<PAGE>

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                               ------------------
                                    FORM 10-K
(Mark One)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      For the fiscal year ended December 31, 2003

                                       OR

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

      For the transition period from ___________ to ___________

                       Commission file number 33-99310-NY

                            IMPAX LABORATORIES, INC.
             (Exact name of registrant as specified in its charter)

                 Delaware                             65-0403311
     (State or other jurisdiction of                (IRS Employer
      incorporation or organization)              Identification No.)

           30831 Huntwood Avenue
                Hayward, CA                             94544
 (Address of principal executive offices)             (Zip Code)

                                 (510) 476-2000
              (Registrant's telephone number, including area code)

           Securities registered pursuant to Section 12(b) of the Act.
                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, $0.01 par value per share
                               __________________

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

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

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

     As of June 30, 2003, the aggregate market value of the Common Stock held by
non-affiliates of the registrant (based on the closing price for the Common
Stock on the Nasdaq Stock Market on June 30, 2003) was approximately
$382,664,594.(1) As of February 27, 2004, there were 57,932,707 shares of the
registrant's Common Stock outstanding.

                                       1

<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

     The information called for by Part III is incorporated by reference to
specified portions of the Registrant's definitive Proxy Statement to be issued
in conjunction with the Registrant's 2004 Annual Meeting of Stockholders, which
is expected to be filed no later than 120 days after the Registrant's fiscal
year ended December 31, 2003.

================================================================================

(1)The aggregate market value of the voting stock set forth equals the number of
   shares of the Company's common stock outstanding reduced by the amount of
   common stock held by officers, directors and shareholders owning 10% or more
   of the Company's common stock, multiplied by $11.94 the last reported sale
   price for the Company's common stock on June 30, 2003, the last business day
   of the registrant's most recently completed second fiscal quarter. The
   information provided shall in no way be construed as an admission that any
   officer, director or 10% shareholder in the Company may be deemed an
   affiliate of the Company or that he is the beneficial owner of the shares
   reported as being held by him, and any such inference is hereby disclaimed.
   The information provided herein is included solely for record keeping
   purposes of the Securities and Exchange Commission.









                                       2

<PAGE>


                            IMPAX LABORATORIES, INC.

                               INDEX TO FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 2003


<TABLE>
<CAPTION>
                                                                                                                      Page
                                                                                                                      ----
                                     PART I

<S>           <C>                                                                                                     <C>
ITEM 1.       Business..........................................................................................        4
ITEM 2.       Properties........................................................................................       22
ITEM 3.       Legal Proceedings.................................................................................       23
ITEM 4.       Submission of Matters to a Vote of Security Holders...............................................       30

                                     PART II

ITEM 5.       Market for Registrant's Common Equity and Related Stockholder Matters.............................       30
ITEM 6.       Selected Financial Data...........................................................................       31
ITEM 7.       Management's Discussion and Analysis of Financial Condition and Results of Operations.............       32
ITEM 7A.      Quantitative and Qualitative Disclosures About Market Risk........................................       56
ITEM 8.       Financial Statements and Supplementary Data.......................................................       57
ITEM 9.       Changes In and Disagreements With Accountants on Accounting and Financial Disclosure..............       57
ITEM 9A.      Controls and Procedures...........................................................................       57

                                    PART III

ITEM 10.      Directors and Executive Officers of the Registrant................................................       58
ITEM 11.      Executive Compensation............................................................................       58
ITEM 12.      Security Ownership of Certain Beneficial Owners and Management....................................       58
ITEM 13.      Certain Relationships and Related Transactions....................................................       58
ITEM 14.      Principal Accountant Fees And Services............................................................       58


                                     PART IV

ITEM 15.      Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................       59

SIGNATURES    ..................................................................................................       63
</TABLE>






                                       3

<PAGE>


                                     PART I

Forward-Looking Statements

To the extent any statements made in this report contain information that is not
historical, these statements are forward-looking in nature and express the
beliefs, expectations or opinions of management. For example, words such as
"may," "will," "should," "estimates," "predicts" "potential," "continue,"
"strategy," "believes," "anticipates," "plans," "expects," "intends," and
similar expressions are intended to identify forward-looking statements. Such
statements are based on current expectations and involve a number of known and
unknown risks and uncertainties that could cause IMPAX's future results,
performance or achievements to differ significantly from the results,
performance or achievements expressed or implied by such forward-looking
statements. Such risks and uncertainties include, but are not limited to,
IMPAX's ability to obtain sufficient capital to fund its operations, the
difficulty of predicting Food and Drug Administration ("FDA") filings and
approvals, consumer acceptance and demand for new pharmaceutical products, the
impact of competitive products and pricing, IMPAX's ability to successfully
develop and commercialize pharmaceutical products, IMPAX's reliance on key
strategic alliances, the uncertainty of patent litigation, the availability of
raw materials, the regulatory environment, dependence on patent and other
protection for innovative products, exposure to product liability claims,
fluctuations in operating results and other risks detailed from time to time in
IMPAX's filings with the Securities and Exchange Commission. Forward-looking
statements speak only as to the date on which they are made, and IMPAX
undertakes no obligation to update publicly or revise any forward-looking
statement, regardless of whether new information becomes available, future
developments occur or otherwise.

ITEM 1. BUSINESS

Introduction

Impax Laboratories, Inc. ("we," "us," "our," "the Company" or "IMPAX") is a
technology based, specialty pharmaceutical company focused on the development
and commercialization of generic and brand name pharmaceuticals, utilizing our
controlled-release and other in-house development and formulation expertise. In
the generic pharmaceuticals market, we focus our efforts on controlled-release
generic versions of selected brand name pharmaceuticals across a broad range of
therapeutic areas. We are also developing specialty generic pharmaceuticals
which we believe present one or more competitive barriers to entry, such as
difficulty in raw materials sourcing, complex formulation or development
characteristics, or special handling requirements. In the brand name
pharmaceuticals market, we are developing products for the treatment of central
nervous system, or CNS disorders. Our initial brand name product portfolio
consists of development-stage projects to which we are applying our formulation
and development expertise to develop differentiated, modified, or
controlled-release versions of currently marketed drug substances. We intend to
expand our brand name products portfolio primarily through internal development
and, in addition, through licensing and acquisition.

IMPAX markets its prescription products through its Global Pharmaceuticals
division and intends to market its branded products through its Impax
Pharmaceuticals division. Additionally, where strategically appropriate, IMPAX
has developed and may develop additional marketing partnerships to fully
leverage its technology platform. Prior to December 14, 1999, the Company was
known as Global Pharmaceutical Corporation ("Global"). On December 14, 1999,
Impax Pharmaceuticals, Inc., a privately held drug delivery company, was merged
into the Company and the Company changed its name to Impax Laboratories, Inc.
For accounting purposes, however, the acquisition has been treated as the
recapitalization of Impax Pharmaceuticals, Inc., with Impax Pharmaceuticals,
Inc. deemed the acquirer of Global in a reverse acquisition.

IMPAX is a Delaware corporation with corporate headquarters located at 30831
Huntwood Avenue, Hayward, California. In addition, the Company maintains six
other properties in Pennsylvania and California. For further details, see "Item
2. Properties."

IMPAX, the Impax logo, the Global logo, METHITEST, and LIPRAM are trademarks of
IMPAX. All other trademarks used or referred to in this report are the property
of their respective owners. The following table includes the various trademarks
used in this report and, to our knowledge, the owner of each trademark.


        -----------------------------------   ----------------------------------
        TRADEMARK                             OWNER
        -----------------------------------   ----------------------------------
        Adderall(R) XR                        Shire Pharmaceuticals Group PLC
        -----------------------------------   ----------------------------------
        Allegra-D(R)                          Aventis S.A.
        -----------------------------------   ----------------------------------
        Alavert(TM)                           Wyeth Consumer Products
        -----------------------------------   ----------------------------------
        Aralen(R)                             Sanofi Winthrop Pharmaceutical
        -----------------------------------   ----------------------------------

                                       4

<PAGE>


        -----------------------------------   ----------------------------------
        TRADEMARK                             OWNER
        -----------------------------------   ----------------------------------
        Betapace(R)                           Berlex Laboratories
        -----------------------------------   ----------------------------------
        Brethine(R)                           aaiPharma
        -----------------------------------   ----------------------------------
        Claritin-D(R)                         Schering-Plough Corp.
        -----------------------------------   ----------------------------------
        Claritin(R) Reditabs(R)               Schering-Plough Corp.
        -----------------------------------   ----------------------------------
        Creon(R)                              Solvay Pharmaceuticals
        -----------------------------------   ----------------------------------
        Ditropan XL(R)                        Alza Corporation
        -----------------------------------   ----------------------------------
        Dynacin(R)                            Medicis
        -----------------------------------   ----------------------------------
        Flumadine(R)                          Forest Laboratories, Inc.
        -----------------------------------   ----------------------------------
        Florinef(R)                           King Pharmaceuticals
        -----------------------------------   ----------------------------------
        Mestinon(R)                           ICN Pharmaceuticals
        -----------------------------------   ----------------------------------
        Minocin(R)                            Wyeth Consumer Products
        -----------------------------------   ----------------------------------
        Nexium(R)                             AstraZeneca PLC
        -----------------------------------   ----------------------------------
        Norflex(R)                            3M Pharmaceuticals
        -----------------------------------   ----------------------------------
        OxyContin(R)                          Purdue Pharma L.P.
        -----------------------------------   ----------------------------------
        Pancrease(R)                          McNeil Laboratories
        -----------------------------------   ----------------------------------
        Prilosec(R)                           AstraZeneca PLC
        -----------------------------------   ----------------------------------
        Rilutek(R)                            Aventis S.A.
        -----------------------------------   ----------------------------------
        Sinemet(R)                            Merck & Co.
        -----------------------------------   ----------------------------------
        Triaminic(R) AllerChews(TM)           Novartis
        -----------------------------------   ----------------------------------
        Tricor(R)                             Abbott Laboratories
        -----------------------------------   ----------------------------------
        Ultrase(R)                            Axcan Scandipharm
        -----------------------------------   ----------------------------------
        Urispas(R)                            Ortho-McNeil Pharmaceutical, Inc.
        -----------------------------------   ----------------------------------
        Wellbutrin(R) and Wellbutrin SR(R)    GlaxoSmithKline
        -----------------------------------   ----------------------------------
        Zyban(R)                              GlaxoSmithKline
        -----------------------------------   ----------------------------------

Unless otherwise indicated, all of the sales data in this report is based on
information obtained from NDCHealth Corporation ("NDCHealth") regarding U.S.
sales, all channels for the twelve months ended December 31, 2003.

As of March 5, 2004, we had 60 generic products approved or pending approval by
the U.S. Food and Drug Administration (FDA), or under development, targeting
over $23.0 billion in U.S. yearly product sales. The following summarizes our
product development activities:

     >>  17 abbreviated new drug applications (which we refer to as ANDAs)
         approved by the FDA, which include generic versions of brand name
         pharmaceuticals such as Brethine, Florinef, Minocin, Claritin-D
         12-hour, Claritin-D 24-hour, Wellbutrin SR and Prilosec. All of our
         approved drugs in total target a market of over $2.4 billion in U.S.
         yearly product sales.

     >>  19 applications pending at the FDA, including six tentatively approved,
         that address approximately $6.8 billion in U.S. yearly product sales.
         Fourteen of these filings were made under Paragraph IV of the
         Hatch-Waxman Amendments, including generic versions of OxyContin,
         Allegra D and Tricor, among others.

     >>  24 other products in various stages of development for which
         applications have not yet been filed. These products are for generic
         versions of brand name pharmaceuticals that had U.S. yearly product
         sales of approximately $13.8 billion.

Growth Strategy

We expect our future growth to come from the following:

     >>  Aggressively File ANDAs We intend to continue to develop our portfolio
         of generic pharmaceuticals through the filing of ANDAs. Our product
         development strategy is based on a combination of speed to filing and a
         legal strategy primarily predicated upon non-infringement of

                                       5

<PAGE>

         established brand name pharmaceuticals. In selecting our product
         candidates, we focus on pharmaceuticals that we believe will have
         potential for high sales volume, limited competition, or are
         technically challenging.

     >>  Strategically Expand the Sales and Distribution of Our Products: We
         entered into a strategic alliance with a subsidiary of Teva covering
         twelve of our controlled-release generic pharmaceutical products. Also,
         we entered into an Exclusivity Transfer Agreement with Andrx and a
         subsidiary of Teva pertaining to bioequivalent versions of Wellbutrin
         SR and Zyban. In addition, we have entered into agreements granting
         Novartis, Wyeth, and Schering-Plough marketing rights to market
         over-the-counter (referred to as OTC) versions of our generic Claritin
         (loratadine) products. We will depend on our strategic alliances with
         Teva, Andrx, Novartis, Wyeth, and Schering-Plough to achieve market
         penetration and generate revenues for those products covered by the
         alliances. We may seek additional strategic alliances with these and
         other partners for the expanded marketing and distribution of our
         products.

     >>  Leverage Our Technology and Development Strengths: We intend to
         continue to leverage our technology and development strengths,
         including our patented oral controlled-release drug delivery
         technologies. We have developed nine different proprietary
         controlled-release delivery technologies that can be utilized in a
         variety of oral dosage forms and drug release rates. We believe that
         these technologies are flexible and can be applied to a variety of
         pharmaceutical products, both generic and brand name.

     >>  Continue to Develop Our Brand Name Products: We are focusing our
         efforts on the development of products for the treatment of CNS
         disorders. Our strategy is to build this portfolio primarily through
         internal development, in-licensing, and acquisition. We intend to
         utilize our formulation and development expertise, as well as our drug
         delivery technologies, to develop differentiated, modified, or
         controlled-release variations of currently marketed drug substances
         that we will market as brand name products.

Competitive Strengths

     >>  Product Pipeline. We have filed eight new applications in each of the
         last three calendar years and expect to submit at least six more this
         year. We have built a robust pipeline that, as of March 5, 2004,
         consists of 19 applications pending at the FDA and another 24 products
         in various stages of development.

     >>  Controlled-Release Delivery Technology. By focusing on the development
         of commercial projects rather than purely on technology, we have
         developed a wide range of drug delivery technologies that we have
         applied to 16 projects either approved or pending approval by the FDA.
         We believe that we can use these technologies to improve the
         formulation of a number of existing immediate-release drugs.

     >>  Ability to Gain FDA Approval. We have developed, filed and received
         final approvals from the FDA for seventeen ANDAs. We had a total of
         eight approvals in 2002 (including five tentative approvals) and nine
         approvals in 2003 (including two tentative approvals).

     >>  Strategic Marketing Partners. Our over-the-counter, or OTC, marketing
         partners, Novartis, Wyeth and Schering-Plough, give us access to the
         OTC non-sedating antihistamine market for our generic loratadine
         products. Our marketing partner, Teva, provides us access to the market
         for our generic prescription products.

Background

Controlled-Release Technology

According to NDCHealth, product sales for the oral controlled-release segment of
the U.S. prescription drug market were approximately $32.9 billion for the year
ended December 31, 2003. Controlled-release pharmaceuticals are designed to
reduce the frequency of drug administration, improve the effectiveness of the
drug treatment, ensure greater patient compliance with the treatment regimen,
and reduce side effects or increase drug stability by releasing drug dosages at
specific times and in specific locations in the body.

Oral administration represents the most common form of drug delivery, owing to
its convenience and ease of use. Many orally-administered immediate-release drug
products deliver the majority of their drug components within one to three
hours, requiring administration every four to six hours. As a result, patient
non-compliance is a significant problem for many immediate-release drug
products.

                                       6

<PAGE>

Oral controlled-release technology attempts to circumvent the need for multiple
dosing by extending the release of the active drug so that the drug maintains
its therapeutic usefulness over a longer period of time. The basic tenet of this
technology is to envelop the active ingredient in a system that modulates
release, thereby minimizing the peak-and-trough levels of the drug in the blood,
typically seen with immediate-release formulations. Lowering the peak levels of
drugs in the blood may reduce adverse side effects associated with certain
drugs.

Controlled-release drug delivery technologies can also be effective
product-life-cycle management tools. For example, as a product nears the end of
its patent life, conversion to controlled-release dosing or a different route of
administration could provide an extension to the patent or marketing exclusivity
period. Many pharmaceutical and specialty pharmaceutical companies have
successfully utilized controlled-release technology to develop product line
extensions.

Generic Pharmaceuticals Market

In the last five years, generic pharmaceutical companies have enjoyed
significant growth, due largely to a number of macroeconomic and legislative
trends. Factors impacting growth in the generic pharmaceuticals market include,
but are not limited to:

     >>  ANDA Approvals - ANDA approvals have increased significantly in the
         last eight years. Since 1997, the FDA has approved approximately 309
         ANDAs per year with 373 approved in 2003. During the last ten years,
         the median approval time for ANDAs has been reduced from approximately
         24.2 months to approximately 17.3 months.

     >>  Payor Support for Generic Drugs - Managed care organizations and
         government-sponsored health care programs are increasingly encouraging
         the use of generic drugs as a means to control health care costs. As a
         result, the market share of generic drugs as a percent of total U.S.
         prescription units dispensed has been increased since the passage of
         the Hatch-Waxman Amendments. According to the Generic Pharmaceutical
         Association, or GPhA, generics accounted for 51% of all prescriptions
         dispensed in 2002. This percentage has increased significantly since
         1994 when approximately 36% of the prescriptions in the United States
         were filled with generics.

     >>  Significant Patent Expirations on Brand Name Products - A significant
         number of brand name products with annual sales over $100 million are
         expected to come off patent in the next few years. This represents
         significant opportunity for generic drug companies. The GPhA estimates
         that, over the next 3 years, $35 billion of brand name drugs will lose
         patent protection and, by 2010, $48 billion will lose this protection.

Technology

We have developed nine different proprietary controlled-release delivery
technologies that can be utilized with a variety of oral dosage forms and drugs.
In addition, we have other non-proprietary drug delivery technologies that can
also be utilized for a variety of commercial product opportunities. We believe
that these technologies are flexible and can be applied to develop a variety of
pharmaceutical products, both generic and branded.

Our product development strategy is centered on both proprietary and
non-proprietary drug delivery technology and capabilities. We have developed
several proprietary drug delivery technologies covering the formulation of
dosage forms with controlled-release and multiple modes of release rates. We
have obtained six U.S. patents, have filed 15 applications, and expect to file
up to 8 additional U.S. patent applications and various foreign patent
applications relating to our drug delivery technologies. We also have several
other proprietary controlled-release technologies that are not patented or for
which we have not filed a patent application, and are working to develop
additional new technologies for which we may seek patent protection. Some of our
proprietary technologies are described below.

Our drug delivery technologies utilize a variety of polymers and other materials
to encapsulate or entrap the active drug compound and to release the drug at
varying rates and/or at predetermined locations in the gastrointestinal tract.
In developing an appropriate drug delivery technology for a particular drug
candidate, we consider such factors as:

     >>  desired release rate for the drug;

     >>  physicochemical properties of the drug;

     >>  physiology of the gastrointestinal tract and manner in which the drug
         will be absorbed during passage through the gastrointestinal tract;

                                       7

<PAGE>

     >>  effect of food on the absorption rate and transit time of the drug; and

     >>  in-vivo/in-vitro correlation.

The following summarizes some of our drug delivery technologies:

<TABLE>
<CAPTION>
Drug Delivery Technology                                Description
------------------------                                -----------

<S>                                                     <C>
Concentric Multiple-Particulate Delivery System (CMDS)  Many of today's controlled-release technologies are designed for
                                                        the release of only one active ingredient with one rate of release.
                                                        This release profile may not be adequate for drugs in certain
                                                        therapeutic categories. Our CMDS technology is designed to control the
                                                        release rate of multiple active ingredients in a multi-particulate
                                                        dosage form. This technology allows us to overcome one of the
                                                        technical challenges in the development of multi-particulate dosage
                                                        forms - achieving acceptable uniformity and reproducibility of a
                                                        product with a variety of active ingredients. Our CMDS technology is
                                                        designed to allow for the release of each of the active ingredients
                                                        through an encapsulated form at predetermined time intervals and
                                                        desired levels on a consistent basis. The U.S. Patent and Trademark
                                                        Office ("USPTO") has granted us a patent for CMDS; U.S. Patent No.
                                                        5,885,616.

Timed Multiple-Action Delivery System (TMDS)            Similar to CMDS, this system controls release rates for multiple
                                                        ingredients within a single tablet in a programmed manner. Our TMDS
                                                        technology allows for the release of more than one active ingredient in
                                                        a single tablet formulation to be released in multiple profiles over
                                                        time. The USPTO has granted us a patent for TMDS; U.S. Patent No.
                                                        6,372,254.

Dividable Multiple-Action Delivery System (DMDS)        Our proprietary DMDS system is an extension of our CMDS and TMDS
                                                        technologies. It is designed to provide greater dosing flexibility
                                                        which improves product efficacy and reduces side effects. Traditional
                                                        controlled-release tablets often lose their "controlled" mechanism of
                                                        delivery once broken. Our DMDS technology allows the tablet to be
                                                        broken in half so that each respective portion of the tablet will
                                                        achieve exactly the same release profile as the whole tablet. This
                                                        technology allows the patient and physician to adjust the dosing
                                                        regimen according to the clinical needs without compromising efficacy.
                                                        The USPTO has granted us a patent for DMDS; U.S. Patent No. 6,602,521.

Programmed Multiple-action Delivery System (PMDS)       Our PMDS technology is designed to provide for the multi-phasic
                                                        delivery of any active ingredient in a more controlled fashion as
                                                        compared to typical controlled release technologies. Our PMDS
                                                        technology is designed to allow for the release of the active
                                                        ingredient at predetermined time intervals and desired levels on a
                                                        consistent basis. This technology allows us to overcome one of the
                                                        technical challenges in the development of multi-particulate dosage
                                                        forms - achieving acceptable uniformity and reproducibility of a
                                                        product with a variety of release rates. It is designed to provide
                                                        greater dosing flexibility that improves product efficacy and may
                                                        reduce side effects. We have filed a patent application for PMDS with
                                                        the USPTO.

