley.

Further, as detailed above, almost ₤493,496 (approximately $1 million) from the diversion of

funds from Westernbank was delivered directly to defendant Kachkar and portions of the

additional million of dollars diverted by the Individual Defendants from Westernbank to Inyx

was used to pay the Individual Defendants’ personal compensations.

NO SAFE HARBOR

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270. The statutory safe harbor provided for forward-looking statements does not apply

to any of the allegedly false statements pleaded in this Complaint. Many of the specific

statements pleaded herein were not identified as “forward-looking statements” when made. To

the extent there were any forward-looking statements, there were no meaningful cautionary

statements identifying important factors that could cause actual results to differ materially from

those in the purportedly forward-looking statements. Alternatively, to the extent that the

statutory safe harbor does apply to any forward-looking statements pleaded herein, the Inyx

Defendants are liable for those false forward-looking statements because at the time each of

those forward-looking statements was made, the speaker knew that the forward-looking

statement was false, and/or the forward-looking statement was authorized and/or approved by an

executive officer of Inyx who knew that the statement was false when made.

COUNT I Violation of Section 10(b) of the Exchange Act

and Rule lOb-5 Promulgated Thereunder(Against the Inyx Defendants)

271. Plaintiff repeats and realleges each and every allegation contained above as if

fully set forth herein.

272. During the Class Period, the Inyx Defendants carried out a plan, scheme and

course of conduct which was intended to and, throughout the Class Period, did: (i) deceive the

investing public, including Plaintiff and other Class members, as alleged herein; and (ii) cause

Plaintiff and other members of the Class to purchase Inyx securities at artificially inflated prices.

In furtherance of this unlawful scheme, plan and course of conduct, the Inyx Defendants, and

each of them, took the actions set forth herein.

273. The Inyx Defendants (i) employed devices, schemes, and artifices to defraud; (ii)

made untrue statements of material fact and/or omitted to state material facts necessary to make

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the statements not misleading; and (iii) engaged in acts, practices, and a course of business which

operated as a fraud and deceit upon the purchasers of the Company’s securities in an effort to

maintain artificially high market prices for Inyx securities in violation of Section 10(b) of the

Exchange Act and Rule 10b-5. All of the Inyx Defendants are sued either as primary

participants in the wrongful and illegal conduct charged herein or as controlling persons as

alleged below.

274. The Inyx Defendants, individually and in concert, directly and indirectly, by the

use, means or instrumentalities of interstate commerce and/or of the mails, engaged and

participated in a continuous course of conduct to conceal adverse material information about

Inyx’s financial well-being and prospects, as specified herein.

275. These Inyx Defendants employed devices, schemes and artifices to defraud, while

in possession of material adverse non-public information and engaged in acts, practices, and a

course of conduct as alleged herein in an effort to assure investors of Inyx’s value and

performance and continued substantial growth, which included the making of, or the

participation in the making of, untrue statements of material facts and/or omitting to state

material facts necessary in order to make the statements made about Inyx and its business

operations and future prospects in light of the circumstances under which they were made, not

misleading, as set forth more particularly herein, and engaged in transactions, practices and a

course of business which operated as a fraud and deceit upon the purchasers of Inyx’s securities

during the Class Period.

276. Each of the Individual Defendants’ primary liability, and controlling person

liability, arises from the following facts: (i) the Individual Defendants were high-level executives

and/or directors at the Company during the Class Period and members of the Company’s

124

management team or had control thereof; (ii) each of these Individual Defendants, by virtue of

their responsibilities and activities as a senior officer and/or director of the Company, was privy

to and participated in the creation, development and reporting of the Company’s internal

budgets, plans, projections and/or reports; (iii) each of these Individual Defendants enjoyed

significant personal contact and familiarity with the other Inyx Defendants and was advised of,

and had access to, other members of the Company’s management team, internal reports and other

data and information about the Company’s finances, operations, and sales at all relevant times;

and (iv) each of these Individual Defendants was aware of the Company’s dissemination of

information to the investing public which they knew or recklessly disregarded was materially

false and misleading.

277. The Inyx Defendants had actual knowledge of the misrepresentations and/or

omissions of material facts set forth herein, or acted with reckless disregard for the truth in that

they failed to ascertain and to disclose such facts, even though such facts were available to them.