Multi-Ingredient Multiple-Action Delivery System        Similar to PMDS, this system provides multi-phasic delivery of two or
(MMDS)                                                  more different active ingredients within a single tablet. Our MMDS
                                                        technology allows for the release of more than one active ingredient in
                                                        a single tablet formulation to be released in multiple profiles over
                                                        time in a more controlled fashion as compared to typical controlled
                                                        release technologies. We expect to file a patent application for MMDS
                                                        with the USPTO.
</TABLE>

                                        8

<PAGE>

<TABLE>
<CAPTION>
<S>                                                     <C>
Particle Dispersion Systems (PDS)                       One of the challenges in the formulation of an insoluble drug is to
                                                        achieve satisfactory bioavailability in humans. Our proprietary PDS
                                                        system provides a drug delivery system for the oral administration of
                                                        water insoluble inactive ingredients. The USPTO has granted us a patent
                                                        for PDS: U.S. Patent No. 6,531,158.

Pharmaceutical Stabilization System (PSS)               Our PSS system is designed to create an acidic micro-environment for
                                                        drugs which require an acidic environment to achieve optimal stability.
                                                        We achieve this environment through the addition of an organic acid
                                                        using several salts which retard the degradation of, and therefore
                                                        stabilize, certain active ingredients. The USPTO has granted us a
                                                        patent for PSS: U.S. Patent No. 6,333,332.

Rapid Dissolving Delivery System (RDDS)                 With increasingly active lifestyles and an aging population, allowing
                                                        patients to swallow a tablet without using water has gained popularity
                                                        during the past decade. Our Rapid Dissolving Delivery System enables us
                                                        to manufacture a rapid dissolving tablet and meet this growing patient
                                                        need. We expect to file a patent application for RDDS with the USPTO.

Multiplex Drug Delivery System (MDDS)                   A multiplex drug delivery system suitable for oral administration,
                                                        containing at least two distinct drug dosage packages which exhibit
                                                        equivalent dissolution profiles for an active agent when compared to
                                                        one another and when compared to that of the entire multiplex drug
                                                        delivery unit, and substantially enveloped by a scored film coating
                                                        that allows the separation of the multiplex drug delivery system into
                                                        individual drug dosage packages can provide a convenient and
                                                        cost-effective drug delivery unit, particularly for patients with a
                                                        regimen of prescribed dosages that varies during their treatment
                                                        period. Patent for MDDS: U.S. Patent No. 6,602,521.
</TABLE>

Products and Product Development

We currently market thirty-one generic pharmaceuticals that represent dosage
variations of thirteen different pharmaceutical compounds. Our existing customer
base includes large pharmaceutical wholesalers, warehousing chain drug stores,
mass merchandisers, and mail-order pharmacies. We do not currently market any
brand name pharmaceuticals.

As of March 5, 2004, we had nineteen applications pending at the Food and Drug
Administration ("FDA"), including six tentatively approved, that address
approximately $6.8 billion in U.S. product sales for the twelve months ended
December 31, 2003. Fourteen of these filings were made under Paragraph IV of the
Hatch-Waxman Amendments. We have approximately twenty-four other products in
various stages of development for which applications have not yet been filed.
These products are for generic versions of brand name pharmaceuticals that had
U.S. sales of approximately $13.8 billion for the twelve months ended December
31, 2003.

The following table lists the nine ANDAs which the FDA approved during 2003
(U.S. market size in millions):

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                                                                                                              U.S.
                                                                                                              ----
                             PROJECT                                              TYPE                    MARKET SIZE
                             -------                                              ----                    -----------
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                            <C>
Riluzole Tablets                                                           Specialty Generic                 $ 32
--------------------------------------------------------------------------------------------------------------------------
Pyridostigmine Bromide Tablets                                             Specialty Generic                 $ 17
--------------------------------------------------------------------------------------------------------------------------
Flavoxate Hydrochloride Tablets                                            Specialty Generic                 $  7
--------------------------------------------------------------------------------------------------------------------------
Chloroquine Phosphate Tablets                                              Specialty Generic                 $  3
--------------------------------------------------------------------------------------------------------------------------
Loratadine Orally Disintegrating Tablets                                   Specialty Generic                 $ 39
--------------------------------------------------------------------------------------------------------------------------
Fenofibrate Capsules                                                       Specialty Generic                 $  3
--------------------------------------------------------------------------------------------------------------------------
Loratadine and Pseudoephedrine Sulfate 5/ 120 mg 12-Hr Extended            Controlled-Release Generic        $ 29
Release Tablets
--------------------------------------------------------------------------------------------------------------------------
Oxycodone Hydrochloride 80mg ER Tablets (Tentative)                        Controlled-Release Generic        $634
--------------------------------------------------------------------------------------------------------------------------
Oxycodone Hydrochloride 10, 20 & 40mg ER Tablets (Tentative)               Controlled-Release Generic        $1,182
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                        9

<PAGE>

The following table provides the status as of March 5, 2004 of our
controlled-release and specialty generic projects (U.S. market size in
millions):

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
                                              CONTROLLED-RELEASE
                                                   GENERICS             SPECIALTY GENERICS         TOTAL GENERIC PROJECTS
                                            ---------------------     ---------------------      ---------------------------
----------------------------------------------------------------------------------------------------------------------------
                                            Number of    US Market    Number of    US Market     Number of   US Market Size
                                             Projects       Size       Projects       Size       Projects
----------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>          <C>          <C>           <C>         <C>
Our Development Pipeline:
----------------------------------------------------------------------------------------------------------------------------
Pending, Disclosed........................         10     $  4,825            1       $  591            11          $ 5,416
----------------------------------------------------------------------------------------------------------------------------
Pending, Undisclosed......................          3        1,082            5          300             8            1,382
                                            ---------    ---------    ---------    ---------     ---------   --------------
----------------------------------------------------------------------------------------------------------------------------
Total Projects Pending at FDA.............         13     $  5,907            6       $  891            19          $ 6,798
----------------------------------------------------------------------------------------------------------------------------
Projects Under Development................         17       13,628            7          150            24           13,778
                                            ---------    ---------    ---------    ---------     ---------   --------------
----------------------------------------------------------------------------------------------------------------------------
Total Development Pipeline................         30     $ 19,535           13      $ 1,041            43         $ 20,576
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

The following table provides the summary of our Paragraph IV Filings from 1999
through 2003 (18 projects) (U.S. market size in millions):

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                PROJECT                         GENERIC OF               FILE ORDER*              MARKET SIZE*           FILED
==============================================================================================================================
<S>                                           <C>                      <C>                       <C>                    <C>
Omeprazole 10, 20 & 40 mg DR                     Prilosec              5th of 10 total                  $1,823           4Q99
------------------------------------------------------------------------------------------------------------------------------
Bupropion 100, 150 mg ER                       Wellbutrin SR           3rd of 5 total                   $1,632           2Q00
------------------------------------------------------------------------------------------------------------------------------
Bupropion 150 mg ER                                Zyban               2nd of 4 total                      $73           2Q00
------------------------------------------------------------------------------------------------------------------------------
Fenofibrate 67, 134 & 200 mg                  Tricor Capsules          2nd of 2 total                       $3           2Q00
------------------------------------------------------------------------------------------------------------------------------
Loratadine/PSE 10/240 mg ER                  Claritin-D 24 hr          2nd of 2 total                      $39           3Q00
------------------------------------------------------------------------------------------------------------------------------
Loratadine ODT 10 mg                         Claritin Reditab          3rd of 3 total                      $39           4Q00
------------------------------------------------------------------------------------------------------------------------------
Loratadine/PSE 5/120 mg ER                   Claritin-D 12 hr          1st of 2 total                      $29           4Q00
------------------------------------------------------------------------------------------------------------------------------
Fexofenadine/PSE 60/120 mg ER                    Allegra-D             2nd of 3 total                     $459           4Q01
------------------------------------------------------------------------------------------------------------------------------
Oxycodone 80 mg ER                               OxyContin             3rd of 3 total                     $634           4Q01
------------------------------------------------------------------------------------------------------------------------------
Oxycodone 10,20 & 40 mg ER                       OxyContin             3rd of 3 total                   $1,182           2Q02
------------------------------------------------------------------------------------------------------------------------------
Fenofibrate 54 & 160 mg                       Tricor Tablets           2nd of 4 total                     $591           3Q02
------------------------------------------------------------------------------------------------------------------------------
Carbidopa/Levodopa ER                           Sinemet CR             2nd of 2 total                      $81           4Q02
------------------------------------------------------------------------------------------------------------------------------
Undisclosed                                          -                        -                              -           4Q02
------------------------------------------------------------------------------------------------------------------------------
Undisclosed                                          -                        -                              -           4Q02
------------------------------------------------------------------------------------------------------------------------------
Bupropion 200 mg ER                            Wellbutrin SR           1st of 2 total                     $265           1Q03
------------------------------------------------------------------------------------------------------------------------------
Oxybutynin 5,10 & 15 mg ER                      Ditropan XL            2nd of 2 total                     $362           2Q03
------------------------------------------------------------------------------------------------------------------------------
S.E. Amphetamine 30 mg ER                       Adderall XR            2nd of 2 total                     $151           3Q03
------------------------------------------------------------------------------------------------------------------------------
Undisclosed                                          -                        -                              -           4Q03
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Estimate based on publicly available data.

Controlled-release generic pharmaceuticals

We apply our controlled-release drug delivery technologies and formulation
skills to develop bioequivalent versions of selected brand name pharmaceuticals.
We generally employ our technologies and formulation expertise to develop
products that will reproduce the brand name product's physiological
characteristics but not infringe upon the patents relating to the brand name
product. In applying our expertise to controlled-release products, we focus our
efforts on generic versions of brand name pharmaceuticals that have technically
challenging drug delivery mechanisms. As of March 5, 2004, we had six ANDAs

                                       10

<PAGE>

approved and thirteen ANDAs under review by the FDA for controlled-release
generic pharmaceuticals. Twelve of our pending ANDA filings for
controlled-release generic pharmaceuticals contain certifications under
Paragraph IV of the Hatch-Waxman Amendments. If we believe our product will not
infringe the innovator's patents, and/or that such patents are invalid or
unenforceable, we are required to submit a certification to that effect in our
filing of an ANDA. This certification is known as a "Paragraph IV
Certification."

If the FDA accepts our ANDA for filing, we must send a notice to the patent and
NDA holder that we have filed an ANDA with a Paragraph IV Certification
explaining the basis for our belief that the patent is not infringed and/or is
invalid or unenforceable. The patent holder may then initiate a legal challenge
to the filing of our ANDA within 45 days after receipt of the Paragraph IV
Certification. If a legal challenge is initiated, the FDA is automatically
prevented from approving the ANDA until the earlier of 30 months after the date
the Paragraph IV Certification is given to the patent and NDA holder, expiration
of the patent or patents involved in the certification, or when the infringement
case is decided in our favor. Filings made under the Hatch-Waxman Amendments
often result in the initiation of litigation by the patent holder and NDA
holder.

We have submitted ANDAs for generic versions of the brand name
controlled-release products listed below, all of which are filed with a
Paragraph IV Certification. We will not be able to market any of these products
prior to the earlier of the expiration of the 30-month waiting period or our
obtaining a favorable resolution of the patent litigation, or the expiration of
any generic marketing exclusivity period and, in any case, FDA approval of our
ANDA. For additional information regarding the patent litigation for these
products, see "Item 3 - Legal Proceedings."

Prilosec              In March 2000, the FDA accepted for filing our ANDA
(Omeprazole)          submission for a bioequivalent version of Prilosec, which
                      is used for the treatment of ulcers and gastro esophageal
                      reflux disease, and is currently being marketed by
                      AstraZeneca PLC. AstraZeneca has commenced patent
                      litigation against us with respect to this product in May
                      2000. Our ANDA was granted final approval for the 10 mg
                      and 20 mg strengths, and tentative approval for the 40 mg
                      strength, by the FDA on November 10, 2002.

Wellbutrin SR         In June 2000, the FDA accepted for filing our ANDA
(Bupropion HCl)       submissions for bioequivalent versions of Wellbutrin SR,
Zyban                 which is used to treat depression, and for a bioequivalent
(Bupropion HCl)       version of Zyban. The branded products are currently being
                      marketed by GlaxoSmithKline PLC ("Glaxo"). Glaxo commenced
                      patent infringement litigation against us with respect to
                      these products in November 2000, and in August 2002, the
                      U.S. District Court, Northern District of California,
                      issued an order granting IMPAX's Motion for Summary
                      Judgment of Non-Infringement. This ruling was appealed by
                      Glaxo. We filed an ANDA with the FDA for a bioequivalent
                      version of Wellbutrin SR 200 mg in March 2003. In January
                      2004 the Court of Appeals for the Federal Circuit in
                      Washington, D.C. upheld the lower court decision. Glaxo
                      filed a request for rehearing en banc. In January 2004,
                      our ANDA for our bioequivalent version of Wellbutrin SR
                      was granted final approval for the 100 mg strength while
                      the 150 mg strength was granted tentative approval by the
                      FDA.

Allegra-D             In December 2001, the FDA accepted for filing our ANDA
(Fexofenadine         submission for a bioequivalent version of Allegra-D, which
HCl and               is used for the relief of symptoms associated with
Pseudoephedrine       seasonal rhinitis in adults and children 12 years of age
HCl)                  and older, and is currently marketed by Aventis
                      Pharmaceuticals. Aventis commenced patent litigation
                      against us with respect to this product in March 2002. The
                      FDA granted tentative approval to our ANDA in February
                      2004.

OxyContin             In December 2001, the FDA accepted for filing our ANDA
(Oxycodone HCl)       submission for a bioequivalent version of the 80 mg
                      strength of OxyContin, which is used for the management of
                      moderate to severe pain and is currently marketed by
                      Purdue Pharmaceuticals, L.P. ("Purdue"). Purdue commenced
                      patent litigation against us with respect to this product
                      in April 2002 and the litigation is still ongoing. In June
                      2002, the FDA accepted for filing our ANDA submission for
                      a bioequivalent version of the 40 mg strength of
                      OxyContin. This application was subsequently amended to
                      add the 10 mg and 20 mg strengths. In September 2003, the
                      FDA granted us tentative approval for the 80 mg strength
                      and in December 2003 granted us tentative approval for the
                      10, 20 and 40 mg strengths.

Ditropan XL           In May 2003, the FDA accepted for filing our ANDA
(Oxybutynin           submission for a bioequivalent version of Ditropan XL,
Chloride)             which is used for the treatment of overactive bladder with
                      symptoms of urge urinary incontinence, urgency, and
                      frequency, and is currently being marketed by Alza
                      Corporation, a Johnson & Johnson unit. This application
                      was subsequently amended to add the 5 mg and 10 mg
                      strengths. Alza commenced patent litigation against us
                      with respect to this product in September 2003.

                                       11

<PAGE>

Adderall XR           In September 2003, the FDA accepted for filing our ANDA
(Mixed Salts of a     submission for a bioequivalent version of Adderall XR
Single-Entity         30 mg Capsules. Shire Pharmaceuticals Group PLC markets
Amphetamine           the product for the treatment of Attention Deficit and
Product)              Hyperactivity Disorder (ADHD). Shire commenced patent
                      litigation against us with respect to this product in
                      December 2003.

We have also submitted ANDAs related to three additional products, the details
of which have not been publicly disclosed, with U.S. market size of
approximately $1.1 billion for the twelve months ended December 31, 2003.

We were first to have an ANDA that included a Paragraph IV Certification
accepted for filing by the FDA for the bioequivalent version of Claritin-D
12-hour. The developer of a bioequivalent product who is the first to have its
ANDA containing a Paragraph IV Certification for any bioequivalent drug accepted
for filing by the FDA is awarded a 180-day period of marketing exclusivity
against other companies that subsequently file Paragraph IV Certifications. When
the FDA approved our ANDA in January 2003, our bioequivalent version of
Claritin-D 12-hour was granted the 180-day period of marketing exclusivity. This
exclusivity period ran from commencement of the first commercial marketing of
the product in January 2003. We believe we may have been the first to file with
respect to at least one of our other pending applications with Paragraph IV
Certifications. There can be no certainty, however, until FDA grants final
approval of the ANDA(s).

In June 2002, we signed a semi-exclusive Development, License and Supply
Agreement with Wyeth relating to our Loratadine and Pseudoephedrine Sulfate 5
mg/120 mg 12-hour Extended Release Tablets and Loratadine and Pseudoephedrine
Sulfate 10 mg/240 mg 24-hour Extended Release Tablets for the OTC market under
the Alavert brand. IMPAX is responsible for developing and manufacturing the
products, while Wyeth is responsible for their marketing and sale. The structure
of the agreement includes payment upon achievement of milestones and royalties
paid to IMPAX on Wyeth's sales on a quarterly basis. We commenced shipments to
Wyeth in March 2003, and Wyeth launched this product in May 2003 as Alavert
D-12.

In June 2002, we signed a non-exclusive Licensing, Contract Manufacturing and
Supply Agreement with Schering-Plough relating to our Loratadine and
Pseudoephedrine Sulfate 5 mg/120 mg 12-hour Extended Release Tablets for the OTC
market under the Claritin-D 12-Hour brand. The structure of the agreement
included milestone payments by Schering-Plough and agreed-upon sales prices. We
commenced shipments to Schering-Plough at the end of January 2003, and
Schering-Plough launched our product as its OTC Claritin-D 12-hour in March
2003.

In addition to the products for which we have submitted applications, we have
seventeen other controlled-release ANDA eligible products in various stages of
development. The total U.S. market size of these products was approximately
$13.6 billion in the twelve months ended December 31, 2003. We are continually
evaluating these and other potential product candidates. In selecting our target
product candidates, we focus on pharmaceuticals which we believe will have
potential for high sales volume, are technically challenging, and may be
suitable for filing under Paragraph IV Certification.

Other generic pharmaceuticals

We are also developing other generic pharmaceuticals that present one or more
competitive barriers to entry, such as difficulty in raw material sourcing,
complex formulation or development characteristics, or special handling
requirements.

As of March 5, 2004, we had six applications pending at the FDA for specialty
generic pharmaceuticals, two of which were made under Paragraph IV of the
Hatch-Waxman Amendments. These applications are for products that are generic
versions of brand name pharmaceuticals whose total U.S. market size was
approximately $891 million for the twelve months ended December 31, 2003. We
have an additional seven other products under development relating to brand name
products that had approximately $150 million in total U.S. sales for the twelve
months ended December 31, 2003.

We have submitted ANDAs for generic versions of the following brand name
products, the first one of which was filed with a Paragraph IV Certification. We
will not be able to market any of these products prior to the earlier of the
expiration of the 30-month waiting period or our obtaining a favorable
resolution of the patent litigation, or the expiration of any generic marketing
exclusivity period and, in any case, FDA approval of our ANDA. For additional
information regarding the patent litigation for these products, see "Item 3 -
Legal Proceedings."

Tricor Tablets        In December 2002, the FDA accepted for filing our ANDA
(Fenofibrate)         submission for a bioequivalent version of Tricor 160 mg
                      Tablets, which is used for the treatment of very high
                      serum triglyceride levels, currently marketed by Abbott.
                      Abbott commenced patent infringement litigation against us
                      with respect to this product in January 2003. The
                      application was later amended to include the 54 mg
                      strength. We are currently scheduled to proceed to trial
                      in June 2005. We received tentative approval of this ANDA
                      in March 2004.

                                       12

<PAGE>

Rilutek Tablets       In May 2001, the FDA accepted for filing our ANDA
(Riluzole)            submission for a bioequivalent version of Rilutek Tablets,
                      which is used in the treatment of amyotrophic lateral
                      sclerosis (ALS), also known as Lou Gehrig's disease. In
                      June 2002, we received tentative FDA approval of this ANDA
                      due to the Orphan Drug Exclusivity for Rilutek that
                      extended through December 2002. In June 2002, we filed a
                      declaratory judgment action seeking a Judicial Declaration
                      of Invalidity against Aventis regarding U.S. Patent No.
                      5,527,814 that had only recently been listed by Aventis in
                      the FDA "Orange Book." FDA granted us tentative approval
                      for this application in July 2002. In December 2002, the
                      U.S. District Court of Wilmington, Delaware, granted the
                      Preliminary Injunction Motion brought by Aventis in
                      October 2002 to forestall our entry into this market. We
                      received final FDA approval of this ANDA in January 2003.
                      A trial was held in October 2003 and we are currently
                      awaiting a decision from the court.

We have also submitted applications relating to five additional products, the
details of which have not been publicly disclosed, with U.S. market size of
approximately $300 million for the twelve months ended December 31, 2003.

In December 2001, we entered into a license and supply agreement granting to
Novartis exclusive rights to market our OTC Loratadine Orally Disintegrating
Tablets (generic of Claritin Reditabs) product in the pediatric market. Under
the terms of the agreement, IMPAX is responsible for developing and
manufacturing the product, while Novartis is responsible for its marketing and
sale. The structure of the agreement includes milestone payments and a royalty
on Novartis' sales. Novartis launched this product in February 2004 as Triaminic
AllerChews.

Brand name pharmaceuticals

In the brand name pharmaceuticals market, we are focusing our efforts on the
development of products for the treatment of Central Nervous System ("CNS")
disorders. Our strategy is to build this portfolio primarily through internal
development and through licensing and acquisition. We intend to utilize our
formulation and development expertise as well as our drug delivery technologies
in the formulation of off-patent drug substances as differentiated, modified, or
controlled-release pharmaceutical products that we will market as brand name
products. Barry R. Edwards, our Chief Executive Officer, Larry Hsu, Ph.D., our
President, and Nigel Fleming, Ph.D., a Director, all have experience in
developing and/or marketing products for the treatment of CNS disorders.

According to NDCHealth, CNS is the largest therapeutic category in the U.S. with
2003 retail sales of $41 billion, or 18.8% of the $218 billion U.S. retail drug
market. CNS drug sales grew 8.1% in 2003 versus a sales growth of 3.9% for the
entire industry.

CNS disorders include ailments such as Alzheimer's disease, attention deficit
hyperactivity, depression, epilepsy, migraines, multiple sclerosis, Parkinson's
disease, and schizophrenia. There are approximately 8,300 neurologists, of
which, historically, a concentrated number are responsible for writing the
majority of neurological CNS prescriptions.

We have four CNS projects under development. We are currently evaluating up to
eleven additional brand name projects.

These potential products may require us to file additional Investigational New
Drug applications ("IND"s) with the FDA before commencing clinical trials, and
New Drug Applications ("NDA"s) in order to obtain FDA approval. In 2003, we
filed two INDs with the FDA. We believe that developing 505(b)(2) type NDAs for
these brand name products provides us with strategic advantages, including a
significant reduction in the cost and time to develop these products. We believe
that the development risks for these products are reduced compared to new
chemical entities because the FDA has previously evaluated and approved the
chemical entities being utilized in these products. We believe we may be
eligible for FDA marketing exclusivity rights for certain products which we
develop in our brand name drug development programs.

Competition

The pharmaceutical industry is highly competitive and is affected by new
technologies, new developments, government regulations, health care legislation,
availability of financing, and other factors. Many of our competitors have
longer operating histories and greater financial, research and development,
marketing, and other resources than us. We are in competition with numerous
other entities that currently operate, or intend to operate, in the
pharmaceutical industry, including companies that are engaged in the development
of controlled-release drug delivery technologies and products, and other

                                       13

<PAGE>

manufacturers that may decide to undertake in-house development of these
products. Due to our focus on relatively hard-to-replicate controlled-release
products, competition is often limited to those competitors who possess the
appropriate drug delivery technology.

The principal competitive factors in the generic pharmaceutical market include:

     >>  the ability to introduce generic versions of products promptly after a
         patent expires;
     >>  price;
     >>  quality of products;
     >>  customer service (including maintenance of inventories for timely
         delivery);
     >>  breadth of product line; and
     >>  the ability to identify and market niche products.

In the brand name pharmaceutical market, we expect to compete with large
pharmaceutical companies, other drug delivery companies, and other specialty
pharmaceutical companies that have focused on CNS disorders.

Sales and Marketing

Customers

Our existing customer base includes pharmaceutical wholesalers, warehousing
chain drug stores, mass merchandisers and mail-order pharmacies. We market our
generic products through personal sales calls, direct advertising and promotion,
as well as trade journal advertising and attendance at major trade shows and
conferences. In addition, we market our OTC products through strategic alliances
with Novartis, Wyeth and Schering-Plough. We have four major customers,
Amerisource-Bergen, Cardinal Health, McKesson, and Schering-Plough that
accounted for approximately 64% of total sales for the year ended December 31,
2003.

Controlled-release and other generics

In June 2001, we entered into a strategic alliance agreement with a subsidiary
of Teva Pharmaceutical Industries, Ltd. ("Teva") for twelve controlled-release
generic products. The agreement granted Teva exclusive U.S. prescription
marketing rights for six of our products pending approval at the FDA, and six
products under development at the time the agreement was signed. Teva elected to
commercialize a competing product to one of the products, which it developed
internally. Pursuant to the agreement, we have elected to participate in the
development and commercialization of Teva's competing product and share in the
gross margin of such product. The agreement allows us to enter into agreements
with other companies relating to the development, supply and marketing of these
products for the OTC market.

Our current prescription products are marketed through our Global
Pharmaceuticals division while OTC products are marketed through strategic
partners. We also intend to market future generic products through the Global
Pharmaceuticals division and strategic partners. We depend on our strategic
alliances for market penetration and revenue generation for products covered by
those alliances. IMPAX may seek additional alliances for expanded marketing and
distribution of our products.

The Global Pharmaceuticals division markets solid oral prescription
pharmaceuticals primarily to the generic sector of the pharmaceutical market.
Our existing customer base includes pharmaceutical wholesalers, warehousing
chain drug stores, mass merchandisers, and mail-order pharmacies. The sale of
the generic line requires a small, targeted sales and marketing group. We market
our generic products through personal sales calls, direct advertising and
promotion, trade journal advertising, and attendance at major trade shows and
conferences.

We intend to concentrate our generic sales and marketing efforts on large
distribution partners because their national presence can provide access to a
greater number of customers and patients. These supply chain partners
traditionally support the sales process and help generate product demand.

We believe our customer base, with respect to our existing generic products,
provides us with an established distribution base into which we can sell our new
products if and when FDA approvals are received.

                                       14

<PAGE>

Brand name products

We anticipate that brand name products will be marketed through our Impax
Pharmaceuticals division. Our brand name sales strategy consists of targeting
the high-volume prescribing physicians, first on a selective regional basis, and
then expanding the sales force nationally, as required. There are approximately
8,300 neurologists, of which, historically, a concentrated number are
responsible for writing the majority of neurologists' CNS prescriptions. We
believe this concentration will allow us to maintain a relatively small sales
and marketing group for CNS products. We currently do not market any brand name
products.

Strategic Alliances

Strategic Alliance with Teva

In June 2001, we entered into a Strategic Alliance Agreement with a subsidiary
of Teva for twelve controlled-release generic pharmaceutical products. According
to Teva, which is headquartered in Israel, Teva is among the top 30
pharmaceutical companies and among the largest generic pharmaceutical companies
in the world. Close to 90% of Teva's sales are in North America and Europe. Teva
develops, manufactures, and markets generic and brand name pharmaceuticals and
active pharmaceutical ingredients.

The agreement granted Teva exclusive U.S. prescription marketing rights for six
of our products pending approval at the FDA and six products under development
at the time the agreement was signed. The six products for which ANDAs were
already filed at the time of the agreement were Omeprazole 10 mg, 20 mg, and 40
mg Delayed Released Capsules (generic of Prilosec), Bupropion Hydrochloride 100
mg and 150 mg Extended Release Tablets (generic of Wellbutrin SR), Bupropion
Hydrochloride 150 mg Extended Release Tablets (generic of Zyban), Loratadine and
Pseudoephedrine Sulfate 5 mg/120 mg 12-hour Extended Release Tablets (generic of
Claritin-D 12-Hour) and Loratadine and Pseudoephedrine Sulfate 10 mg/240 mg 24
hour Extended Release Tablets (generic of Claritin-D 24-hour) and Loratadine
Orally Disintegrating Tablets (generic of Claritin Reditabs). Of the six
products under development, four have since been filed with the FDA. Teva
elected to commercialize a competing product to one of the four products filed
since June 2001, which it developed internally. Pursuant to the agreement, we
have elected to participate in the development and commercialization of Teva's
competing product and share in the gross margins of such product. Teva also had
an option to acquire exclusive marketing rights in the rest of North America,
South America, the European Union, and Israel for these products. We will be
responsible for supplying Teva with all of its requirements for these products
and will share with Teva in the gross margins from its sale of the products. We
will depend on our strategic alliance with Teva to achieve market penetration
for these products and to generate product revenues for us. Teva's exclusive
marketing right for each product will run for a period of ten years in each
country from the date of Teva's first sale of that product. Unless either party
provides appropriate notice, this ten-year period will automatically be extended
for two additional years.

As part of the strategic alliance agreement, Teva will share some of our costs
relating to the twelve products. For the six products which were pending
approval at the FDA in June 2001, Teva will pay 50% of the attorneys' fees and
costs of obtaining FDA approval, including the fees and costs for the patent
infringement litigation instituted by brand name pharmaceutical manufacturers in
excess of the $7.0 million covered by our patent litigation insurer. For three
other products, for which we have since filed ANDAs with the FDA, Teva will pay
45% of all fees, costs, expenses, damages or awards, including attorneys' fees,
related to patent infringement claims with respect to these products. For the
remaining three products, Teva will pay 50% of these fees, costs, expenses,
damages or awards.

We also agreed to sell to Teva an aggregate of $15.0 million worth of our common
stock in four equal installments, with the last sale occurring on June 15, 2002.
Teva purchased a total of 1,462,083 shares of our common stock. The price of the
common stock was equal to the average closing sale price of our common stock
measured over a ten-trading-day period ending two days prior to the date when
Teva acquired the common stock. However, on the date Teva completes its first
sale of any one of six products specified in our alliance agreement, we may
repurchase from Teva 16.66% (243,583) of these shares for an aggregate of $1.00.

In addition, in consideration for the potential transfer of the marketing
rights, we received $22.0 million from Teva which assisted in the construction
and improvement of our Hayward, California facilities and the development of the
twelve products specified in our Strategic Alliance Agreement. The $22 million
was reflected on the balance sheet as a refundable deposit. The refundable
deposit was provided in the form of a loan. Pursuant to the agreement, accrued
and future interest on the refundable deposit was forgiven during 2002 as a
result of our receipt of tentative or final approvals for at least three of our
products. In addition, Teva forgave portions of this loan as we achieved certain
milestones relating to the development and launch dates of the products
described in our strategic alliance agreement. In addition, by requiring us to
repay only 50% of the portion of the loan related to certain missed milestones,
Teva chose to continue to have exclusive marketing rights for those products. At
our option, we could repay Teva any amounts we owed them as part of the loan in
cash or in shares of our common stock. The price of the common stock for
purposes of repaying any amounts owed under the loan was the average closing
sale price of our common stock measured over a ten-trading-day period ending two
days prior to repayment.

                                       15

<PAGE>

In September 2003, we issued 888,918 shares of our common stock to Teva, paying
$13.5 million of the original $22.0 million refundable deposit. In December
2003, Teva exercised its option to retain marketing exclusivity for certain
products and, accordingly, reduced the refundable deposit by $3.5 million to
$5.0 million.

In January 2004, Teva's exercise of the marketing exclusivity option for certain
products reduced the refundable deposit to $2.5 million. On January 15, 2004, we
satisfied the remaining $2.5 million refundable deposit obligation to Teva by
issuing 160,951 shares of our common stock to Teva. As of February 27, 2004, to
our knowledge, Teva owns 2,511,952 shares of our common stock, or approximately
4.3% of the outstanding common stock.

Strategic Alliance with Andrx and Teva

In July 2003, we entered into an Exclusivity Transfer Agreement with Andrx and a
subsidiary of Teva pertaining to pending ANDAs for bioequivalent versions of
Wellbutrin SR and Zyban (Bupropion Hydrochloride) 100 mg and 150 mg Extended
Release Tablets filed by Andrx, as well as by us. Pursuant to our existing
strategic alliance agreement with Teva, Teva has U.S. marketing rights to our
versions of these products. These two strengths of Wellbutrin SR and Zyban,
marketed by GlaxoSmithKline, had U.S. sales of over $1.74 billion for the
twelve-month period ended December 31, 2003 according to NDCHealth.

The parties to the agreement believe that the Andrx ANDAs for the products are
entitled, under the Hatch-Waxman Act, to a 180-day period of marketing
exclusivity. Under the Exclusivity Transfer Agreement, Andrx will continue to
seek approval of its ANDAs. The agreement provides, among other things, that if
Andrx is unable to launch its own products within a defined period of time, and
we are able to market our products, Andrx will enable us to launch our own
products through Teva, with the parties sharing certain payments with Andrx
relating to the sale of the products for a 180-day period. Should Andrx launch
its own products prior to our product launch, it will share with us certain
payments for a 180-day period.

OTC Alliances

In December 2001, we entered into a License and Supply Agreement granting to
Novartis exclusive rights to market our OTC Loratadine Orally Disintegrating
Tablets (generic Claritin Reditabs) for the pediatric market. Under the terms of
the agreement, IMPAX is responsible for developing and manufacturing the
product, while Novartis is responsible for its marketing and sale. The structure
of the agreement includes payment upon achievement of milestones and royalties
paid on Novartis' sales to IMPAX on a quarterly basis. Novartis launched this
product in February 2004 as Triaminic AllerChews.

In June 2002, we signed a semi-exclusive Development, License and Supply
Agreement with Wyeth relating to our Loratadine and Pseudoephedrine Sulfate 5
mg/120 mg 12-hour Extended Release Tablets and Loratadine and Pseudoephedrine
Sulfate 10 mg/240 mg 24-hour Extended Release Tablets for the OTC market under
the Alavert brand. IMPAX is responsible for developing and manufacturing the
products, while Wyeth is responsible for their marketing and sale. The structure
of the agreement includes payment upon achievement of milestones and royalties
paid to IMPAX on Wyeth's sales on a quarterly basis. Wyeth launched this product
in May 2003 as Alavert D-12.

In June 2002, we signed a non-exclusive Licensing, Contract Manufacturing and
Supply Agreement with Schering-Plough relating to our Loratadine and
Pseudoephedrine Sulfate 5 mg/120 mg 12-hour Extended Release Tablets for the OTC
market under the Claritin-D 12-hour brand. The structure of the agreement
included milestone payments by Schering-Plough and agreed upon sales prices.
Shipments to Schering-Plough commenced at the end of January 2003.
Schering-Plough launched our product as its OTC Claritin-D 12-hour in March
2003.

MANUFACTURING

We manufacture our finished dosage form products at our Hayward, California,
Building 2 facility and then package, warehouse and distribute the products from
our Philadelphia facility. This strategy allows us to use the lower operating
cost and larger Philadelphia facility for packaging and warehousing, which
requires significant space, while focusing Building 2 on tablet and capsule
manufacturing, which requires less space. The facility currently manufactures
Loratadine and Pseudoephedrine Sulfate 5 mg/120 mg 12-hour Extended Release
Tablets, Orphenadrine Citrate 100 mg Extended Release Tablets, Sotalol
Hydrochloride 80 mg, 120 mg, 160 mg, and 240 mg Tablets, METHITEST
(Methyltestosterone) Tablets, Minocycline Hydrochloride 50 mg, 75 mg, and 100 mg
Capsules, Fludrocortisone Acetate Tablets 0.1 mg, Terbutaline Sulfate 2.5 mg and
5.0 mg Tablets, Rimantadine Hydrochloride 100 mg Tablets, Flavoxate HCl Tablets

                                       16

<PAGE>

0.1 mg, Chloroquine Phosphate Tablets 250 mg, and Pyridostigmine Bromide Tablets
60 mg. We are also currently manufacturing additional products in anticipation
of future product launches. We began full-scale manufacturing in this facility
in June 2002 and believe we have sufficient capacity to produce new products in
the future. During the fourth quarter of 2003, we were using about 60% of our
estimated annual production capacity of up to approximately 1.0 to 1.5 billion
tablets and capsules.

Our research and development activities are situated in Hayward, California,
Building 1. Research and development expenses for the years ended December 31,
2003, 2002, and 2001 were $16,938,000, $15,549,000 and $10,972,000,
respectively. We believe this proximity allows for a more efficient transfer and
scale-up of products from research and development to manufacturing. Currently,
Building 1 serves as our research and development center and analytical
development laboratory, and has a pilot plant that can accommodate most of our
current development work. This facility will also provide space for the
expansion of our development resources in future years. Our Building 5 in
Hayward, California houses production materials for our California operations.

Currently, our Philadelphia facility packages and distributes the ten pancreatic
enzyme products that comprise our LIPRAM family of products, in addition to the
products manufactured in Hayward and by others. A third party, Eurand America,
Inc., for whom we distribute these products under an exclusive
license/distribution agreement, manufactures the LIPRAM family of products.

RAW MATERIALS

The active chemical raw materials, essential to IMPAX's business, are generally
readily available from multiple sources in the U.S. and throughout the world.
Certain raw materials used in the manufacture of our products are, however,
available from limited sources and, in some cases, a single source. Any
curtailment in the availability of such raw materials could result in production
or other delays and, in the case of products for which only one raw material
supplier exists or has been approved by the FDA, could result in material loss
of sales with consequent adverse effects on our business and results of
operations. Also, because raw material sources for pharmaceutical products must
generally be identified and approved by regulatory authorities, changes in raw
material suppliers may result in production delays, higher raw material costs,
and loss of sales and customers. IMPAX obtains a portion of its raw materials
from foreign suppliers, and its arrangements with such suppliers are subject to,
among other risks, FDA approval, governmental clearances, export duties,
political instability, and restrictions on the transfers of funds.

In addition, recent changes in patent laws in foreign jurisdictions may make it
increasingly difficult to obtain raw materials for research and development
prior to expiration of applicable U.S. or foreign patents. Any inability to
obtain raw materials on a timely basis, or any significant price increases that
can not be passed on to customers, could have a material adverse effect on us.

To date, IMPAX has not experienced any significant delays from lack of raw
material availability. However, significant delays may occur in the future.

QUALITY CONTROL

In connection with the manufacture of drugs, the FDA requires testing procedures
to monitor the quality of the product, as well as the consistency of its
formulation. We maintain a quality control laboratory that performs, among other
things, analytical tests and measurements required to control and release raw
materials, in-process materials, and finished products, and to routinely test
marketed products to ensure they remain within specifications.

Quality monitoring and testing programs and procedures have been established by
us in our effort to assure that all critical activities associated with the
production, control, and distribution of our drug products will be carefully
controlled and evaluated throughout the process. By following a series of
systematically organized steps and procedures, we seek to assure that
established quality standards will be achieved and built into the product.

Our policy is to continually seek to meet the highest quality standards, with
the goal of thereby assuring the quality, purity, safety, and efficacy of each
of our drug products. We believe that adherence to high operational quality
standards will also promote more efficient utilization of personnel, materials,
and production capacity.

REGULATION

The manufacturing, distribution, processing, formulation, packaging, labeling
and advertising of our products are subject to extensive regulation by federal
agencies, including the FDA, the Federal Trade Commission (FTC), the Drug
Enforcement Administration (DEA), the Consumer Product Safety Commission and the

                                       17

<PAGE>

Environmental Protection Agency (EPA), among others. We are also subject to
state and local laws, regulations and agencies in California, Pennsylvania, and
elsewhere. The Federal Food, Drug, and Cosmetic Act ("FFDCA"), the Prescription
Drug Marketing Act of 1987 ("PDMA"), the Controlled Substances Act, the Generic
Drug Enforcement Act of 1992, and other federal statutes and regulations govern
or influence the manufacture, labeling, testing, storage, record-keeping,
approval, advertising and promotion of our products. Noncompliance with
applicable requirements can result in recalls, seizure of products, injunctions,
suspension of production, refusal of the government to enter into supply
contracts or to approve drug applications, civil and criminal fines, criminal
prosecution, and disgorgement of profits.

FDA approval is required before any "new drug," as defined in Section 201(p) of
the FFDCA, may be distributed in interstate commerce. A drug that is the generic
equivalent of a previously approved prescription drug (referred to as the
"reference listed drug") also requires FDA approval. Many OTC drugs also require
FDA pre-approval if the OTC drug is not covered by, or does not conform to, the
conditions specified in an applicable OTC Drug Product Monograph and is
therefore considered a new drug.

All facilities engaged in the manufacture, packaging, labeling and repackaging
of drug products must be registered with the FDA and are subject to FDA
inspection to ensure that drug products are manufactured in accordance with
current Good Manufacturing Practices. For fiscal year 2004, annual establishment
fees for facilities that produce products subject to NDAs are approximately
$226,800, and product listing fees are approximately $36,080 per product.

Generally, two types of applications are used to obtain FDA approval of a "new
drug:"

New Drug Application (NDA) - For drug products with an active ingredient or
ingredients or indications not previously approved by the FDA, a prospective
manufacturer must submit a complete application containing the results of a
clinical study or studies supporting the drug product's safety and efficacy.
These studies may take anywhere from two to five years, or more. An NDA may also
be submitted through Section 505(b)(2) for a drug with a previously approved
active ingredient if the drug will be used to treat an indication for which the
drug was not previously approved, if the method of delivery is changed, or if
the abbreviated procedure discussed below is not available. Currently, FDA
approval of an NDA, on average, is estimated to take approximately 12 to 15
months following submission to the FDA. During fiscal year 2004, user fees to
file an NDA are approximately $573,500.

Abbreviated New Drug Application (ANDA) - The Drug Price Competition and Patent
Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments,
established an abbreviated new drug application procedure for obtaining FDA
approval of generic versions of certain drugs. An ANDA is similar to an NDA
except that the FDA waives the requirement that the applicant conduct and submit
to the FDA clinical studies to demonstrate the safety and effectiveness of the
drug. Instead, for drugs that contain the same active ingredient and are of the
same route of administration, dosage form, strength and indication(s) as drugs
already approved for use in the United States, the FDA ordinarily only requires
bioavailability data demonstrating that the generic formulation is bioequivalent
to the previously approved reference listed drug, indicating that the rate of
absorption and the levels of concentration of the generic drug in the body do
not show a significant difference from those of the previously approved
reference listed drug product. According to information published by the FDA,
the FDA currently takes approximately 18 to 20 months on average to approve an
ANDA following the date of its first submission to the FDA. Currently, the FFDCA
does not require applicants to pay user fees for ANDAs.

Patent certification requirements for generic drugs could also result in
significant delays in obtaining FDA approvals. First, where patents covering a
reference listed drug are alleged to be invalid, unenforceable, or not infringed
by an ANDA applicant, the holder or holders of the brand name drug patents may
institute patent infringement litigation and obtain a stay of up to 30 months of
approval of an ANDA, and for ANDA's of products whose patent information was
listed before August 2003, potentially multiple 30 month stays. Second, the
first company to submit an ANDA for a given drug, which the FDA accepts for
filing, and which certifies that an unexpired patent covering the reference
listed brand name drug is invalid, unenforceable, or will not be infringed by
its product, can be awarded 180 days of market exclusivity following approval of
its ANDA during which the FDA may not approve any other ANDAs for that drug
product.

On November 20, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (MMA) was enacted. Title X of the MMA amended
provisions of the Hatch-Waxman Amendments relating to the 30-month stay of the
FDA approval following institution of patent infringement litigation in response
to notice of a Paragraph IV Certification, the content and timing of notices to
NDA and patent holders made when an ANDA applicant submits an ANDA with a
Paragraph IV Certification, and the 180-day exclusivity to the first generic
applicant filing an ANDA with a Paragraph IV Certification. The major change in
the law pursuant to the MMA is to eliminate, in most cases, multiple 30-month
stays for ANDAs. The law also clarifies when the 30-month stay is terminated,
how, when, and what notice is given to the NDA and patent holder to the filing
of an ANDA with a Paragraph IV certification, what triggers 180-day exclusivity
and how it is forfeited, and which applicant is entitled to 180-day exclusivity
when more than one patent is challenged.

                                       18

<PAGE>

While the Hatch-Waxman Amendments codify the ANDA mechanism for generic drugs,
they also foster pharmaceutical innovation through incentives that include
market exclusivity and patent term extension. First, the Hatch-Waxman Amendments
provide two distinct market exclusivity provisions that either preclude the
submission or delay the approval of an abbreviated drug application for a drug
product. A five-year marketing exclusivity period is provided for new chemical
compounds, and a three-year marketing exclusivity period is provided for
approved applications containing new clinical investigations essential to an
approval, such as a new indication for use or new delivery technologies or new
dosage forms. The three-year marketing exclusivity period would be applicable
to, among other things, the development of a novel drug delivery system, as well
as a new use. In addition, companies can obtain six additional months of
exclusivity if they perform pediatric studies of a reference listed drug
product. The marketing exclusivity provisions apply equally to patented and
non-patented drug products.