Such the Inyx Defendants’ material misrepresentations and/or omissions were done knowingly

or recklessly and for the purpose and effect of concealing Inyx’s financial well-being and

prospects from the investing public and supporting the artificially inflated price of its securities.

As demonstrated by the Inyx Defendants’ overstatements and misstatements of the Company’s

financial well-being and prospects throughout the Class Period, the Inyx Defendants, if they did

not have actual knowledge of the misrepresentations and omissions alleged, were reckless in

failing to obtain such knowledge by deliberately refraining from taking those steps necessary to

discover whether those statements were false or misleading.

278. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market price of Inyx’s securities was

125

artificially inflated during the Class Period. In ignorance of the fact that market prices of Inyx’s

securities were artificially inflated, and relying directly or indirectly on the false and misleading

statements made by the Inyx Defendants, or upon the integrity of the market in which the

securities trades, and/or in the absence of material adverse information that was known to or

recklessly disregarded by the Inyx Defendants, but not disclosed in public statements by the Inyx

Defendants during the Class Period, Plaintiff and the other members of the Class acquired Inyx

securities during the Class Period at artificially high prices and were damaged thereby.

279. At the time of said misrepresentations and omissions, Plaintiff and other members

of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff and the

other members of the Class and the marketplace known the truth regarding the problems that

Inyx was experiencing, which were not disclosed by the Inyx Defendants, Plaintiff and other

members of the Class would not have purchased or otherwise acquired their Inyx securities, or, if

they had acquired such securities during the Class Period, they would not have done so at the

artificially inflated prices which they paid.

280. By virtue of the foregoing, the Inyx Defendants have violated Section 10(b) of the

Exchange Act and Rule 1 0b/5 promulgated thereunder.

281. As a direct and proximate result of the Inyx Defendants’ wrongful conduct,

Plaintiff and the other members of the Class suffered damages in connection with their respective

purchases and sales of the Company’s securities during the Class Period.

COUNT II Violation of Section 10(b) of the Exchange Act

and Rule lOb-5 Promulgated Thereunder(Against Berkovits)



126

283. During the Class Period, Berkovits violated Section 10(b) of the Exchange Act

and Rule 10b-5 by: (1) employing devices, schemes, and artifices to defraud; (2) making untrue

statements of material fact and/or omitting to state material facts necessary to make the

statements not misleading; and (3) engaging in acts, practices, and a course of business which

operated as a fraud and deceit upon the purchasers of the Company’s securities during the Class

Period.

284. Berkovits, individually and in concert with Inyx Defendants, directly and

indirectly, by the use, means or instrumentalities of interstate commerce and/or of the mails,

engaged and participated in a continuous course of conduct to conceal adverse material

information about the business, operations and future prospects of Inyx as specified herein.

285. Berkovits had actual knowledge of the misrepresentations and omissions of

material facts set forth herein, or acted with severe recklessness in disregarding obvious red flags

and/or the truth in that they failed to ascertain and to disclose such facts. Such material

misrepresentations and/or omissions were done knowingly or deliberately for the purpose and

effect of concealing Inyx’s true operating condition, financial condition, internal financial

controls, financial reporting, and future business prospects from the investing public and

supporting the artificially-inflated price of its common stock. Berkovits, if it did not have actual

knowledge of the misrepresentations and omissions alleged, was severely reckless in failing to

obtain such knowledge by deliberately refraining from taking those steps necessary to discover

whether those statements were false or misleading.

286. The market for Inyx securities was open, well-developed and efficient at all

relevant times. Berkovits’ dissemination of materially false and misleading statements and

omissions of material facts caused Inyx securities to trade at artificially inflated prices during the

127

Class Period. Plaintiff and other members of the Class were damaged because they acquired

Inyx securities relying directly or indirectly on Berkovits’ false and misleading statements and/or

omissions, or upon the market’s integrity, and would not have purchased or otherwise acquired

their Inyx common stock at the prices they paid, or at all, if they had known that Berkovits’

misleading statements and omissions artificially inflated market prices, and because when the

truth was revealed, Inyx’s stock price declined dramatically, directly causing the Class members’

losses.

287. As a direct and proximate result of Berkovits’ wrongful conduct, Plaintiff and all

other members of the Class suffered damages in connection with their respective purchases and

sales of the Company’s securities during the Class Period.