Second, the Hatch-Waxman Amendments provide for patent term extensions to
compensate for patent protection lost due to time taken in conducting FDA
required clinical studies and during FDA review of NDAs. Patent term extension
may not exceed five additional years, nor may the total period of patent
protection following FDA marketing approval be extended beyond 14 years. In
addition, by virtue of the Uruguay Round Agreements Act of 1994 that ratified
the General Agreement on Tariffs and Trade ("GATT"), certain brand name drug
patent terms have been extended to 20 years from the date of filing of the
pertinent patent application (which can be longer than the former patent term of
17 years from date of issuance of a patent). These extensions can further delay
ANDA effective dates. Patent term extensions may delay the ability of IMPAX to
use its proprietary technology in the future to market new extended release
products, file section 505(b)(2) NDAs referencing approved products (see below),
and file ANDAs based on reference listed drugs when those approved products or
listed drugs have acquired patent term extensions.

With respect to any drug with active ingredients not previously approved by the
FDA, a prospective manufacturer must submit a full NDA, including complete
reports of pre-clinical, clinical, and other studies to prove that product's
safety and efficacy for its intended use or uses. An NDA may also need to be
submitted for a drug with a previously approved active ingredient if, among
other things, the drug will be used to treat an indication for which the drug
was not previously approved, if the method of delivery is changed, or if the
abbreviated procedure discussed above is otherwise not available. A manufacturer
intending to conduct clinical trials for a new drug compound as part of an NDA
is required first to submit an Investigational New Drug ("IND") application to
the FDA containing information relating to pre-clinical and planned clinical
studies. The full NDA process is expensive and time consuming. Controlled or
extended-release versions of approved immediate-release drugs will require the
filing of an NDA. The FDA will not accept ANDAs when the delivery system or
duration of drug availability differs significantly from the reference listed
drug. However, the FFDCA provides for NDA submissions that may rely in whole or
in part on publicly available clinical data on safety and efficacy under section
505(b)(2) of the FFDCA. We may be able to rely on the existing safety and
efficacy data for a chemical entity in filing NDAs for extended-release products
when the data exists for an approved immediate-release version of that chemical
entity. However, the FDA may not accept our applications under section
505(b)(2), or that the existing data may not be available or useful. Utilizing
the section 505(b)(2) NDA process is uncertain because we have not had
significant experience with it. Additionally, under the Prescription Drug User
Fee Act of 1992, as amended by the Prescription Drug User Fee Amendments of
2002, all NDAs require the payment of a substantial fee upon filing, and other
establishment and product fees must be paid annually after approval. These fees
increase on an annual government fiscal year basis. No assurances exist that, if
approval of an NDA is required, the approval can be obtained in a timely manner,
if at all.

PDMA, which amends various sections of the FFDCA, requires, among other things,
state licensing of wholesale distributors of prescription drugs under federal
guidelines that include minimum standards for storage, handling, and
recordkeeping. It also sets forth civil and criminal fines and penalties for
violations of these and other provisions. Failure to comply with the wholesale
distribution provisions and other requirements of the PDMA could have a
materially adverse effect on IMPAX's financial condition, results of operations,
and cash flows.

Among the requirements for new drug approval is the requirement that the
prospective manufacturer's facility, production methods and recordkeeping
practices, among other factors, conform to FDA regulations on current Good
Manufacturing Practices. The current Good Manufacturing Practices regulations
must be followed at all times when the approved drug is manufactured. In
complying with the standards set forth in the current Good Manufacturing
Practices regulations, the manufacturer must expend time, money and effort in
the areas of production and quality control to ensure full technical and
regulatory compliance. Failure to comply can result in possible FDA actions,
such as the suspension of manufacturing, seizure of finished drug products,
injunctions, consent orders, payment of civil and criminal fines, civil and
criminal penalties, and disgorgement of profits. Federal, state and local laws
of general applicability, such as laws regulating working conditions, also
govern us.

                                       19

<PAGE>

The Generic Drug Enforcement Act of 1992 establishes penalties for wrongdoing in
connection with the development or submission of an ANDA. In general, FDA is
authorized to temporarily bar companies, or temporarily or permanently bar
individuals, from submitting or assisting in the submission of an ANDA, and to
temporarily deny approval and suspend applications to market off-patent drugs
under certain circumstances. In addition to debarment, FDA has numerous
discretionary disciplinary powers, including the authority to withdraw approval
of an ANDA or to approve an ANDA under certain circumstances and to suspend the
distribution of all drugs approved or developed in connection with certain
wrongful conduct.

We are subject to the Maximum Allowable Cost ("MAC") Regulations which limit
reimbursements for certain generic prescription drugs under Medicare, Medicaid,
and other programs to the lowest price at which these drugs are generally
available. In many instances, only generic prescription drugs fall within the
MAC Regulations' limits. Generally, the pricing and promotion of, method of
reimbursement and fixing of reimbursement levels for, and the reporting to
Federal and state agencies relating to drug products is under active review by
federal, state and local governmental entities, as well as by private
third-party reimbursers, and individuals under whistleblower statutes. At
present, the Justice Department and U.S. Attorneys Offices and State Attorneys
General have initiated investigations, reviews, and litigation into
industry-wide pharmaceutical pricing and promotional practices, and
whistleblowers have filed qui tam suits. We cannot predict the results of those
reviews, investigations, and litigation or their impact on our business.

Virtually every state, as well as the District of Columbia, has enacted
legislation permitting the substitution of equivalent generic prescription drugs
for brand name drugs where authorized or not prohibited by the prescribing
physician, and currently 13 states mandate generic substitution in Medicaid
programs.

In addition, numerous state and federal requirements exist for a variety of
controlled substances which may be part of our product formulations. For
example, the DEA regulates narcotics. The DEA, which has similar authority to
the FDA and may also pursue monetary penalties, and other federal and state
regulatory agencies have far-reaching authority.

The State of California requires that any manufacturer, wholesaler, retailer or
other entity in California that sells, transfers or otherwise furnishes certain
so-called precursor substances must have a permit issued by the California
Department of Justice, Bureau of Narcotic Enforcement (BNE). The substances
covered by this requirement include ephedrine, pseudoephedrine,
norpseudoephedrine and phenylpropanolamine, among others. The BNE has authority
to issue, suspend and revoke precursor permits. According to the California
Health and Safety Code, a permit may be denied, revoked or suspended for various
reasons, including: (i) failure to maintain effective controls against diversion
of precursors to unauthorized persons or entities; (ii) failure to comply with
the Health and Safety Code provisions relating to precursor substances, or any
regulations adopted thereunder; (iii) commission of any act which would
demonstrate actual or potential unfitness to hold a permit in light of the
public safety and welfare, which act is substantially related to the
qualifications, functions or duties of the permit holder; or (iv) if any
individual owner, manager, agent, representative or employee of the permit
applicant/permit holder willfully violates any federal, state or local criminal
statute, rule, or ordinance relating to the manufacture, maintenance, disposal,
sale, transfer or furnishing of any precursor substances. The California Health
and Safety Code further requires that the theft or loss of any precursor
substance discovered by a permit holder be reported in writing to the BNE within
three days after discovery.

Compliance with the complex and extensive regulatory requirements is difficult
and expensive. If we fail to comply with the numerous federal, state and local
rules and regulations, our current or future operations could be curtailed and
our business and financial results could be materially harmed.

ENVIRONMENTAL LAWS

We are subject to comprehensive federal, state and local environmental laws and
regulations that govern, among other things, air polluting emissions, waste
water discharges, solid and hazardous waste disposal, and the remediation of
contamination associated with current or past generation handling and disposal
activities, including the past practices of corporations as to which we are the
successor. We are subject periodically to environmental compliance reviews by
various environmental regulatory agencies.

A Phase I environmental study was conducted with respect to our Philadelphia
plant and operations in 1993 and all environmental compliance issues that were
identified at that time, including the discovery of asbestos in certain areas of
the plant and the existence of underground oil storage tanks, have been
resolved. We periodically monitor compliance with applicable environmental laws.
There can be no assurance that future changes in environmental laws or
regulations, administrative actions or enforcement actions, or remediation
obligations arising under environmental laws will not have a material adverse
effect on IMPAX's financial condition, results of operations, or cash flows.

                                       20

<PAGE>

EMPLOYEES

As of February 27, 2004, we employed approximately 453 full-time employees. Of
these employees, approximately 214 are in operations, 95 are in research and
development, 94 work in the quality area, 41 are in administration, and 9 work
in sales and marketing. In addition, as of February 27, 2004, we employed
approximately 98 temporary employees. Of these employees, approximately 91 are
in operations, 6 in the quality area, and 1 in research and development. We
believe that our future success will depend in part on our continued ability to
attract, hire and retain qualified personnel. None of our employees are subject
to collective bargaining agreements with labor unions, and we believe our
employee relations are good.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information with respect to executive
officers of the Company.

<TABLE>
<CAPTION>
Name                       Age*              Position
-------------------------------------------------------------------------------------
<S>                         <C>       <C>
Charles Hsiao               60        Chairman and Director
Barry R. Edwards            47        Chief Executive Officer and Director
Larry Hsu                   55        President and Director
Cornel C. Spiegler          59        Chief Financial Officer and Corporate Secretary
May Chu                     54        Vice President, Quality Affairs
David S. Doll               45        Senior Vice President, Sales and Marketing
</TABLE>
*As of February 27, 2004

Charles Hsiao, Ph.D. has been our Chairman and Director since December 1999. Dr.
Hsiao was our Co-Chief Executive Officer from December 1999 through December 31,
2003. Dr. Hsiao co-founded Impax Pharmaceuticals, Inc., and has served as
Chairman, Chief Executive Officer and a Director since its inception in 1995.
Dr. Hsiao co-founded IVAX Corporation in 1986 with two partners. By October
1994, when he left the Vice-Chairman position at IVAX, this company had become
the world's largest generic pharmaceutical company with approximately 7,000
employees and $1.0 billion in worldwide sales. Dr. Hsiao's technical expertise
is in the area of formulation and development of oral controlled-release dosage
form. Dr. Hsiao obtained his Ph.D. in pharmaceutics from University of Illinois.

Barry R. Edwards has been our Chief Executive Officer since January 2004 and
Director since January 1999. Mr. Edwards was our Co-Chief Executive Officer from
December 1999 until December 2003. From January 1999 until December 1999, Mr.
Edwards served as President and Chief Executive Officer of Global. From 1996 to
1998, Mr. Edwards was Vice President, Marketing and Business Development for
Teva Pharmaceuticals USA, a manufacturer of generic drugs. From 1991 to 1996,
Mr. Edwards served as Executive Director of Gate Pharmaceuticals, a brand
marketing division of Teva Pharmaceuticals USA. Prior to 1991, Mr. Edwards held
a number of management functions in strategic planning, corporate development,
business development, and marketing at Teva Pharmaceuticals USA.

Larry Hsu, Ph.D. has been our President and Director since December 1999, and
served as Chief Operating Officer from December 1999 through January 2003. Dr.
Hsu co-founded Impax Pharmaceuticals, Inc. and served as its President, Chief
Operating Officer and a Director since 1995. From 1980 to 1995, Dr. Hsu worked
at Abbott Laboratories. During the last four years at Abbott, Dr. Hsu was the
Director of Product Development in charge of formulation development, process
engineering, clinical lot manufacturing, and production technical support of all
dosage forms, managing a staff of approximately 250 people. Dr. Hsu obtained his
Ph.D. in pharmaceutics from University of Michigan.

Cornel C. Spiegler has been Chief Financial Officer and Corporate Secretary
since September 1995. From 1989 to 1995, Mr. Spiegler was Chief Financial
Officer and Senior Vice President of United Research Laboratories, Inc. and
Mutual Pharmaceutical Company, Inc., companies engaged in the generic
pharmaceutical industry. From 1973 to 1989, Mr. Spiegler held a number of
financial and operational management functions, including Vice President and
Controller of Fischer and Porter, Inc., a manufacturer of process control
equipment. From 1970 to 1973, Mr. Spiegler was employed by the accounting firm
of Arthur Andersen and Co. Mr. Spiegler is a certified public accountant and has
an MBA from Temple University.

May Chu, M.S., has been Vice President, Quality Affairs since December 1999. Ms.
Chu joined Impax Pharmaceuticals, Inc. in 1996 as Director of Research and
Development, Analytical and Quality Assurance. From 1985 to 1996, Ms. Chu was
employed at Watson Laboratories in the areas of Research and Development and
Quality Assurance. Prior to joining Watson, she worked at Rachelle Laboratories
for seven years as a research chemist.

                                       21

<PAGE>

David S. Doll has been Senior Vice President, Sales and Marketing since March
2001. From June 1993 until March 2001, Mr. Doll served in a number of management
functions at Merck & Co., Inc., such as Senior Director, Managed Care; General
Manager, West Point Pharma; and Director of Marketing, West Point Pharma. From
December 1984 until June 1993, Mr. Doll held a number of sales and marketing
management positions at Lemmon Company, a division of Teva. Mr. Doll has an MBA
in Pharmaceutical Marketing from Saint Joseph's University.

ADDITIONAL INFORMATION

We file annual, quarterly and current reports, proxy statements and other
information with the SEC. So long as we are subject to the SEC's reporting
requirements, we will continue to furnish the reports and other required
information to the SEC.

You may read and copy any materials that we file with the SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the operations of the
Public Reference Room. Our SEC filings are also available on the SEC's Internet
site (http://www.sec.gov).

The Company's common stock is traded on the NASDAQ National Market under the
symbol "IPXL." You may also read reports, proxy statements and other information
we file at the offices of the National Association of Securities Dealers, Inc.,
1735 K Street, N.W., Washington, DC 20006.

Our Internet address is www.impaxlabs.com. We make available, free of charge on
our website, our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the SEC.

In addition, we will provide, at no cost, paper or electronic copies of our
reports and other filings made with the SEC (except for exhibits) upon request.
Requests should be directed to Corporate Secretary, Impax Laboratories, Inc.,
30831 Huntwood Avenue, Hayward, CA 94544.

The information on the websites listed above is not, and should not be,
considered part of this annual report on Form 10-K and is not incorporated by
reference in this document. These websites are, and are only intended to be,
inactive textual references.

ITEM 2. PROPERTIES

We currently have seven facilities, as follows:

Building 1 - Hayward, California

This 35,125 square foot building is our corporate headquarters and primary
research and development center. Of the total 35,125 square feet, approximately
4,500 square feet are used for the research and development laboratory and pilot
plant, 4,500 square feet are used for the analytical laboratories, 11,700 square
feet are used for the administrative functions, and 14,425 square feet are used
for warehousing. We purchased this previously leased property in June 2001 for
$3,800,000. The land and building serve as partial collateral for a Cathay Bank
loan.

Building 2 - Hayward, California

This 50,400 square foot building serves as our primary manufacturing center and
includes a 25,000 square foot manufacturing area, a 9,000 square foot analytical
laboratory, a 7,400 square foot office and administration area, and a 9,000
square foot warehouse. The facility was totally rebuilt inside to accommodate
the manufacturing and testing of pharmaceutical products. This work was
completed in June 2002 and is fully operational. This facility also includes a
two and one-half acre unimproved lot for future expansion. We purchased this
previously leased property in November 2001 for $4,900,000. The land and
building serve as partial collateral for a Cathay Bank loan.

Building 3 - Hayward, California

This 14,400 square foot facility includes some of our administrative functions,
accounting, information technology, and human resources, and is adjacent to our
Building 1. The facility includes approximately 10,400 square feet of office and
administration area, and 4,000 square feet of warehouse area. This facility is
subject to a lease with a term from November 2002 through December 2005.

                                       22

<PAGE>

Building 4 - Philadelphia, Pennsylvania

This 113,000 square foot facility is our primary commercial center for sales and
marketing, packaging, warehousing, and distribution of the Company's products.

We own this facility that consists of a three-story brick, interconnected
building. The interior of the building has been renovated and modernized since
1993 and includes new dust collection and environmental control units for
humidity and temperature control. The land and the building serve as partial
collateral for two Pennsylvania Industrial Development Authority ("PIDA") loans.

We also own an adjacent property of 1.04 acres, of which 0.50 acres are paved
for parking.

Building 5 - Hayward, California

This 61,800 square foot building is used for warehousing production materials.
The lease period for this building is from October 2003 through October 2005.

Building 6 - Pleasanton, California

This 3,280 square foot facility will be used for research and development of new
products. The lease period is from February 2004 through February 2007.

Building 7 - New Britain, Pennsylvania

This 44,000 square foot facility will be primarily used for sales and marketing,
and additional warehousing space. The lease period for this facility is from
April 2004 through April 2009.

In all our facilities we maintain an extensive equipment base, much of which is
new or recently reconditioned and automated, including equipment for the
packaging and manufacturing of compressed tablets, coated tablets, and capsules.
The packaging equipment includes fillers, cottoners, cappers, and labelers. The
manufacturing and research and development equipment includes mixers and
blenders for capsules and tablets, automated capsule fillers, tablet presses,
particle reduction, sifting equipment, and tablet coaters. We also maintain two
well-equipped, modern laboratories used to perform all the required physical and
chemical testing for the products. The Company also maintains a broad variety or
material handling and cleaning, maintenance, and support equipment. The Company
owns substantially all of its manufacturing equipment and believes that its
equipment is well maintained and suitable for its requirements.

We maintain property and casualty and business interruption insurance in amounts
we believe are sufficient and consistent with practices for companies of
comparable size and business.

ITEM 3. LEGAL PROCEEDINGS

PATENT LITIGATION

There has been substantial litigation in the pharmaceutical, biological, and
biotechnology industries with respect to the manufacture, use, and sale of new
products that are the subject of conflicting patent rights. One or more patents
cover most of the brand name controlled-release products for which we are
developing generic versions. Under the Hatch-Waxman Amendments, when a drug
developer files an ANDA for a generic drug, and the developer believes that an
unexpired patent which has been listed with the FDA as covering that brand name
product will not be infringed by the developer's product or is invalid or
unenforceable, the developer must so certify to the FDA. That certification must
also be provided to the patent holder, who may challenge the developer's
certification of non-infringement, invalidity or unenforceability by filing a
suit for patent infringement within 45 days of the patent holder's receipt of
such certification. If the patent holder files suit, the FDA can review and
approve the ANDA, but is prevented from granting final marketing approval of the
product until a final judgment in the action has been rendered, or 30 months
from the date the certification was received, whichever is sooner. Should a
patent holder commence a lawsuit with respect to an alleged patent infringement
by us, the uncertainties inherent in patent litigation make the outcome of such
litigation difficult to predict. The delay in obtaining FDA approval to market
our product candidates as a result of litigation, as well as the expense of such
litigation, whether or not we are successful, could have a material adverse
effect on our results of operations and financial position. In addition, there
can be no assurance that any patent litigation will be resolved prior to the

                                       23

<PAGE>

30-month period. As a result, even if the FDA were to approve a product upon
expiration of the 30-month period, we may not commence marketing that product if
patent litigation is still pending.

Lawsuits have been filed against us in connection with fourteen of our Paragraph
IV filings. The outcome of such litigation is difficult to predict because of
the uncertainties inherent in patent litigation.

AstraZeneca AB et al. v. IMPAX: The Omeprazole Cases

In May 2000, AstraZeneca AB and four of its related companies filed suit against
IMPAX in the U.S. District Court in Wilmington, Delaware claiming that IMPAX's
submission of an ANDA for Omeprazole Delayed Release Capsules, 10 mg and 20 mg,
constitutes infringement of six U.S. patents relating to AstraZeneca's Prilosec
product. The action seeks an order enjoining IMPAX from marketing Omeprazole
Delayed Release Capsules, 10 mg and 20 mg until February 4, 2014, and awarding
costs and attorney fees. There is no claim for damages.

In February 2001, AstraZeneca and the same related companies filed the same suit
against IMPAX in the same federal court in Delaware for infringement, based upon
IMPAX's amendment to its ANDA adding 40 mg strength Omeprazole Delayed Release
Capsules.

AstraZeneca filed essentially the same lawsuits against nine other generic
pharmaceutical companies (Andrx, Genpharm, Cheminor, Kremers, LEK, Eon, Mylan,
Apotex, and Zenith). Due to the number of these cases, a multidistrict
litigation proceeding, In re Omeprazole 10 mg, 20 mg, and 40 mg Delayed Released
Capsules Patent Litigation, MDL-1291, has been established to coordinate
pre-trial proceedings. Both lawsuits filed by AstraZeneca against IMPAX have
been transferred to the multidistrict litigation.

Early in the multidistrict litigation, the trial court ruled that one of the six
patents-in-suit was not infringed by the sale of a generic omeprazole product
and that certain other patents were invalid. These rulings effectively
eliminated four patents from the trial of these infringement cases, although
AstraZeneca may appeal these rulings as part of the overall appeal process in
the case.

On October 11, 2002, after a trial involving Andrx, Genpharm, Cheminor, and
Kremers, the trial judge handling the multidistrict litigation ruled on
AstraZeneca's complaints that three of these four defendants (First Wave
Defendants) infringed the remaining patents-in-suit. The trial judge ruled that
three of the First Wave defendants, Andrx, Genpharm, and Cheminor, infringed the
remaining two patents asserted by AstraZeneca in its complaints, and that those
patents are valid until 2007. In the same ruling, the trial court ruled that the
remaining First Wave Defendant, Kremers, did not infringe either of the
remaining two patents. This defendant's formulation differed from the
formulation used by the other First Wave Defendants in several respects. In
mid-December 2003, the U.S. Court of Appeals for the Federal Circuit affirmed
the October 2002 ruling in all respects. Subsequent petitions for rehearing have
been denied.

The formulation that IMPAX would employ in manufacturing its generic equivalent
of omeprazole has not been publicly announced. IMPAX's formulation has elements
that resemble those of other First Wave Defendants, but it also has elements
that differ. Although the ruling by the trial court in the multidistrict
litigation has a significant effect on the course of AstraZeneca's litigation
against IMPAX, application of the trial court's opinion is not certain. IMPAX
believes that it has defenses to AstraZeneca's claims of infringement, but the
opinion rendered by the trial court in the First Wave cases makes the outcome of
AstraZeneca's litigation against IMPAX uncertain.

Two of the remaining six defendants (Second Wave Defendants) filed Motions for
Summary Judgment of Non-Infringement, based upon the October 2002 ruling. The
trial court has deferred ruling on those motions until discovery is completed.

In December 2003, the trial court entered a new scheduling order governing
pre-trial proceedings relating to the Second Wave Defendants, including IMPAX.
The schedule for completion of the litigation in the Second Wave, including
AstraZeneca's litigation against IMPAX, now provides that all fact discovery
(with certain exceptions) is complete. AstraZeneca's expert reports on issues as
to which it bears the burden of proof, including issues of alleged infringement,
were produced on February 17, 2004. IMPAX's responsive expert reports will be
due in July 2004. Any rebuttal reports by AstraZeneca will be required to be
produced by mid-August 2004. Depositions of the parties' experts are expected to
occur thereafter and to be completed by mid-September 2004. Motions for Summary
Judgment and responses must be filed and fully briefed by mid-November 2004.
Given the delays which have thus far occurred in the litigation and the number
of experts already designated by the parties, it is uncertain whether the expert
depositions can be completed in the time allotted by the present schedule.

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<PAGE>

Under the scheduling order, any further Motions for Summary Judgment must be
filed by early Fall, and they will be heard by the trial court after briefing is
completed in November 2004. IMPAX may file Motions for Summary Judgment,
including a Motion for Summary Judgment of Non-Infringement, following the close
of all discovery. If the case is not resolved by summary judgment, the case
involving IMPAX will be returned to the U.S. District Court in Delaware for
trial. It is likely, given the proceedings in the First Wave cases, that the
case against IMPAX will be transferred back to New York for a consolidated trial
before the same judge who decided the First Wave cases. Trial will commence as
soon as practicable thereafter. If IMPAX does not file a Motion for Summary
Judgment, or if such a Motion is denied, the court will schedule a date for
trial. IMPAX intends to vigorously defend the action brought by AstraZeneca.

In August 2003, the court issued an order dismissing four of the
patents-in-suit, three with prejudice. On September 30, 2003, as a result of the
court's dismissal, AstraZeneca served each of the Second Wave Defendants,
including IMPAX, with an amended complaint. In October 2003, IMPAX filed an
answer to the amended complaint in which we asserted a new counterclaim with
antitrust allegations. The counterclaim will be severed, and proceedings
relating to it will be stayed until after trial of the patent infringement case.

Abbott Laboratories et al. v. IMPAX: The Fenofibrate Capsule Cases

In August 2000, Abbott Laboratories and Fournier Industrie et Santee and a
related company, filed suit against IMPAX in the U.S. District Court in Chicago,
Illinois claiming that IMPAX's submission of an ANDA for Fenofibrate
(Micronized) Capsules, 67 mg, constitutes infringement of a U.S. patent owned by
Fournier and exclusively licensed to Abbott, relating to Abbott's Tricor
product. In December 2000, Abbott and Fournier filed a second action against
IMPAX in the same court making the same claims against IMPAX's 200 mg
Fenofibrate (Micronized) Capsules. A third action was filed for IMPAX's 134 mg
Fenofibrate (Micronized) Capsules in March 2001. All three actions seek an
injunction preventing IMPAX from marketing its Fenofibrate Capsules until
January 19, 2009, and an award of damages for any commercial manufacture, use,
or sale of IMPAX's Fenofibrate Capsules, together with costs and attorney fees.

Abbott and Fournier have filed essentially the same lawsuits against
Novopharm/Teva also in the U.S. District Court in Chicago.

IMPAX responded to the complaints by filing an answer asserting that its
proposed generic fenofibrate product does not infringe the patent-in-suit and by
asserting that the patent-in-suit is invalid and not enforceable against IMPAX.

In March 2002, Novopharm's Motion for Summary Judgment of Non-Infringement was
granted. The grounds for finding non-infringement by Novopharm were applicable
to IMPAX. IMPAX filed its own Motion for Summary Judgment of Non-Infringement.
In March 2003, the Court of Appeals for the Federal Circuit affirmed the grant
of Novopharm's Motion for Summary Judgment of Non-Infringement. Shortly
thereafter, IMPAX's Motion for Summary Judgment of Non-Infringement was granted
by the District Court and, as of February 27, 2004, no appeal has been taken.

Abbott's and Fournier's petition requesting a rehearing before the Federal
Circuit in its appeal in the Novopharm case was denied, and on July 11, 2003,
the complaint was dismissed with prejudice.

GlaxoSmithKline (Glaxo) v. IMPAX: The Bupropion Cases

Glaxo filed a Complaint (Case No. 00-04403) against IMPAX in the U.S. District
Court for the Northern District of California on November 3, 2000 alleging
infringement of U.S. Patent No. 5,427,798 covering Wellbutrin SR and Zyban. On
November 7, 2000, IMPAX filed its Answer to the Complaint which included
defenses to the infringement claim, and counterclaimed for patent invalidity.
Glaxo has filed suit against Andrx, Watson, Eon (only with regard to Wellbutrin
SR) and Excel for similar ANDA filings.

IMPAX filed a Summary Judgment Motion, based upon prosecution history estoppel
grounds. The parties completed the briefing on this issue and oral argument was
held on November 19, 2001. At the request of the Court, in July 2002, both sides
submitted briefs on the impact of the recent Supreme Court decision in Festo v.
Shoketsu Kinzoku Kogyo Kabushi Co., et al. (which we refer to as the Festo
decision) to the pending Motion for Summary Judgment. IMPAX brought an
additional Motion for Summary Judgment in early August 2002, requesting that the
court apply another court's decision which limited the scope of the Glaxo `798
patent.

On August 21, 2002, IMPAX's Motions for Summary Judgment were granted. Glaxo has
appealed this decision to the Court of Appeals for the Federal Circuit and that
appeal was fully briefed on January 22, 2003. Oral argument was heard on June 2,
2003 and the District Court's decision in favor of IMPAX was affirmed by the
Court of Appeals on January 29, 2004. Glaxo has filed a request for rehearing or
rehearing en banc.

                                       25

<PAGE>

Previously, Glaxo had decided to settle its Bupropion Hydrochloride 100 mg and
150 mg Extended Release Tablets litigation with Watson Pharmaceuticals on terms
that are confidential.

Schering-Plough Corporation v. IMPAX: The Loratadine Cases

On January 2, 2001, Schering-Plough Corporation ("Schering-Plough") sued IMPAX
in the U.S. District Court for the District of New Jersey (Case No. 01-0009),
alleging that IMPAX's proposed Loratadine and Pseudoephedrine Sulfate 24-hour
Extended Release Tablets, containing 10 mgs of loratadine and 240 mgs of
pseudoephedrine sulfate, infringe U.S. Patent Nos. 4,659,716 (the "'716 patent")
and 5,314,697 (the "'697 patent"). Schering-Plough has sought to enjoin IMPAX
from obtaining FDA approval to market its 24-hour extended release tablets until
the `697 patent expires in 2012. Schering-Plough has also sought monetary
damages should IMPAX use, sell or offer to sell its loratadine product prior to
the expiration of the `697 patent. IMPAX filed its Answer to the Complaint on
February 1, 2001, and IMPAX has denied that it infringes any valid and/or
enforceable claim of the `716 or `697 patent.

On January 18, 2001, Schering-Plough sued IMPAX in the U.S. District Court for
the District of New Jersey (Case No. 01-0279), alleging that IMPAX's proposed
orally-disintegrating loratadine tablets ("ODT") infringe claims of the '716
patent. Schering-Plough has sought to enjoin IMPAX from obtaining approval to
market its ODT products until the `716 patent expires in 2004. Schering-Plough
has also sought monetary damages should IMPAX use, sell, or offer to sell its
loratadine product prior to the expiration of the `716 patent. IMPAX filed its
Answer to the Complaint on February 27, 2001, and has denied that it infringes
any valid or enforceable claim of the `716 patent.

On February 1, 2001, Schering-Plough sued IMPAX in the U.S. District Court for
the District of New Jersey (Case No. 01-0520), alleging that IMPAX's proposed
Loratadine and Pseudoephedrine Sulfate 12-hour Extended Release Tablets,
containing 5 mgs of loratadine and 120 mgs of pseudoephedrine sulfate, infringe
claims of the '716 patent. Schering-Plough has sought to enjoin IMPAX from
obtaining approval to market its 12-hour extended release tablets until the `716
patent expires in 2004. Schering-Plough has also sought monetary damages should
IMPAX use, sell, or offer to sell its loratadine product prior to the expiration
of the `716 patent. IMPAX filed its Answer to the Complaint on February 27, 2001
and has denied that it infringes any valid or enforceable claim of the `716
patent.

These three cases have been consolidated for the purposes of discovery with
seven other cases in the District of New Jersey in which Schering-Plough sued
other corporations who have sought FDA approval to market generic loratadine
products.

Fact discovery and expert discovery on issues related to the `716 patent have
ended. In accordance with the schedule set by the Court, the parties filed
Initial Dispositive Motions on issues related to the `716 patent on October 31,
2001, and these motions were fully briefed in December 2001. Oral argument on
two of the Dispositive Motions took place on June 26, 2002. On August 8, 2002,
the Court granted Defendants' Motion for Summary Judgment that certain claims of
the `716 Patent are invalid. Schering-Plough appealed the decision to the U.S.
Court of Appeals for the Federal Circuit. On August 1, 2003, the Court of
Appeals for the Federal Circuit in Washington, D.C. upheld the lower court
decision that ruled against certain claims by Schering-Plough of the `716 patent
in litigation relating to the antihistamine product Claritin (loratadine). On
August 15, 2003, Schering-Plough filed a combined petition for panel rehearing
and rehearing en banc. The Federal Circuit requested a brief from Appellees in
response to Schering's petition which was filed on September 30, 2003. On
October 28, 2003, the Court of Appeals denied Schering's petition for panel
rehearing and rehearing en banc.

On October 27, 2003, the Company announced that it had entered into a Settlement
and License Agreement with Schering-Plough Corporation related to IMPAX's
generic version of Claritin-D 24-hour (Loratadine and Pseudoephedrine Sulfate,
10 mg/240 mg) Extended Release Tablets. This agreement resolved all of the
remaining outstanding patent litigation between the parties on this product.

Aventis Pharmaceuticals Inc., et al. v. IMPAX: The Fexofenadine Cases

On March 25, 2002, Aventis Pharmaceuticals Inc., Merrell Pharmaceuticals Inc.,
and Carderm Capital L.P. (collectively referred to as Aventis) sued IMPAX in the
U.S. District Court for the District of New Jersey (Civil Action No. 02-CV-1322)
alleging that IMPAX's proposed fexofenadine and pseudoephedrine hydrochloride
tablets, containing 60 mg of fexofenadine and 120 mg of pseudoephedrine
hydrochloride, infringe U.S. Patent Nos. 6,039,974; 6,037,353; 5,738,872;
6,187,791; 5,855,912; and 6,113,942. On November 7, 2002, Aventis filed an
amended complaint, which added an allegation that IMPAX's Fexofenadine and
Pseudoephedrine Hydrochloride 60 mg/120 mg Extended Release Tablet product
infringes U.S. Patent No. 6,399,632. Aventis seeks an injunction preventing
IMPAX from marketing its Fexofenadine and Pseudoephedrine Hydrochloride 60
mg/120 mg Extended Release Tablet product until the patents-in-suit have
expired, and an award of damages for any commercial manufacture, use, or sale of
IMPAX's Fexofenadine and Pseudoephedrine Hydrochloride 60 mg/120 mg Extended
Release Tablet product, together with costs and attorneys' fees.

                                       26

<PAGE>

Because of the pending procedural motions, discovery is in its early stages.
IMPAX believes that it has defenses to the claims made by Aventis based on
noninfringement and invalidity. The court has scheduled trial for September
2004.

Aventis has also filed a suit against Barr Laboratories, Inc., Mylan
Pharmaceuticals, Inc., Dr. Reddy's Pharmaceuticals and Teva Pharmaceuticals USA,
Inc. in New Jersey asserting the same patent infringement against these
defendants' proposed Fexofenadine and Pseudoephedrine or Fexofenadine products.
The IMPAX case has been consolidated for trial with the Barr, Mylan, Dr. Reddy
and Teva cases.

On July 23, 2003, IMPAX filed Summary Judgment motions for non-infringement of
U.S. Patent Nos. 6,039,974, 6,113,942, and 5,855,912; and for non-infringement
and invalidity of U.S. Patent No. 5,738,872. Opposition papers were filed on
August 11, 2003. Reply papers were filed on September 24, 2003. On October 24,
2003, IMPAX filed a brief discussing the impact of the recent Festo decision on
their Motions for Summary Judgment of non-infringement. Oral argument for the
Summary Judgment Motion regarding the `912, `942, and `974 patents was heard on
November 3, 2003. Oral argument for the Summary Judgment Motion regarding the
`872 patent was heard on December 8, 2003. IMPAX is currently awaiting a
decision on these motions.

Purdue Pharma L.P. et al. v IMPAX: The Oxycodone Cases

On April 11, 2002, Purdue Pharma and related companies filed a complaint in the
U.S. District Court for the Southern District of New York alleging that IMPAX's
submission of ANDA No. 76-318 for 80 mg OxyContin Tablets infringes three
patents owned by Purdue. The Purdue patents are U.S. Patent Nos. 4,861,598,
4,970,075 and 5,266,331; all directed to controlled release opioid formulations.
On September 19, 2002, Purdue filed a second Infringement Complaint regarding
IMPAX's 40 mg OxyContin generic product. On October 9, 2002, Purdue filed a
third Infringement Complaint regarding IMPAX's 10 mg and 20 mg OxyContin generic
products. IMPAX filed its answer and counterclaims in each case on October 3,
2003. On November 25, 2003, Purdue submitted their reply to our counterclaims.
Purdue is seeking, among other things, a court order preventing IMPAX from
manufacturing, using or selling any drug product that infringes the subject
Purdue patents. IMPAX had disputed jurisdiction of the New York courts and
brought an action for a Declaratory Judgment of Patent Invalidity in Delaware.
The New York court recently denied IMPAX's Motion to Dismiss and the Delaware
action was dismissed.

Purdue previously sued Boehringer Ingelheim/Roxane, Endo and Teva on the same
patents. One or more of these defendants may resolve the invalidity issues
surrounding the Purdue patents prior to IMPAX' case going to trial. The
Boehringer Ingelheim/Roxane suit is stayed. The Endo action was tried in June
2003 and post trial briefs have been filed. In January 2004, the judge in the
Endo action ruled that the three patents in suit, the same patents that Purdue
had asserted against IMPAX, are unenforceable because they were inequitably
procured and enjoined their enforcement. There can be no assurances that such
ruling will not be challenged or, if sustained upon challenge, that the rulings
in IMPAX's cases will be consistent with such rulings.

IMPAX v. Aventis Pharmaceuticals, Inc.: The Riluzole Case

In June 2002, IMPAX filed suit against Aventis Pharmaceuticals, Inc. in the U.S.
District Court in Wilmington, Delaware, seeking a declaration that the filing of
an ANDA to engage in a commercial manufacture and/or sale of Riluzole 50 mg
Tablets for treatment of patients with amyotrophic lateral scleroses (ALS) does
not infringe claims of Aventis' U.S. Patent No. 5,527,814 (`814 patent) and a
declaration that this patent is invalid.

In response to IMPAX's complaint, Aventis filed counterclaims for direct
infringement and inducement of infringement of the `814 patent. In December
2002, the district court granted Aventis' Motion for Preliminary Injunction and
enjoined IMPAX from infringing, contributory infringing, or inducing any other
person to infringe Claims 1, 4 or 5 of the `814 patent by selling, offering for
sale, distributing, marketing or exporting from the United States any
pharmaceutical product or compound containing riluzole or salt thereof for the
treatment of ALS.

The trial was completed on October 30, 2003, and post-trial briefing was
completed in December 2003. IMPAX is pursuing its assertions that claims of the
`814 patent are invalid in view of prior art and are unenforceable in view of
inequitable conduct committed during the prosecution of the patent before the
USPTO.

On January 30, 2004, the court denied IMPAX's Motion for Summary Judgment on
inequitable conduct and, on February 5, 2004, the court denied IMPAX's Motion
for Summary Judgment on non-infringement of certain claims. As of February 27,
2004, the court did not issue its trial rulings and did not rule on the third
pre-trial Motion for Summary Judgment based on invalidity of the patent-in-suit.

                                       27

<PAGE>

If IMPAX is not ultimately successful in proving invalidity or unenforceability,
there is a substantial likelihood that the court will enter a Permanent
Injunction enjoining IMPAX from marketing Riluzole 50 mg Tablets for the
treatment of ALS in the United States until the expiration of the `814 patent
(June 18, 2013). If IMPAX is ultimately successful in proving either defense,
the Preliminary Injunction would be set aside and IMPAX would be permitted to
market its Riluzole 50 mg Tablet product for the treatment of ALS in the United
States.

Abbott Laboratories v. IMPAX: The Fenofibrate Tablet Cases

In January 2003, Abbott Laboratories and Fournier Industrie et Sante and a
related company filed suit against IMPAX in the U.S. District Court in
Wilmington, Delaware claiming that IMPAX's submission of an ANDA for Fenofibrate
Tablets, 160 mg, constitutes infringement of two U.S. patents owned by Fournier
and exclusively licensed to Abbott, relating Abbott's Tricor tablet product.

In March 2003, Abbott and Fournier filed a second action against IMPAX in the
same court making the same claims against IMPAX's 54 mg Fenofibrate Tablets.
These cases were consolidated in April 2003.

Abbott and Fournier have filed essentially the same lawsuits against Teva, also
in the U.S. District Court in Wilmington, Delaware.

In September 2003, Abbott and Fournier filed a third action against IMPAX in the
U.S. District Court in Wilmington, Delaware, claiming that IMPAX's submission of
its ANDA for 54 and 160 mg Fenofibrate Tablets constitutes infringement of a
third patent recently issued to Fournier and exclusively licensed to Abbott.
This action was also consolidated with the two previously consolidated actions
in December 2003. In January 2004, Abbott and Fournier filed a fourth action
relating to IMPAX's 54 mg and 160 mg Fenofibrate Tablets based upon a claim of
infringement of a fourth patent. All four cases were consolidated in March 2004.
Discovery in the consolidated cases closes in June 2004 and the trial is
currently set for June 2005. IMPAX has responded to all four complaints by
asserting that its proposed generic Fenofibrate Tablet products do not infringe
the patents-in-suit and by asserting that the patents-in-suit are invalid.

All four actions seek an injunction preventing IMPAX from marketing its
Fenofibrate Tablet products until the expiration of the patents (January 9,
2018) and an award of damages for any commercial manufacture, use, or sale of
IMPAX's Fenofibrate Tablet product, together with costs and attorney fees.

Merck & Co., Inc. v. IMPAX: The Carbidopa and Levodopa Case

On February 24, 2003, Merck & Co., Inc. filed a lawsuit against IMPAX in the
U.S. District Court in Delaware alleging patent infringement related to our
filing of an ANDA for a generic version of Sinemet CR Tablets. On April 8, 2003,
Merck & Co., Inc. withdrew its lawsuit alleging patent infringement related to
our filing of the ANDA for a generic version of Sinemet CR Tablets

Solvay Pharmaceuticals v. IMPAX: The Creon Case

On April 11, 2003, Solvay Pharmaceuticals, Inc., manufacturer of the Creon line
pancreatic enzyme products, brought suit against IMPAX in the U.S. District
Court for the District of Minnesota claiming that IMPAX has engaged in false
advertising, unfair competition, and unfair trade practices under federal and
Minnesota law in connection with the Company's marketing and sale of its Lipram
products. The suit seeks actual and consequential damages, including treble
damages, attorneys' fees, injunctive relief and declaratory judgments that would
prohibit the substitution of Lipram for prescriptions of Creon. On June 6, 2003,
IMPAX filed a Motion for Dismissal of Plaintiff's Complaint, which seeks to
dismiss each count of Solvay's complaint. Oral argument on that Motion was heard
on November 7, 2003. On January 29, 2004, the U.S. District Court issued a
ruling on IMPAX's Motion for Dismissal, dismissing two of the counts set forth
in the Complaint, including the count which sought a declaratory judgment that
Lipram may not lawfully be substituted for prescriptions of Creon. IMPAX
believes it has defenses to Solvay's allegations and intends to pursue these
defenses vigorously.

                                       28

<PAGE>

Alza Corporation v. IMPAX: The Oxybutynin Case

On September 4, 2003, Alza Corporation ("Alza") filed a lawsuit against IMPAX in
the U.S. District Court for the Northern District of California alleging patent
infringement of one patent related to IMPAX's filing of an ANDA for a generic
version of Ditropan XL (Oxybutynin Chloride) Tablets, 5 mg, 10 mg, and 15 mg.
Alza seeks an injunction, a declaration of infringement, attorney's fees and
costs. On October 24, 2003, IMPAX filed its Answer to the Complaint, which
included defenses to the infringement claim, and counterclaimed for patent
non-infringement and invalidity.

On October 24, 2003, IMPAX filed a lawsuit against Alza in the U.S. District
Court for the Northern District of California seeking a declaratory judgment
that four Alza patents relating to IMPAX's filing of an ANDA for a generic
version of Ditropan XL (Oxybutynin Chloride) Tablets, 5 mg, 10 mg, and 15 mg
(the "Product") are invalid and/or not infringed by the commercial manufacture,
use, offer for sale, sale, or importation of the IMPAX Product. On November 17,
2003, Alza moved to dismiss the Company's complaint for lack of subject matter
jurisdiction based on Alza's argument that there is no case or controversy
between the parties with respect to these four patents. That motion is pending.

Shire Laboratories Inc. v IMPAX: The Adderall Case

On December 29, 2003, Shire Laboratories, Inc., a subsidiary of Shire
Pharmaceuticals Group, PLC, filed a lawsuit against IMPAX in the U.S. District
Court for the District of Delaware alleging patent infringement on U.S. Patent
Nos. 6,322,819 and 6,605,300 related to filing of an ANDA to market a generic
version of Adderall 30 mg capsules. IMPAX filed its answer was filed on January
20, 2004, denying infringement and contesting the validity of both patents. As
of February 27, 2004, no trial date was scheduled.

OTHER LITIGATION

State of California v. IMPAX

On August 7, 2003, IMPAX received an Accusation from the BNE alleging that IMPAX
failed to maintain adequate controls to safeguard precursors from theft or loss
regarding our pseudoephedrine product in January 2003. IMPAX is currently
reviewing this Accusation and has entered into discussions with the BNE to bring
resolution to this matter. IMPAX has implemented a number of remedial measures
aimed at improving the security and accountability of precursor substances used
by IMPAX and regulated by the BNE. IMPAX hopes to resolve this matter prior to
June 23, 2004, when a hearing has been scheduled with the BNE.