COUNT IIIViolation of Section 20(a) of

the Exchange Act Against the Individual Defendants



289. The Individual Defendants acted as controlling persons of Inyx within the

meaning of Section 20(a) of the Exchange Act and are liable thereunder. As senior officers

and/or directors of Inyx, high-level executives of the Company, “hands on” supervisors,

decision-makers and participants in Inyx’s operations, and owners of Inyx stock, the Individual

Inyx Defendants had the power and authority to influence and control and did influence and

control Inyx to engage in the wrongful conduct complained of herein.

290. In particular, each of these Individual Defendants had direct and supervisory

involvement in the day-to-day operations of the Company and, therefore, is presumed to have

had the power to control or influence the particular transactions giving rise to the securities

128

violations as alleged herein, and exercised the same.

291. As set forth above, Inyx and the Individual Defendants each violated Section

10(b) and Rule 1 0b/5 by their acts and omissions as alleged in this Complaint. By virtue of their

positions as controlling persons, the Individual Defendants are liable pursuant to Section 20(a) of

the Exchange Act. As a direct and proximate result of the Inyx Defendants’ wrongful conduct,

Plaintiff and other members of the Class suffered damages in connection with their purchases of

the Company’s securities during the Class Period.

PRAYER FOR RELIEF

WHEREFORE, Plaintiff prays for relief and judgment, as follows:

A. Determining that this action is a proper class action under Rule 23 of the Federal

Rules of Civil Procedure;

B. Awarding compensatory damages in favor of Plaintiff and the other Class

members against Defendants, jointly and severally, for all damages sustained as a result of

Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;

C. Awarding Plaintiff and the Class their reasonable costs and expenses incurred in

this action, including counsel fees and expert fees; and

D. Such other and further relief as the Court may deem just and proper.

JURY TRIAL DEMANDED

Plaintiff hereby demands a trial by jury.

129

Dated: March 10, 2009 Respectfully submitted,

BROWER PIVENA Profess'enal Corporation

1 --bt David A.P. BrowerJessica Sleater488 Madison AvenueEighth FloorNew York, New York 10022Telephone: (212) 501-9000Facsimile: (212) 501-0300

BROWER P1 YENA Professional Corporation

Charles J. PivenYelena TrepetinWorld Trade Center-Baltimore401 East Pratt Street, Suite 2525Baltimore, Maryland 21202Telephone: (410) 332-0030Facsimile: (410) 685-1300

Lead Counsel for the Class and/or Lead PlaintiffDavid S. Lenin gton

130

EXHIBIT A

PLATNTIFF$ (..7ERTIECATI:07^-;

David S. ....e!:ington ("Plaintiff") declares that:

1. Plaintiff has reviewed the complaint and authorized its filing.

2. Plaintiff did not purchase the security that is the subject of this action at the direction of

plaintitr s. counsel or in order to !a.rtiepatein this private action..

3. Plaintiff is willing to serve as a representative party on behalf or. the class, including

providing testimony at deposition and trial, if necessary, and Plaintiff is willing to serve as a lead

plaintiff either individually or as part of a group, a lead plaintiff being . a representative party who acts on

behalf of other class members in directing the action.

4._ Plaintiffs transactions in his self-directed 401K plan in Inyx, Inc, securities during the

Class Period are-attached hereto.

5. During the 'three years prior to the date of thiS certification; Plaintiff has not sought to

serve or served as .a representative party for a class under the federal securities laws.

6. Plaintiff will not accept any payment for serving as a representative party on behalf of

the class beyond the.Plaintiff s prO rata share of any recovery, except such reasonable Costs and expenses

tinchiding lost wages .) directly relating to the representation of the class as ordered or approved by the

court. Plaintiff understands that this is not a claim form, and that Plaintiffs ability to Share in any

recovery as a member of the class is unaffected by Mai/16ms (kcision to serve as a representative party.