Other than the legal proceedings described above, we are not aware of any other
material pending or threatened legal actions, private or governmental, against
us. However, as we file additional applications with the FDA that contain
Paragraph IV Certifications and develop new products, it is likely we will
become involved in additional litigation related to those filings or products.

INSURANCE

As part of our patent litigation strategy, we obtained two policies covering up
to $7 million of patent infringement liability insurance from American
International Specialty Line Company ("AISLIC"), an affiliate of AIG
International. This litigation insurance covers us against the costs associated
with patent infringement claims made against us relating to seven of the ANDAs
we filed under Paragraph IV of the Hatch-Waxman Amendments. Correspondence
received from AISLIC indicated that, as of February 4, 2004, one of the policies
had approximately $19,770 remaining on the limit of liability and the second of
the policies had reached its limit of liability. In addition, pursuant to the
agreement with Teva, for the six products with ANDAs filed with the FDA at the
time of the agreement, Teva will pay 50% of the attorneys' fees and costs in
excess of $7.0 million. For three of the products with ANDAs filed with the FDA
since the agreement was signed, Teva will pay 45% of the attorneys' fees and
costs, and for the remaining three products, Teva will pay 50% of the attorneys'
fees and costs.

While Teva has agreed to pay 45% to 50% of the attorneys' fees and costs in
excess of $7.0 million related to the twelve products covered by our strategic
alliance agreement with them, we will be responsible for the remaining expenses
and costs for these products, and all of the costs associated with patent
litigation for our other products and our future products.

We do not believe that this type of litigation insurance will be available to us
on acceptable terms for our other current or future ANDAs. In those cases, our
policy is to record such expenses as incurred.

                                       29

<PAGE>

Product liability claims by customers constitute a risk to all pharmaceutical
manufacturers. We carry $20 million of product liability insurance for our own
manufactured products. This insurance may not be adequate to cover any product
liability claims to which we may become subject.

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

No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 2003.



                                     PART II

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

Our common stock is traded on the NASDAQ National Market under the symbol
"IPXL." The following table sets forth the high and low sales prices for our
common stock for the periods indicated below:

                                               Price Range Per Share
                                               ---------------------
                                               High              Low
                                               ----              ---
Year Ended December 31, 2003
----------------------------
Quarter ended March 31, 2003                   $5.45            $3.01
Quarter ended June 30, 2003                   $12.55            $4.51
Quarter ended September 30, 2003              $16.49           $10.74
Quarter ended December 31, 2003               $15.00           $11.57

Year Ended December 31, 2002
----------------------------
Quarter ended March 31, 2002                  $13.72            $6.70
Quarter ended June 30, 2002                    $8.38            $6.90
Quarter ended September 30, 2002               $7.10            $3.15
Quarter ended December 31, 2002                $6.11            $2.75

As of March 2, 2004, there were approximately 126 holders of record and
approximately 13,870 beneficial owners of our common stock.

We have never paid cash dividends on our common stock and have no present plans
to do so in the foreseeable future. Our current policy is to retain all
earnings, if any, for use in the operation of our business. The payment of
future cash dividends, if any, will be at the discretion of the Board of
Directors and will be dependent upon our earnings, financial condition, capital
requirements and other factors as the Board of Directors may deem relevant. Our
loan agreements and our strategic agreement with Teva prohibit the payment of
dividends without the other party's consent.

On May 7, 2003, the Company completed a private placement of 4,394,081 shares of
common stock and warrants to purchase 878,815 shares of common stock to a group
of institutional investors for a purchase price of $24.0 million. In addition,
the investors purchased an additional 183,000 shares of common stock on May 16,
2003 for approximately $1.0 million. Gross proceeds from the private placement
were $25.0 million. The net proceeds of $23.3 million were used for general
corporate purposes. The sales were exempt from registration pursuant to Section
4(2) of the Securities Act and Regulation D promulgated thereunder.

If the Company issues shares of common stock or securities convertible into or
exercisable for shares of common stock at a price less than $5.462 per share
prior to May 6, 2004, the Company is required to issue additional shares of
common stock to the private placement purchasers equal to the additional number
of shares such purchasers would have received at such lower price based on the
consideration paid for the shares of common stock that such purchasers still
hold from the private placement and any exercise of warrants purchased in the
private placement.

Principal purchasers in the private placement (i.e., purchasers that purchased
more than 1.0 million shares) are entitled to rights of first refusal with
respect to certain offers and sales of the Company's securities prior to June
16, 2005.

The warrants are exercisable for a period of five years at an exercise price of
$7.421 per share. The warrants may also be exercised in a "cashless exercise."
Both the warrant exercise price and the number of shares issuable upon exercise
of the warrants are subject to adjustment for issuances of securities at prices
below the exercise price of the warrant. If such lower priced securities are

                                       30

<PAGE>

issued prior to May 8, 2004, the exercise price will be adjusted to equal the
price at which such securities were sold. If such lower priced securities are
issued on or after May 8, 2004, the adjustment will be based on a weighted
average formula. In addition, the exercise price and the number of securities
issuable upon exercise are subject to adjustment for stock splits, stock
dividends and certain other corporate events.

The securities sold in the private placement are entitled to registration
rights. A Form S-3 registration statement registering the resale of the shares
of common stock, the warrants and the shares of common stock underlying the
warrants was filed with the Securities and Exchange Commission on June 6, 2003.

In September 2003, we issued 888,918 shares of common stock to Teva, paying
$13.5 million of the original $22 million refundable deposit. See Item 12 of
this report for information on our equity compensation plans.

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data as of and for each of the
five years ended December 31, 2003, are derived from the financial statements of
IMPAX. The data should be read together with IMPAX's financial statements and
related notes, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" which are included elsewhere in this report.

<TABLE>
<CAPTION>
                                                                      For The Year Ended December 31,
                                                        -----------------------------------------------------------
Statement of Operations Data                            1999(1)       2000         2001         2002          2003
                                                        -------     -------      -------      -------       -------
(in thousands, except per share data)
<S>                                                     <C>         <C>          <C>          <C>           <C>
Net revenues(2).............................            $1,240      $10,170      $ 6,591      $24,515       $58,818
Research and development....................             7,858(3)    11,096       10,972       15,549        16,938
Total operating expenses....................             9,648       25,546       22,252       26,817        28,584
Operating loss..............................            (9,333)     (25,092)     (25,330)     (20,794)      (13,178)
Net loss....................................            (8,949)     (24,961)     (25,111)     (20,040)      (14,207)
Net loss per share (basic and diluted)......            $(1.12)     $ (0.91)     $ (0.60)     $ (0.42)      $ (0.28)
</TABLE>

In 2002, the Company adopted the non-amortization provisions of Statement of
Financial Accounting Standards ("SFAS") No. 142. As a result of the adoption of
SFAS No. 142, results of the years 2002 and 2003 do not include certain amounts
of amortization of goodwill that are included in prior years' financial results.
Included in total operating expenses for the years 1999, 2000 and 2001 is
goodwill amortization, which was $205,000, 4,604,000, and 3,888,000,
respectively. See Note 2 to the Company's financial statements for additional
information.

<TABLE>
<CAPTION>
                                                                              At December 31,
                                                        -----------------------------------------------------------
Balance Sheet Data                                       1999         2000          2001       2002          2003
                                                        -------     -------      -------      -------       -------
<S>                                                     <C>         <C>          <C>          <C>           <C>
Cash, cash equivalents
   and short-term investments...............           $ 7,413     $ 19,228     $ 35,466     $ 10,219       $15,505
Restricted cash.............................                --           --           --       10,000        10,000
Working capital.............................             6,297       17,802       36,180        4,946        12,931
Total assets................................            61,705       67,128       97,612      104,403       132,706
Refundable deposit..........................                --           --       22,876       22,000         5,000
Long term debt..............................                --        1,345        6,868        9,105         8,854
Mandatorily redeemable
   convertible preferred stock..............            22,000       28,303        7,500        7,500         7,500
Accumulated deficit.........................           (20,230)     (45,191)     (70,302)     (90,342)     (104,549)
Total stockholders' equity..................            30,278       30,754       52,448       41,064        66,108
</TABLE>

(1)On December 14, 1999, Impax Pharmaceuticals, Inc. merged with and into
   Global Pharmaceuticals, Inc. For accounting purposes, the merger has been
   treated as a recapitalization of Impax Pharmaceuticals with Impax
   Pharmaceuticals deemed the acquirer of Global in a reverse acquisition. As a
   reverse acquisition, the historical operating results prior to the merger are
   those of Impax Pharmaceuticals and only include Global's operating results
   after the merger. The following unaudited pro forma information on results of
   operations assumes the companies had combined on January 1, 1999.

                                       31

<PAGE>

                                                                Pro forma
                                                                Year Ended
                                                             December 31, 1999*
                                                             ------------------
   Operating revenue.................................            $  9,446
   Research and development..........................               8,030
   Operating loss....................................             (15,608)
   Net loss..........................................             (15,224)
   Net loss per share (basic and diluted)............            $  (0.71)
______________________________
* Excludes non-recurring charges related to acquisition of $1,420 or $(0.06)
  per share.

(2) We were considered a development stage company until December 14, 1999.

(3) Includes acquired in-process research and development of $1,379.


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

Overview

The net loss for the year ended December 31, 2003 was $14,207,000 as compared to
$20,040,000 for the year ended December 31, 2002. The decrease in the net loss
of $5,833,000 was due to increased sales revenues, which partially offset
increases in manufacturing expenses, research and development, and other
operating expenses. The year-over-year sales increase was primarily due to the
introduction of new products, such as the OTC Loratadine and Pseudoephedrine
Sulfate 12-hour Extended Release Tablets and Flavoxate Hydrochloride 100 mg
Tablets, and higher sales of a number of existing products. During 2003, we
continued to ramp-up production for new product introduction by purchasing
additional equipment, and recruiting and training additional personnel. We also
continued the investment in Research and Development. During 2003, we filed
eight applications with the FDA and received nine ANDA approvals. We expect
increased revenues in 2004, primarily due to new product introductions,
contingent upon FDA approval of our ANDAs and positive resolution of patent
litigations. We also expect that our investment in Research and Development area
will continue to increase. During 2004, our general and administrative expenses
are expected to increase, primarily due to higher professional fees and
insurance premiums, and additional personnel.

Critical Accounting Policies

In preparing the financial statements in conformity with accounting principles
generally accepted in the United States of America, the Company's management
must make decisions which impact the reported amounts and the related
disclosures. Such decisions include the selection of the appropriate accounting
principles to be applied and assumptions on which to base estimates and
judgments that affect the reported amounts of assets, liabilities, revenues, and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, the Company evaluates its estimates, including those related to
returns, rebates and chargebacks, inventory reserves, impaired assets and
goodwill. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. The Company's management believes the critical
accounting policies described below are the most important to the fair
presentation of the Company's financial condition and results. The policies
require management's most significant judgments and estimates in the preparation
of the Company's consolidated financial statements.

1.   Our critical accounting policies related to revenue recognition are as
     follows:

     The Company recognizes revenue in accordance with SEC Staff Accounting
     Bulletin ("SAB") 101 issued by the SEC in December 1999. We recognize
     revenue from the sale of products when the shipment of products is received
     and accepted by the customer. Provisions for estimated discounts, rebates,
     chargebacks, returns and other adjustments are provided for in the period
     the related sales are recorded. . In December 2003, the Staff Accounting
     Bulletin (SAB) 104 was issued by the SEC. This bulletin revises and
     clarifies portions of Topic 13 of the Staff Accounting Bulletin to be
     consistent with current accounting and auditing guidance and SEC rules and
     regulations.

     Emerging Issues Task Force (EITF) No. 00-21 supplemented SAB 101 for
     accounting for multiple element arrangements. The Company has entered into
     several strategic alliances that involve the delivery of multiple products

                                       32

<PAGE>

     and services over an extended period of time. In multiple element
     arrangements, the Company must determine whether any or all of the elements
     of the arrangement can be separated from one another. If separation is
     possible, revenue is recognized for each deliverable when the revenue
     recognition criteria for the specific deliverable is achieved. If
     separation is not possible, revenue recognition is required to be spread
     over an extended period.

     Under EITF No. 00-21, in an arrangement with multiple elements, the
     delivered item should be considered a separate unit of accounting if all of
     the following criteria are met:

       1)  the delivered item has value to the customer on a standalone basis;
       2)  there is objective and reliable evidence of the fair value of the
           undelivered item; and
       3)  if the arrangement included a general right of return, or whether
           delivery or performance of the undelivered item is considered
           probable.

     The Company reviews all of the terms of its strategic alliances and follows
     the guidance from EITF No. 00-21 for multiple element arrangements.

2.   Our critical accounting policy related to returns reserve is as follows:

     The sales return reserve is calculated using an historical lag period (that
     is, the time between when the product is sold and when it is ultimately
     returned as determined from the Company's system generated lag period
     report) and return rates, adjusted by estimates of the future return rates
     based on various assumptions which may include changes to internal policies
     and procedures, changes in business practices and commercial terms with
     customers, competitive position of each product, amount of inventory in the
     pipeline, the introduction of new products, and changes in market sales
     information.

     Our returned goods policy requires prior authorization for the return, with
     corresponding credits being issued at the original invoice prices, less
     amounts previously granted to the customer for rebates and chargebacks.
     Products eligible for return must be expired and returned within one year
     following the expiration date of the product. Prior to 2002, we required
     returns of products within six months of expiration date. Because of the
     lengths of the lag period and volatility that may occur from quarter to
     quarter, we are currently using a rolling 21-month calculation to estimate
     our product return rate.

     In addition to the rolling 21-month calculation, we review the level of
     pipeline inventory at major wholesalers to assess the reasonableness of our
     estimate of future returns. Although the pipeline inventory information may
     not always be accurate or timely, it represents another data point in
     estimating the sales returns reserve. If we believe that a wholesaler may
     have too much inventory on hand, a discussion with the wholesaler takes
     place and an action plan is developed to reduce inventory levels related to
     a particular product including, but not limited to, suspending new orders
     and redirecting the inventory to other distribution centers.

     Further, in 2003, we have developed an order flagging mechanism based on
     historical purchases by individual customers. This new process allows the
     Company to evaluate any customer orders for quantities higher than
     historical purchases.

     The Company believes that its estimated returns reserves were adequate at
     each balance sheet date since they were formed based on the information
     that was known and available, which were supported by the Company's
     historical experience when similar events occurred in the past, and
     management's overall knowledge of and experience in the generic
     pharmaceutical industry. In estimating its returns reserve, the Company
     looks to returns after the balance sheet date but prior to filing its
     financial statements to ensure that any unusual trends are considered.

     At December 31, 2003 and 2002, our returns reserve was $4.1 million and
     $3.1 million, respectively.

3.   Our critical accounting policy related to rebates and chargebacks is as
     follows:

     The sales rebates are calculated at the point of sale, based on
     pre-existing written customer agreements by product, and accrued on a
     monthly basis. Typically, these rebates are for a fixed percentage, as
     agreed to by the Company and the customer in writing, multiplied by the
     dollar volume purchased.

     The vast majority of chargebacks are also calculated at the point of sale
     as the difference between the list price and contract price by product
     (with the wholesalers) and accrued on a monthly basis. Therefore, for these
     chargebacks, the amount is fixed and determinable at the point of sale.
     Additionally, a relatively small percentage of chargebacks are estimated at

                                       33

<PAGE>

     the point of sale to the wholesaler as the difference between the
     wholesalers' contract price and the Company's contract price with retail
     pharmacies or buying groups. At December 31, 2003 and 2002, our reserves
     for rebates were $2.7 million and $1.5 million, respectively, and at
     December 31, 2003 and 2002, our reserves for chargebacks were $4.1 million
     and $1.4 million, respectively.

     The Company believes it is important for the users of its financial
     statements to understand the key components, which reduce gross sales to
     net sales.

4.   Our critical accounting policy related to inventory is as follows:

     Inventory is stated at the lower of cost or market. Cost is determined
     using a standard cost method, which assumes a first-in, first-out (FIFO)
     flow of goods. Standard costs are revised annually, and significant
     variances between actual costs and standard costs are apportioned to
     inventory and cost of goods sold based upon inventory turnover.
     Historically, IMPAX considered product costs as inventory once the Company
     received FDA approval to market its ANDA related products. During 2003, the
     Company evaluated the risk of building commercial quantities as inventories
     of certain products that have not received FDA approval. For the first
     time, the Company decided to build and capitalize inventories in commercial
     quantities prior to receiving FDA approval. The Company, as do most
     companies in the generic pharmaceutical industry, may build inventories of
     certain ANDA related products that have not yet received FDA approval
     and/or satisfactory resolution of patent infringement litigation, when it
     believes that such action is appropriate to increase its commercial
     opportunity. Costs include materials, labor, quality control, and
     production overhead. Inventory is adjusted for short-dated, unmarketed
     inventory equal to the difference between the cost of inventory and the
     estimated value based upon assumptions about future demand and market
     conditions. If actual market conditions are less favorable than those
     projected by management, additional inventory write-downs may be required.

5.   Our critical accounting policy related to shelf stock reserve is as
     follows:

     A reserve is estimated at the point of sale for certain products for which
     it is probable that shelf-stock credits to customers for inventory
     remaining on their shelves following a decrease in the market price of
     these products will be granted. When estimating this reserve, we consider
     the competitive products, the estimated decline in market prices, and the
     amount of inventory in the pipeline. At December 31, 2003 and 2002, the
     shelf-stock reserve was $232,000 and $660,000, respectively.

6.   Our critical accounting policy related to impaired assets is as follows:

     The Company evaluates the carrying value of long-lived assets to be held
     and used, including definite lived intangible assets, on an annual basis,
     when events or changes in circumstances indicate that the carrying value
     may not be recoverable. The carrying value of a long-lived asset is
     considered impaired when the total projected undiscounted cash flows from
     such asset is separately identifiable and is less than its carrying value.
     In that event, a loss is recognized based on the amount by which the
     carrying value exceeds the fair value of the long-lived asset. Fair value
     is determined primarily using the projected cash flows discounted at a rate
     commensurate with the risk involved. Losses on long-lived assets to be
     disposed of are determined in a similar manner. As the Company's
     assumptions related to assets to be held and used are subject to change,
     additional write-downs may be required in the future.

7.   Our critical accounting policy related to goodwill is as follows:

     Prior to the adoption of Statement of Financial Accounting Standards
     ("SFAS") No. 142, "Goodwill and Other Intangible Assets," we amortized
     goodwill on a straight-line basis over its estimated useful life. The
     Company adopted the provisions of SFAS No. 142, effective January 1, 2002;
     no impairment was noted. Under the provisions of SFAS No. 142, the Company
     performs the annual review for impairment at the reporting unit level,
     which the Company has determined to be consistent with its business
     segment, that is, the entire Company.

     Effective January 1, 2002, we evaluated the recoverability and measured the
     possible impairment of our goodwill under SFAS 142. The impairment test is
     a two-step process that begins with the estimation of the fair value of the
     reporting unit. The first step screens for potential impairment and the
     second step measures the amount of the impairment, if any. Our estimate of
     fair value considers publicly available information regarding the market
     capitalization of our Company, as well as (i) publicly available
     information regarding comparable publicly-traded companies in the generic
     pharmaceutical industry, (ii) the financial projections and future
     prospects of our business, including its growth opportunities and likely
     operational improvements, and (iii) comparable sales prices, if available.

                                       34

<PAGE>

     As part of the first step to assess potential impairment, we compare our
     estimate of fair value for the Company to the book value of our
     consolidated net assets. If the book value of our net assets is greater
     than our estimate of fair value, we would then proceed to the second step
     to measure the impairment, if any.

     The second step compares the implied fair value of goodwill with its
     carrying value. The implied fair value is determined by allocating the fair
     value of the reporting unit to all of the assets and liabilities of that
     unit as if the reporting unit had been acquired in a business combination,
     and the fair value of the reporting unit was the purchase price paid to
     acquire the reporting unit. The excess of the fair value of the reporting
     unit over the amounts assigned to its assets and liabilities is the implied
     fair value of goodwill. If the carrying amount of the reporting unit
     goodwill is greater than its implied fair value, an impairment loss will be
     recognized in the amount of the excess.

     On a quarterly basis, we perform a review of our business to determine if
     events or changes in circumstances have occurred which could have a
     material adverse effect on the fair value of the Company and its goodwill.
     If such events or changes in circumstances were deemed to have occurred, we
     would consult with one or more valuation specialists in estimating the
     impact on our estimate of fair value. We believe the estimation methods are
     reasonable and reflective of common valuation practices. We perform our
     annual goodwill impairment test in the fourth quarter of each year. No
     impairments were noted during the years ended December 31, 2003 and 2002.

     At December 31, 2003 and 2002, the Company had recorded goodwill of
     approximately $28 million.

General

Impax Laboratories, Inc. was formed through a business combination on December
14, 1999, between Impax Pharmaceuticals, Inc., a privately held drug delivery
company, and Global Pharmaceutical Corporation, a generic pharmaceutical
company. Impax Pharmaceuticals, Inc. merged with and into Global, with Impax
Pharmaceuticals, Inc. stockholders receiving 3.3358 shares of Global common
stock for each share of Impax Pharmaceuticals, Inc. At the conclusion of the
merger, Impax Pharmaceuticals, Inc. stockholders held over 70% of the combined
company. For accounting purposes, the merger has been treated as a
recapitalization of Impax Pharmaceuticals, Inc., with Impax Pharmaceuticals,
Inc. deemed the acquirer of Global in a reverse acquisition. As a reverse
acquisition, our historical operating results prior to the merger are those of
Impax Pharmaceuticals, Inc. and only include the operating results of Global
after the merger. In connection with the merger, Global changed its name to
Impax Laboratories, Inc.

We are a technology based, specialty pharmaceutical company applying formulation
and development expertise, as well as our drug delivery technology, to the
development of controlled-release and niche generics, in addition to the
development of branded products. As of March 5, 2004, we market thirty-one
generic pharmaceuticals, which represent dosage variations of thirteen different
pharmaceutical compounds, and have nineteen applications pending at the FDA,
including six tentatively approved, that address approximately $6.8 billion in
U.S. product sales for the twelve months ended December 31, 2003. Fifteen of
these filings were made under Paragraph IV of the Hatch-Waxman Amendments. We
have approximately twenty-four other products in various stages of development
for which applications have not yet been filed. These products are generic
versions of brand name pharmaceuticals that had U.S. market sales of
approximately $13.8 billion for the twelve months ended December 31, 2003.

Results of Operations

We have incurred net losses in each year since our inception. We had an
accumulated deficit of $104,549,000 at December 31, 2003.


Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Revenues

The net revenues for the year ended December 31, 2003 were $58,818,000 as
compared to $24,515,000 for the year ended December 31, 2002. The year-over-year
increase was primarily due to the introduction of OTC Loratadine and
Pseudoephedrine Sulfate 12-hour Extended Release Tablets, and Flavoxate
Hydrochloride 100 mg Tablets during 2003; and higher sales, of Minocycline
Hydrochloride 50 mg, 75 mg, and 100 mg Capsules, Fludrocortisone Acetate Tablets
0.1 mg, and the LIPRAM product family. In addition, in December 2003, the
$3,500,000 from Teva which represented the reversal of part of the refundable
deposit under the strategic alliance agreement for its exercise of the
exclusivity option for certain products. The following table summarizes the
activity in net sales for the years ended December 31, 2003 and 2002:

                                       35

<PAGE>

<TABLE>
<CAPTION>
                  (in $000's)                                                      2003            2002
                                                                                   ----            ----
<S>                                                                             <C>             <C>
           Product sales                                                        $ 73,462        $  38,400
           Revenue from reversal of refundable deposit from Teva                   3,500               -
           Other revenues                                                          1,753              757
                                                                                --------        ---------
                 Gross Sales                                                    $ 78,715           39,157

           Less:
              Actual returns                                                       1,254            1,281
              Increase in reserve for product returns                              1,021            1,200
              Rebates, chargebacks and other credits                              17,622           12,161
                                                                                --------        ---------

                 Net Sales                                                      $ 58,818        $  24,515
                                                                                ========        =========
</TABLE>

Other revenues also represent revenues recognized pursuant to strategic
agreements with Schering-Plough, Wyeth, and Novartis, which include up-front and
milestone payments and the reversal of part of the refundable deposit from Teva,
mentioned above.

The increase in rebates, chargebacks, and other credits was primarily due to
increased sales volume.

Cost of Sales

The cost of sales for the year ended December 31, 2003 was $43,769,000 as
compared to $18,492,000 for the same period in 2002. This increase in 2003 as
compared to 2002 was primarily due to higher sales volume, increased expenses
related to ramping up production for new product introduction, (personnel,
supplies, and training), and $2,365,000 of product batches written-off during
the fourth quarter of 2003, primarily related to anticipated new product
launches. Also in 2003, there were unabsorbed fixed costs due to excess capacity
in Hayward, California and Philadelphia, Pennsylvania facilities.

Gross Margin

The gross margin for the year ended December 31, 2003 was $15,049,000 as
compared to a gross margin of $6,023,000 for the year ended December 31, 2002.
The increase in 2003 gross margin was due to higher net sales, and higher
revenue from strategic alliances which include up-front and milestone payments
of $1,753,000 as compared to $757,000 in 2002. In addition, the $3,500,000 from
Teva represented the reversal of part of the refundable deposit under the
strategic alliance agreement for its exercise of the exclusivity option for
certain products.

Research and Development Expenses

The research and development expenses for the year ended December 31, 2003 were
$17,185,000, less expense reimbursements of $247,000 by Teva under the strategic
alliance agreement signed in June 2001, as compared to $16,254,000 less expense
reimbursements of $705,000 by Teva for the same period in 2002. The increase in
2003 research and development expenses as compared to 2002 was primarily due to
higher legal expenses related to patents and alleged patent infringement
lawsuits, and personnel costs.

Selling Expenses

The selling expenses for the year ended December 31, 2003 were $2,497,000 as
compared to $2,836,000 for the same period in 2002. The decrease in selling
expenses as compared to 2002 was due primarily to lower advertising, trade
shows, and market research expenses.

General and Administrative Expenses

The general and administrative expenses for the year ended December 31, 2003
were $9,176,000 as compared to $8,396,000 for the same period in 2002. The
increase in 2003 general and administrative expenses as compared to 2002 was
primarily due to higher personnel costs, professional fees, and insurance
premiums.

                                       36

<PAGE>

Interest Income

Interest income for the year ended December 31, 2003 was $280,000 as compared to
$644,000 for the same period in 2002, primarily due to lower interest rates.

Interest Expense

The interest expense for the year ended December 31, 2003, was $952,000 as
compared to $565,000 for the year ended December 31, 2002, as follows:

<TABLE>
<CAPTION>
                (in $000's)                                                 2003         2002
                                                                           -----        -----
<S>                                                                        <C>          <C>
                Interest expense                                           $ 952        $ 565
                Forgiveness of interest on refundable deposit                  -         (876)

                Less:  amount capitalized                                      -          201
                                                                           -----        -----

                     Total interest expense                                $ 952        $(110)
                                                                           -----        -----
</TABLE>

The increase in the 2003 interest expense as compared to 2002 interest expense
was primarily due to the revolving credit facility and term loan agreement
signed with Congress Financial in October 2002. In December 2003, the Company
transferred the $25 million revolving credit facility and term loan from
Congress Financial to Wachovia Bank N.A., thereby securing lower interest and
less restrictive borrowing terms.

Under the strategic alliance agreement with Teva previously described in Part I,
Item 1, if IMPAX received tentative or final approval for any of three products
of the twelve covered by this agreement, the accrued interest on the $22 million
refundable deposit would be forgiven and no future interest would accrue. During
2002, we met this condition, resulting in the reversal of the accrued interest
in the fourth quarter of 2002.

Net Loss

The net loss for the year ended December 31, 2003 was $14,207,000, as compared
to $20,040,000 for the year ended December 31, 2002. The decrease in the net
loss of $5,833,000 was primarily due to increased sales revenues, which
partially offset increases in manufacturing expenses, research and development,
and operating expenses.


Year Ended December 31, 2002 Compared to Year Ended December 31, 2001


Overview

The net loss for the year ended December 31, 2002 was $20,040,000, as compared
to $25,111,000 for the year ended December 31, 2001, which included goodwill
amortization of $3,504,000. The decrease in the net loss of $5,071,000 was
primarily due to the absence of amortization of goodwill due to the adoption of
SFAS 142 effective January 1, 2002 and increased sales that were partially
offset by increases in research and development, and operating expenses. The
2002 results included a benefit from the reversal of the interest expense on the
refundable deposit from Teva of approximately $675,000.

Revenues

The net sales for the year ended December 31, 2002 were $24,515,000 as compared
to $6,591,000 for the same period in 2001. The year-over-year increase resulted
from increased sales of Fludrocortisone Acetate Tablets 0.1 mg, introduced at
the end of the first quarter of 2002; Minocycline Hydrochloride 50 mg, 75 mg,
and 100 mg Capsules, launched in the third quarter of 2002; Terbutaline Sulfate
2.5 mg and 5.0 mg Tablets, introduced since July 2001; Rimantadine Hydrochloride
100 mg Tablets, launched in the fourth quarter of 2002; higher Lipram sales;
lower product returns; and revenue from strategic agreements. The following
table summarizes the activity in net sales for the years ended December 31, 2002
and 2001:

                                       37

<PAGE>

<TABLE>
<CAPTION>
                (in $000's)                                               2002            2001
                                                                         ------          ------

<S>                                                                    <C>             <C>
                Product sales                                          $  38,400       $  16,119
                Other revenues                                               757               -
                                                                       ---------       ---------
                      Gross Revenues                                      39,157          16,119

                Less:
                   Actual returns                                          1,281           2,841
                   Increase in reserve for product returns                 1,200           1,684
                   Rebates, chargebacks and other credits                 12,161           5,003
                                                                       ---------        --------
                      Net Revenues                                     $  24,515        $  6,591
                                                                       =========        ========
</TABLE>

Other revenues represent revenues recognized pursuant to strategic agreements
with Schering-Plough, Wyeth, and Novartis.

The increase in rebates, chargebacks, and other credits was primarily due to
increased sales volume.

Cost of Sales

The cost of sales for the year ended December 31, 2002 was $18,492,000 as
compared to $9,669,000 for the same period in 2001. This increase in 2002 as
compared to 2001 was primarily due to higher sales volume, startup costs of the
new manufacturing facility in Hayward, California and unabsorbed fixed costs due
to excess plant capacity in the Hayward, California and Philadelphia,
Pennsylvania facilities. Because of the nature of returns (discontinued products
or short-dated products), we concluded the returned inventory had no value to
the Company and the products were destroyed.

Gross Margin

The gross margin for the year ended December 31, 2002 was $6,023,000 as compared
to a negative gross margin of $3,078,000 for the year ended December 31, 2001.
The increase in 2002 gross margin was due to higher net sales and better product
mix from the newly introduced products.

Research and Development Expenses

The research and development expenses for the year ended December 31, 2002 were
$16,254,000, less expense reimbursements of $705,000 by Teva under the strategic
alliance agreement signed in June 2001, as compared to $11,890,000 less expense
reimbursements of $918,000 by Teva for the same period in 2001. The increase in
2002 research and development expenses as compared to 2001 was primarily due to
higher materials, product introduction, legal expenses related to patents and
alleged patent infringement lawsuits, and personnel costs.

Selling Expenses

The selling expenses for the year ended December 31, 2002 were $2,836,000 as
compared to $2,186,000 for the same period in 2001. The increase in selling
expenses as compared to 2001 was due primarily to higher advertising, trade
shows, and personnel costs.

General and Administrative Expenses

The general and administrative expenses for the year ended December 31, 2002
were $8,396,000 as compared to $9,258,000 for the same period in 2001, including
goodwill amortization of approximately $3,504,000. The decrease in 2002 general
and administrative expenses as compared to 2001 was primarily due to the absence
of goodwill amortization of approximately $3,504,000, offset by higher personnel
costs, professional fees, insurance premiums, and recruiting expenses.

Interest Income

Interest income for the year ended December 31, 2002 was $644,000 as compared to
$1,148,000 for the same period in 2001, due to lower cash equivalents and
short-term investments, and lower interest rates.

                                       38

<PAGE>

Interest Expense

The interest expense for the year ended December 31, 2002, was $565,000 as
compared to $253,000 for the year ended December 31, 2001, as follows:

<TABLE>
<CAPTION>
                                    (in $000's)                            2002          2001
                                                                          ------        ------
<S>                                                                       <C>           <C>
                Interest expense                                          $  565        $  253
                Interest on refundable deposit                                 -           876
                Forgiveness of interest on refundable deposit               (876)            -

                Less:  amount capitalized                                    201           200
                                                                          ------        ------

                     Total interest expense                               $ (110)       $  929
                                                                          ------        ------
</TABLE>

The increase in the 2002 interest expense as compared to the comparable period
in 2001 was primarily due to the two Cathay Bank loans, which were outstanding
for the full year in 2002 versus a partial year in 2001, and the revolving
credit facility and term loan agreement signed with Congress Financial in
October 2002.

Under the strategic alliance agreement with Teva previously described in Part I,
Item 1, if IMPAX received tentative or final approval for any of three products
of the twelve covered by this agreement, the accrued interest on the $22 million
refundable deposit would be forgiven and no future interest would accrue. During
2002, we met this condition, resulting in the reversal of the accrued interest
in the fourth quarter of 2002 and no future interest will accrue.

Net Loss

The net loss for the year ended December 31, 2002 was $20,040,000, as compared
to $25,111,000 for the year ended December 31, 2001, which included goodwill
amortization of $3,504,000. The decrease in the net loss of $5,071,000 was
primarily due to the absence of amortization of goodwill due to the adoption of
SFAS 142 effective January 1, 2002 and increased sales that were partially
offset by increases in research and development, and operating expenses. The
2002 results included a benefit from the reversal of the interest expense on the
refundable deposit from Teva of approximately $675,000.

Liquidity and Capital Resources

At December 31, 2003, we had $15,505,000 in cash and cash equivalents as
compared to $10,219,000 at December 31, 2002.

The net cash provided by financing activities for the year ended December 31,
2003, was approximately $28,911,000, consisting of the $23,317,000 net proceeds
from a private placement of common stock and warrants, and proceeds of
$1,995,000 from issuance of common stock upon exercise of stock options and
warrants, and net borrowings of $3,643,000 from the credit facility.

In December 2003, the Company transferred the $25 million Loan and Security
Agreement from Congress Financial Corporation to Wachovia Bank, N.A., thereby
securing lower interest and less restrictive borrowing terms. The revolving loan
is collateralized by eligible accounts receivable and inventory, subject to
sublimits and other terms, and the term loan is collateralized by machinery and
equipment, with a 60-month amortization. In addition, a $10 million restricted
cash account was established as collateral for this credit facility to be
reduced based on meeting certain cumulative positive cash flow targets. The
interest rates for the revolving loans are prime rate plus 0.75%, or eurodollar
rate plus 2.75%, at our option, based on excess availability. The term loan has
an interest rate of prime rate plus 1.5%, or eurodollar rate plus 4%, at our
option. As of December 31, 2003, we borrowed approximately $7,642,000 against
the revolving credit line and $3,290,000 against the term loan. The borrowing
availability under the revolving credit line changes daily based on eligible
accounts receivable and inventory. The revolving credit facility and the term
loan agreement have two financial covenants: one related to Adjusted Excess
Availability, and the other one related to Capital Expenditures limits. At
December 31, 2003, both financial covenants were met.

Net cash of $19,223,000 was used by operating activities during the twelve
months ended December 31, 2003, which was primarily the result of inventory
buildup for new products of approximately $18,001,000 and an increase of
accounts receivable of $3,361,000, primarily due to increased sales, partially
offset by increases in accounts payable of $15,254,000, accrued expenses and
other current liabilities of $1,406,000, primarily due to the building of
inventories relating to products expected to be launched in 2004. In addition,

                                       39

<PAGE>

the $3,500,000 from Teva represented the reversal of part of the refundable
deposit under the strategic alliance agreement for its exercise of the
exclusivity option for certain products.

Our capital expenditures for the twelve months ended December 31, 2003 were
$4,402,000 as compared to $15,054,000 for the same period in 2002 when we
completed our new production facility in Hayward, California. We expect our 2004
capital expenditures to be higher than 2003, as we plan for future product
launches in the coming years.

The $22 million refundable deposit from Teva was reduced during 2003 by $17
million through a combination of 888,918 shares of common stock issued to Teva
in September 2003 for a total value of $13.5 million, and Teva's exercise of its
option to retain marketing exclusivity for certain products in December 2003 for
a total value of $3.5 million. In January 2004, Teva's exercise of the marketing
exclusivity option for certain products reduced the refundable deposit to $2.5
million. On January 15, 2004, we satisfied the remaining $2.5 million refundable
deposit obligation to Teva by issuing 160,951 shares of common stock to Teva. As
of February 27, 2004, to our knowledge, Teva owns 2,511,952 shares of IMPAX
common stock, or approximately 4.3% of the outstanding common stock.

We expect to incur significant operating expenses, particularly research and
development, for the foreseeable future in order to execute our business plan.
We, therefore, anticipate that such operating expenses, as well as planned
capital expenditures, will constitute a material use of our cash resources.

Although our existing cash and cash equivalents are expected to decline during
2004, we believe that our existing cash and cash equivalent balances, together
with our term loan and revolving line of credit with Wachovia Bank, N.A., will
be sufficient to meet our requirements for the next twelve months. We may seek
additional financing through strategic alliances and/or debt or equity markets
to fund our planned 2004 capital expenditures, our research and development
plans, and potential revenues shortfall due to delays in new product
introductions. However, we may be unable to obtain such financing at all or on
acceptable terms.

To date, we funded our research and development and other operating activities
through equity and debt financings, and strategic alliances.

We have not paid any cash dividends on our common stock and we do not plan to
pay any cash dividends in the foreseeable future. We plan to retain any earnings
for the operation and expansion of our business. Our loan agreements and our
strategic agreement with Teva prohibit the payment of dividends without the
other party's consent.

Our total contractual commitments on loans, operating leases, and royalty
agreements as of December 31, 2003, were as follows:

<TABLE>
<CAPTION>
                                                                  Within 1         1 - 3        3 - 5      After 5
($ in millions)                                       Total         Year           Years        Years       Years
                                                      -----         ----           -----        -----       -----
<S>                                                    <C>            <C>           <C>          <C>         <C>
On Balance Sheet Commitments:
    Credit Facilities And Long Term Debt               $9.9           $1.1          $3.2         $0.3        $5.3
    Other Liabilities                                  13.8           11.5           0.6          1.1         0.6
                                                      -----          -----          ----         ----        ----
    Total Balance Sheet Commitments                    23.7           12.6           3.8          1.4         5.9
                                                      -----          -----          ----         ----        ----
Off Balance Sheet Commitments:
    Operating Leases                                    2.2            0.7           1.2          0.3           -
    Royalty Agreements                                  3.7            1.0           2.1          0.6           -
    Material Purchases                                 23.0           23.0             -            -           -
                                                      -----          -----          ----         ----        ----
    Total Off Balance Sheet Commitments                28.9           24.7           3.3          0.9           -
                                                      -----          -----          ----         ----        ----
Total Commitments                                     $52.6          $37.3          $7.1         $2.3        $5.9
                                                      -----          -----          ----         ----        ----
</TABLE>

Excluded from this table is the Mandatorily Redeemable Preferred Stock which is
a non-cash commitment. In February 2004, the Mandatorily Redeemable Preferred
Stock was converted into 1,500,000 shares of common stock.

Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 143, "Accounting for Asset Retirement Obligations," which addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 applies to legal obligations associated with the retirement
of long-lived assets that result from the acquisition, construction, development
and/or normal use of the asset.

                                       40

<PAGE>

The Company adopted the provisions of SFAS No. 143 on January 1, 2003. Upon
initial application of the provisions of SFAS No. 143, entities are required to
recognize a liability for any existing asset retirement obligations adjusted for
cumulative accretion to the date of adoption of this Statement, an asset
retirement cost capitalized as an increase to the carrying amount of the
associated long-lived asset, and accumulated depreciation on that capitalized
cost. The provisions of this Statement did not have a material impact on the
Company's financial condition or results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This Statement, which updates, clarifies and simplifies existing accounting
pronouncements, addresses the reporting of debt extinguishments and accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. The provisions of this Statement are generally
effective for the Company's 2003 fiscal year or, in the case of specific
provisions, for transactions occurring after May 15, 2002 or for financial
statements issued on or after May 15, 2002. The provisions of this Statement did
not have a material impact on the Company's financial condition or results of
operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue ("EITF") No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, and concludes that an
entity's commitment to an exit plan does not, by itself, create a present
obligation that meets the definition of a liability. This Statement also
establishes that fair value is the objective of initial measurement of the
liability. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged. The Company adopted SFAS No. 146 on January 1, 2003. The provisions
of this Statement did not have a material impact on the Company's financial
condition or results of operations.

In November 2002, the EITF reached a consensus on Issue No. 00-21, "Revenue
Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance
on how to account for arrangements that involve the delivery or performance of
multiple products, services, and/or rights to use assets. The provisions of EITF
Issue No. 00-21 applies to revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. We implemented the provisions of EITF Issue No.
00-21 in revenue recognition of certain strategic agreements. The Company
reviews all of the terms of its strategic alliances and follows the guidance
from this Issue for all multiple element arrangements.

Also in November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34." FIN
45 clarifies the requirements of SFAS No. 5, "Accounting for Contingencies,"
relating to the guarantor's accounting for, and disclosure of, the issuance of
certain types of guarantees. The disclosure provisions of FIN 45 were effective
for the year ended December 31, 2002. The provisions for initial recognition and
measurement are effective on a prospective basis for guarantees that are issued
or modified after December 31, 2002, irrespective of a guarantor's year-end. The
Company has not issued any guarantees as of December 31, 2003 and 2002,
respectively.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, amendment of FASB Statement No. 123."
This statement provides additional transition guidance for those entities that
elect to voluntarily adopt the provisions of SFAS No. 123, "Accounting for Stock
Based Compensation." Furthermore, SFAS No. 148 mandates new disclosures in both
interim and year-end financial statements within the Company's Significant
Accounting Policies footnote. The Company has elected not to adopt the
recognition provisions of SFAS No. 123, as amended by SFAS No. 148. However, the
Company has adopted the disclosure provisions for the current fiscal year and
has included this information in Note 1 to the Company's financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. FIN 46 applies to public enterprises as of the
beginning of the applicable interim or annual period. On October 8, 2003, the
FASB decided to defer FIN 46 until the first reporting period ending after
December 15, 2003. The provisions of this Interpretation did not have a material
impact on the Company's financial condition or results of operations.

                                       41

<PAGE>

In December 2003, the FASB issued FIN No. 46R, Consolidation of Variable
Interest Entities, clarifying the application of Accounting Research Bulletin
No. 51, Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support. The provisions of this
Interpretation do not have a material impact on the Company's financial
condition or results of operations.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The changes in this Statement
improve financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. In particular, this Statement (1)
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative discussed in paragraph 6(b) of
Statement 133, (2) clarifies when a derivative contains a financing component,
(3) amends the definition of an underlying to conform it to language used in
FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and (4)
amends certain other existing pronouncements. Those changes will result in more
consistent reporting of contracts as either derivatives or hybrid instruments.
The provisions of this Statement did not have a material impact on the Company's
financial condition or results of operations.

In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." The
Statement improves the accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity. This new Statement
requires that those instruments be classified as liabilities in the balance
sheet and is effective at the beginning of the first interim period beginning
after June 15, 2003. The Company adopted SFAS No. 150 on July 1, 2003. The
provisions of this Statement did not have a material impact on the Company's
financial condition or results of operations.

In December 2003, the FASB revised SFAS 132, "Employers' Disclosure About
Pensions and Other Post Retirement Benefits." This Statement does not change the
measurement or recognition of those plans required by FASB 87, "Employers'
Accounting for Pensions," and No. 106, "Employers' Accounting for Post
Retirement Benefits Other than Pensions." This Statement retains the disclosure
requirements contained in FASB No. 132, "Employers' Disclosure about Pensions
and Other Post Retirement Plans." The provisions of this Statement do not have a
material impact on the Company's financial condition or results of operations.