declare under penalty of perjury under the laws of the United States of America that the

foregoing is true and correct. Executed this 16 day of October 2008.e

•

• • \

Brower Piven:. A Professierril CorporationThe \Woild.Tradc Center-fiallimore

401 East Pratt Street, Suite 2525Baltimore, Maryland 21202.Telephone: 4107332-0030.Facsimile: 0L685-1300

w-ww.browm,iyemcom

David S. LeningtonINYX, Inc. Securities Litigation

Schedule of Transactions

DaL: 1 : : :175.; PQ :11

1/31/2006 BUY 10.000 82.40, 4/3/2006 BUY $2.35

4/3/2006 BUY $2.36

; 9/12/2006. BUY 35,000 -; $2.42. ;; 9/27/2006 .SE I 31.100 $2.52„ . . , . .: 9/28/2006 BUY 515 $2.42

; 9/29/2006 SELL 13,000 ; $2.52

9/29/2006 SELL 6,000 $2.53

; 10/3/2006 :BUY 500 ' $2.42; 10/5/2006; BUY 29,380 $2.42„: 10/6/2006 BUY 3,000 $2.42

; 10/10/2006 :BUY 3,000 $2.42

; 10/11/2006 BUY 3,605 $2.42

; 10/24/2006 .BUY 4.000 $2.30

11/6/2006 BUY E 6.000 $2.32

11/7/2006 B 1.1Y 20.000 $2.32

; 11/13/2006 BUY 1,000 82,20

; 11/14/2006 BUY 500 : $2.20

: 11/17/2006 :BUY 4,500 82.20:

1. 1/20/2006 BUY 14,000 ; $2.20

11/28/2006 E BUY 500 ; $ L92

: 11/28/2006 BUY 500 $1.94

; 11/28/2006 BUY 9,000 ; $1.95, ..„

11/28/2006 BUY 15,000 81.90

: 11/29/2006 BUY 25,000 82.00„

11/29/2006 SELL 50,000 $2.10: 12/4/2006 BUY 7.500 82.18

12/5/2006 BUY 2.5,000 82.15

; 12/7/2006 BUY 1 500 ; $2.07

: 1/5/2007. SELL 11.000 $2.30

11/25/2007 .BUY 5,500 $2.27

1/26/2007 :BUY I 1,500 $2.24

2/1/2007 BUY 25,000 $2.17

2/6/2007 BUY 1.297 E $2.17

2/6/2007 BUY 29,500 $2.18

2/21/2007 BUY 25.000 1 $2.23

2/22/2007 BUY 5(000 $2.20

4/20/2007 BUY 1.000 $2.36

4/23/2007 BUY 5.000 $2.38•„

5/3/2007 BUY 5 $2.59

7/2/2007 BUY 49,500 $2.41„

7/2/2007 SELL 243,700 $0.40„

UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK

THE PENNSYLVANIA AVENUE FUNDS,Individually And On Behalf of All OthersSimilarly Situated, Civil Action No. 08-cv-06857-PKC

Plaintiff, CONSOLIDATED AMENDED CLASSvs. ACTION COMPLAINT FOR

VIOLATIONS OF THE FEDERALSECURITIES LAWS

INYX INC., JACK KACHKAR, STEVEN JURY TRIAL DEMANDEDHANDLEY, RIMA GOLDSCHMIDT, JAY M.GREEN and BERKOVITS & COMPANY, LLP,

Defendants.

CERTIFICATE OF SERVICE

I hereby certify that on March 10, 2009, I electronically mailed a true and correct copy of

the Consolidated Amended Class Action Complaint for Violations of the Federal Securities

Laws, filed March 10, 2009 in the United States District Court for the Southern District of New

York, to the following defendant's counsel:

John H. EickemeyerVedder Price P.C.1633 Broadway47th FloorNew York, NY 10019Telephone: (212) 407-7760Facsimile: (212) 407-7799Email: [email protected]

Counsel for Berkovits, Lago & Company, LLP

On March 11, 2009, I will mail, by U.S. Postal Service - Certified Mail, true and correct

copies of the Consolidated Amended Class Action Complaint for Violations of the Federal

Securities Laws to the following defendants who have not entered an appearance in this action:

Inyx, Inc.825 3rd AvenueFloor 21New York, NY 10022

Jack Kachkar20 Grand Bay Estates CirclesKey Biscayne, FL 33149

Steven Handley37 Parkland Dr.Elton, Chester, Cheshire CF12 4PGUnited Kingdom

Rima Goldshmidt103 Overbrook PlaceNorth York, OntarioM3H 4P5Canada

Jay Green104 West Shore DrivePutnam Valley, NY 10579

Executed: March 10, 2009 1...nNew York, New York Eric C. Love

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