Major Operational Highlights for the Twelve Months Ended December 31, 2003

o    On January 27, 2003, Abbott Laboratories filed a lawsuit against the
     Company in the U.S. District Court of Delaware alleging patent infringement
     related to IMPAX's filing of an ANDA for a generic version of the
     cholesterol drug Tricor Tablets. Tricor is a treatment for very high serum
     triglyceride levels. U.S. sales of Tricor Tablets were approximately $591
     million for the twelve months ended December 31, 2003, according to
     NDCHealth.

o    On January 30, 2003, the FDA granted final approval to the Company's ANDA
     for a generic version of Rilutek (Riluzole 50 mg) tablets. Aventis markets
     Rilutek for the treatment of amyotrophic lateral sclerosis (ALS), also
     known as Lou Gehrig's disease. Approval followed the expiration of Aventis'
     Orphan Drug Exclusivity on December 12, 2002. According to NDCHealth, U.S.
     sales of Rilutek were $31.9 million for the twelve months ended December
     31, 2003.

o    On January 31, 2003, the FDA granted final approval to the Company's ANDA
     for a generic version of Claritin-D 12-hour (Loratadine and Pseudoephedrine
     Sulfate, 5 mg/120 mg) Extended Release Tablets. FDA approved a switch in
     Claritin-D 12-hour's status from a prescription drug to an over-the-counter
     (OTC) drug for the relief of symptoms of seasonal allergic rhinitis (hay
     fever) on December 9, 2002.

o    Also in January 2003, following final approval from FDA and under the terms
     of a non-exclusive Licensing Contract Manufacturing and Supply Agreement,
     we commenced shipping the generic version of Claritin-D 12-hour (Loratadine
     and Pseudoephedrine Sulfate) 5 mg/120 mg Extended Release Tablets to
     Schering-Plough Corporation. Schering-Plough launched its OTC Claritin-D
     12-hour in March 2003. Shipments to Wyeth under our Development, License
     and Supply Agreement with them started in late March. Wyeth launched this
     product in mid-May as Alavert D-12.

o    In February 2003, Merck & Co., Inc. filed a lawsuit against the Company in
     the federal district court in Delaware alleging patent infringement related
     to our filing of an ANDA for a generic version of Sinemet CR Tablets.
     Sinemet CR is used to treat patients with Parkinsonism. U.S. sales of
     Sinemet CR and the currently marketed generic equivalent were approximately
     $81 million in the twelve months ended December 31, 2003, according to
     NDCHealth. In April 2003, Merck & Co., Inc. withdrew its lawsuit alleging
     patent infringement related to our filing of the ANDA for a generic version
     of Sinemet CR Tablets.

                                       42

<PAGE>

o    On March 28, 2003, U.S. District Court in Chicago ruled that our
     Fenofibrate Capsules, a generic form of Tricor Micronized Capsules, does
     not infringe Abbott Laboratories' patent on this product. Tricor is
     marketed for the treatment of hypercholesterolemia and
     hypertriglyceridemia. According to NDCHealth, U.S. sales of the capsule
     form of the lipid-regulating agent were approximately $2.5 million for the
     twelve months ending December 31, 2003, as Abbott converted usage to the
     tablet form prior to the availability of generic capsules. On October 27,
     2003, the FDA granted final approval to the Company's ANDA for the
     Fenofibrate Capsules.

o    On April 28, 2003, the FDA granted approval to the Company's ANDA for a
     generic version of Mestinon (Pyridostigmine Bromide) 60 mg Tablets. ICN
     Pharmaceuticals, Inc. markets Mestinon for symptomatic treatment of
     myasthenia gravis. Myasthenia gravis is a neuromuscular disorder primarily
     characterized by muscle weakness and rapid muscle fatigue. According to
     NDCHealth, U.S. sales of Mestinon were $17.2 million for the twelve months
     ended December 31, 2003.

o    On May 7, 2003, the Company completed a private placement of 4,394,081
     shares of common stock, and warrants to purchase 878,815 shares of common
     stock to a group of institutional investors for a purchase price of $24.0
     million. In addition, the investors purchased an additional 183,000 shares
     of common stock on May 16, 2003 for approximately $1.0 million. The total
     offering price of the private placement was $25,000,000. The net proceeds
     of $23,324,000 are to be used for general corporate purposes. A Form S-3
     registration statement registering the resale of the shares of common stock
     and the shares of common stock underlying the warrants was filed with the
     Securities and Exchange Commission on June 6, 2003.

o    On May 28, 2003, the FDA accepted our filing of an ANDA for a generic
     version of Wellbutrin SR (Bupropion Hydrochloride) 200 mg Tablets.
     GlaxoSmithKline markets Wellbutrin SR for the treatment of depression. U.S.
     sales of Wellbutrin SR 200 mg Tablets were approximately $265.3 million in
     the twelve months ended December 31, 2003, according to the NDCHealth.

o    On July 31, 2003, the Company entered into an Exclusivity Transfer
     Agreement with Andrx Corporation and a subsidiary of Teva Pharmaceutical
     Industries Ltd. pertaining to pending ANDAs for bioequivalent versions of
     Wellbutrin SR and Zyban (Bupropion Hydrochloride) 100 mg and 150 mg
     Extended Release Tablets filed by Andrx, as well as by the Company.
     Pursuant to the Company's existing Strategic Alliance Agreement with Teva,
     Teva has U.S. marketing rights to IMPAX's versions of these products. These
     two strengths of Wellbutrin SR and Zyban, marketed by GlaxoSmithKline, had
     U.S. sales of over $1.7 billion for the twelve-month period ended December
     31, 2003 according to NDCHealth.

     The parties believe that the Andrx ANDAs for the products were entitled,
     under the Hatch-Waxman Act, to a 180-day period of marketing exclusivity.
     Under the Exclusivity Transfer Agreement, Andrx will continue to seek
     approval of its ANDAs. The agreement provides, among other things, that if
     Andrx is unable to launch its own products within a defined period of time,
     and IMPAX is able to market its products, Andrx will enable IMPAX to launch
     its own products through Teva, with the parties sharing certain payments
     with Andrx relating to the sale of the products for a 180-day period.
     Should Andrx launch its own products prior to the IMPAX product launch, it
     will share with IMPAX certain payments for a 180-day period.

o    On August 1, 2003, the Court of Appeals for the Federal Circuit in
     Washington, D.C. upheld the lower court decision that ruled against certain
     claims by Schering-Plough Corporation of U.S. Patent No. 4,569,716 in
     litigation relating to the antihistamine products Claritin (Loratadine) and
     Claritin-D (Loratadine and Pseudoephedrine Sulfate).

o    On August 5, 2003, the U.S. Patent and Trademark Office granted the company
     a patent for our "Multiplex Drug Delivery System Suitable for Oral
     Administration." The U.S. patent number is 6,602,521.

o    On August 29, 2003, the Company announced that the FDA has granted approval
     to the Company's ANDA for a generic version of Urispas (Flavoxate
     Hydrochloride) 100 mg tablets. Ortho McNeil Pharmaceutical, Inc. markets
     Urispas for the symptomatic relief of various urinary tract conditions
     including dysuria, urgency, nocturia, suprapubic pain, frequency and
     incontinence as may occur in cystitis, prostatitis, urethritis,
     urethrocystitis and urethrotrigonitis. According to NDCHealth, U.S. sales
     of Urispas were $7.3 million for the twelve months ended December 31, 2003.

                                       43

<PAGE>

o    On September 2, 2003, the Company announced that the FDA granted approval
     to the Company's ANDA for a generic version of Aralen (Chloroquine
     Phosphate) 500 mg tablets. Sanofi Winthrop Pharmaceuticals markets Aralen
     for the suppressive treatment and for acute attacks of malaria. According
     to NDCHealth, the U.S. market for Chloroquine products was $2.9 million for
     the twelve months ended December 31, 2003.

o    On September 5, 2003, the Company announced that the FDA granted tentative
     approval to the Company's ANDA for a generic version of OxyContin
     (Oxycodone Hydrochloride) Controlled Release Tablets, 80 mg. Purdue Pharma
     markets OxyContin for the management of moderate to severe pain. According
     to NDCHealth, U.S. sales of OxyContin Controlled Release Tablets, 80 mg
     were $633.9 million for the twelve months ended December 31, 2003.

o    On September 9, 2003, the Company announced that Alza Corporation, a
     Johnson & Johnson unit, had filed a lawsuit against the Company in the
     United States District Court, Northern District of California alleging
     patent infringement related to IMPAX's filing of an ANDA for a generic
     version of Ditropan XL (Oxybutynin Chloride) Tablets, 15 mg. Ditropan XL
     Tablets are used for the treatment of overactive bladder with symptoms of
     urge urinary incontinence, urgency, and frequency. Additionally, IMPAX has
     filed for generic versions of Ditropan XL Tablets, 5 mg and 10 mg; total
     U.S. sales for all three strengths were $362.0 million for the twelve
     months ended December 31, 2003, according to NDCHealth.

o    On September 30, 2003, the Company announced that the FDA granted approval
     to the Company's ANDA for a generic version of Claritin Reditabs
     (Loratadine Orally Disintegrating Tablets) 10 mg. Schering-Plough markets
     Claritin Reditabs as an OTC drug for the relief of symptoms of seasonal
     allergic rhinitis (hay fever). According to NDCHealth, U.S. sales of
     Claritin Reditabs were over $39 million for the twelve months ended
     December 31, 2003.

o    On October 27, 2003, the Company announced that it had entered into a
     Settlement and License Agreement with Schering-Plough related to IMPAX's
     generic version of Claritin-D 24-hour (Loratadine and Pseudoephedrine
     Sulfate, 10 mg/240 mg) Extended Release Tablets. This agreement resolved
     all of the outstanding patent litigation between the parties on this
     product.

o    On November 19, 2003, the Company announced that the FDA has accepted the
     Company's filing of an ANDA for a generic version of Adderall XR 30 mg
     Capsules. Adderall XR is a once daily extended-release, mixed salts of a
     single-entity amphetamine product. Shire Pharmaceuticals Group plc markets
     the product for the treatment of Attention Deficit and Hyperactivity
     Disorder. According to NDCHealth, U.S. sales of Adderall XR Capsules were
     approximately $150.6 million in the twelve months ended December 31, 2003.
     Shire received initial FDA approval of this product in October of 2001.

o    On December 24, 2003, the Company announced that the FDA has granted
     tentative approval to the Company's ANDA for generic versions of OxyContin
     (Oxycodone Hydrochloride) Controlled Release Tablets, 10, 20 and 40 mg.
     Purdue Pharma markets OxyContin for the management of moderate to severe
     pain. According to NDCHealth, U.S. sales of OxyContin Controlled Release
     Tablets, 10, 20 and 40 mg, were $1,182 million for the 12 months ended
     December 31, 2003.

o    On December 30, 2003, the Company announced that Shire Laboratories Inc., a
     subsidiary of Shire Pharmaceuticals Group PLC, has filed a lawsuit against
     the Company in the U.S. District Court for the District of Delaware
     alleging patent infringement related to IMPAX's filing of an ANDA for a
     generic version of Adderall XR 30 mg Capsules.

Risk Factors

An investment in our common stock involves a high degree of risk. You should
consider carefully the following risk factors, as well as the other information
included in this 10-K report, in deciding whether to invest in our common stock.
This 10-K report contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from the results
discussed in the forward-looking statements. Factors that could cause or
contribute to these differences include, but are not limited to, those discussed
in this "Risk Factors" section, and elsewhere in this report.

                                       44

<PAGE>

Risks Related to Our Business

We have experienced, and expect to continue to experience, operating losses and
negative cash flow from operations and our future profitability is uncertain.

We do not know whether or when our business will ever be profitable or generate
positive cash flow, and our ability to become profitable or obtain positive cash
flow is uncertain. We have not generated significant revenues to date and have
experienced operating losses and negative cash flow from operations since our
inception. As of December 31, 2003, our accumulated deficit was $104,549,000 and
we had outstanding indebtedness in an aggregate principal amount of $22,564,000
(including $5,000,000 due Teva Pharmaceuticals Curacao, N.V., a subsidiary of
Teva Pharmaceutical Industries, Ltd.). To remain operational, we must, among
other things:

     o   continue to obtain sufficient capital to fund our operations;
     o   obtain from the FDA approval for our products;
     o   prevail in patent infringement litigation in which we are involved;
     o   successfully launch our new products; and
     o   comply with the many complex governmental regulations that deal with
         virtually every aspect of our business activities.

We may never become profitable or generate positive cash flow from operations.

We currently have a limited number of commercialized products, and these
products generate limited revenues and are expected to have declining revenues
over their product lives.

We currently market thirty-one generic pharmaceuticals which represent dosage
variations of thirteen different pharmaceutical compounds. Our revenues from
these products for the 12 months ended December 31, 2003 were approximately
$53.6 million. We do not anticipate further revenue growth from these products;
rather, we anticipate that revenues from these products will decline over time.
As a result, our future prospects are dependent on our ability to successfully
introduce new products. As of March 5, 2004, we had nineteen applications
pending at the FDA for generic versions of brand name pharmaceuticals. The FDA
and the regulatory authorities may not approve our products submitted to them or
our other products under development. Additionally, we may not successfully
complete our development efforts. Even if the FDA approves our products, we may
not be able to market our products if we do not prevail in the patent
infringement litigation in which we are involved. Our future results of
operations will depend significantly upon our ability to develop, receive FDA
approval for, and market new pharmaceutical products.

Our efforts may not result in required FDA approval of our new drug products.

We are required to obtain FDA approval before marketing our drug products. The
FDA approval requirements are costly and time consuming. We apply our
drug-delivery technologies and formulation skills to develop bioequivalent
versions of selected controlled-release brand name pharmaceuticals.
Bioequivalent pharmaceuticals, commonly referred to as generics, are the
pharmaceutical and therapeutic equivalents of brand name drug products and are
usually marketed under their established nonproprietary drug names rather than
by a brand name. Controlled-release drug-delivery technologies are designed to
release drug dosages at specific times and in specific locations in the body and
generally provide more consistent and appropriate drug levels in the bloodstream
than immediate-release dosage forms. Controlled-release drugs may improve drug
efficacy, reduce side effects and be more "patient friendly" by reducing the
number of times a drug must be taken.

To obtain FDA approval for a new drug product, a prospective manufacturer must
submit a new drug application, or NDA, containing the results of clinical
studies supporting the drug product's safety and efficacy. For bioequivalent
drugs, drugs that contain the same active ingredient and are of the same route
of administration, dosage form, strength and indication(s) as drugs already
approved for use in the U.S. (the reference listed drugs), a prospective
manufacturer must submit an abbreviated new drug application, an ANDA. An ANDA
is similar to an NDA except that an ANDA is only required to contain
bioavailability data demonstrating that the generic formulation is bioequivalent
to the previously approved reference listed drug, indicating that the rate of
absorption and the levels of concentration of a generic drug in the body do not
show a significant difference from those of the previously approved reference
listed drug product. As a result, ANDA filings, compared to NDAs, save
development costs. Additionally, there are no user or filing fees required by
the FDA for ANDAs.

Our bioequivalence studies and other data may not result in FDA approval to
market our new drug products. While we believe that the FDA's ANDA procedures
will apply to our bioequivalent versions of controlled-release drugs, these
drugs may not be suitable for, or approved as part of, these abbreviated
applications. In addition, even if our drug products are suitable for FDA

                                       45

<PAGE>

approval by filing an ANDA, the abbreviated applications are costly and time
consuming to complete. If our efforts to obtain FDA approval for our current and
future drug products are not successful, our business and future prospects will
be substantially harmed.

Approvals for our new drug products may become more difficult to obtain if the
FDA institutes changes to its approval requirements.

Some abbreviated application procedures for controlled-release drugs and other
products, including those related to our ANDA filings, are presently the subject
of petitions filed by brand name drug manufacturers, which seek changes from the
FDA in the approval requirements for particular drugs. We cannot predict at this
time whether the FDA will make any changes to its abbreviated application
requirements as a result of these petitions, or the effect that any changes may
have on us. Any changes in FDA regulations may make it more difficult for us to
file ANDAs or obtain approval of our ANDAs and thus may materially harm our
business and financial results.

We are subject to substantial patent litigation that could delay or prevent our
commercialization of products.

Patent certification requirements for controlled-release drugs and for some new
drugs could also result in significant delays in obtaining FDA approval if the
holder or holders of the brand name patents initiate infringement litigation. We
apply our processes and formulations to develop a product that will produce the
brand product's physiological characteristics but not infringe upon the patents
of the NDA owner or other innovator. In connection with this process, we conduct
studies to establish that our product is bioequivalent to the brand product, and
obtain legal advice that our products do not infringe the NDA owner's or the
innovator's patents and/or that such patents are invalid or unenforceable. As
required by the Drug Price Competition and Patent Term Restoration Act of 1984,
known as the Hatch-Waxman Amendments, we then assemble and submit an ANDA to the
FDA for review. If we believe that our product does not infringe a patent
associated with the brand product which has been listed in the FDA's Approved
Drug Products with Therapeutic Equivalence Evaluation Book, commonly referred to
as the "Orange Book", or that such patent is invalid or unenforceable, we are
required to make a certification to this effect. This certification is called a
Paragraph IV Certification.

Once the FDA accepts our ANDA for filing, we must also send notice that we have
filed an ANDA with a Paragraph IV Certification to the NDA owner and patent
holder, explaining the basis for our position that the patent(s) is not
infringed and/or is invalid or unenforceable. The NDA owner or patent holder may
then initiate a legal challenge for patent infringement. If they do so within 45
days of their receipt of notice of our Paragraph IV certification, that ensuing
lawsuit will automatically prevent the FDA from approving our ANDA until the
earlier of 30 months, expiration of the patent, or when the infringement case is
decided in our favor. In addition, delays in obtaining FDA approval of
abbreviated applications and some new drug applications can also result from a
marketing exclusivity period and/or an extension of patent terms. Thus, as the
developer of bioequivalent products, we may invest a significant amount of time
and expense in the development of these products only to be subject to
significant delay and the uncertain result of patent litigation before our
products may be commercialized. Additionally, patent litigation is, in itself,
both costly and time consuming, and the outcome of patent litigation is
difficult to predict.

As of March 5, 2004, we had nineteen applications pending at the FDA for generic
versions of brand name pharmaceuticals. Patent litigation has been filed and is
still outstanding in connection with seven ANDAs that we have filed with
Paragraph IV Certifications. We anticipate that additional legal actions may be
filed against us as we file additional applications. Patent litigation may also
be brought against us in connection with NDA products that we may pursue. Our
business and financial results could be materially harmed by the delays in
marketing our products as a result of litigation, an unfavorable outcome in any
litigation, or the expense of litigation, whether or not it is successful.

If our strategic alliance with Teva fails to benefit us as expected, our
business will be harmed.

In June 2001, we entered into a Strategic Alliance Agreement with Teva for 12
controlled-release generic pharmaceutical products. The agreement granted Teva
exclusive U.S. marketing rights for six of our products pending approval at the
FDA and six products under development at the time of the agreement. Of the six
products not yet filed, we have filed ANDAs for four with the FDA. Under the
agreement, we will be responsible for manufacturing and supplying Teva with all
of its requirements for these products and will share with Teva in the gross
margins from its sale of the products. Teva's exclusive marketing right for each
product will run for a period of 10 years in each country from the date of
Teva's first sale of that product. Unless either party provides appropriate
notice, this 10-year period will automatically be extended for two additional
years.

Teva elected to commercialize a competing product to one of the four products
filed since June 2001, which it developed internally. Pursuant to the agreement,
we have elected to participate in the development and commercialization of
Teva's competing product and share in the gross margins of that product. Teva
also has an option to acquire exclusive marketing rights in the rest of North
America, South America, the European Union, and Israel for these products.

                                       46

<PAGE>

We will depend on our strategic alliance with Teva to achieve market penetration
and revenue generation for the products covered by the agreement. We entered
into the agreement with Teva on the basis of certain expectations of the level
of sales of the products which Teva will achieve. If we fail to maintain our
strategic alliance with Teva, or if our strategic alliance with Teva fails to
benefit us as expected, our revenues will not meet our expectations and our
business will be harmed.

If our Exclusivity Transfer Agreement with Andrx fails to benefit us as
expected, our business will be harmed.

In July 2003, we entered into an Exclusivity Transfer Agreement with Andrx and
Teva in order to gain market access for generic versions of GlaxoSmithKline's
Wellbutrin SR for depression and Zyban for smoking cessation. Bupropion is the
active ingredient in Wellbutrin SR and Zyban. The FDA has granted final approval
to our ANDA for the 100 mg dosage form of this product. The ANDA related to our
150 mg dosage form, and the ANDA filed by Andrx are awaiting final FDA marketing
approval.

We believe that the Andrx ANDA for the 150 mg dosage form is entitled to the
marketing exclusivity period provided by law. As a result, we cannot receive
marketing approval of our products until 180-days after Andrx commences the
marketing of its own product(s) or Andrx waives its exclusivity rights. The
Exclusivity Transfer Agreement provides a mechanism whereby Andrx will determine
whether it will continue pursuing the approval of its own ANDAs for sale as the
first generic versions of Wellbutrin SR and Zyban or will instead allow the FDA
to approve the ANDAs for our products which will be marketed by Teva. If Andrx
allows our products to be marketed before its own, Andrx is entitled to receive
certain payments from us for a 180-day period. If Andrx continues to attempt to
gain the earlier approval and sale of its own products, Andrx will share with us
certain payments for a similar 180-day period.

We will depend on our agreement with Andrx to gain market access and revenue
generation for the products covered by the agreement during the 180-day
exclusivity period. If Andrx determines to proceed with its own products, we
will not be able to market our product during this exclusivity period and will
only receive the royalty provided for in the agreement. We entered into the
agreement with Andrx and Teva on the basis of certain expectations of the level
of sales of the products that will be achieved. If we fail to maintain our
collaboration with Andrx and Teva, or if our collaboration with Andrx and Teva
fails to benefit us as expected, our revenues will not meet our expectations and
our business will be harmed.

Our stockholders may be adversely affected by strategic alliances or licensing
arrangements we make with other companies.

We have entered into strategic alliances or license agreements with respect to
certain products with Andrx, Teva, Wyeth, Novartis, and Schering-Plough. In the
future, we may enter into strategic alliances or licensing arrangements with
respect to other products with these or other companies. These arrangements may
require us to relinquish rights to certain of our technologies or product
candidates, or to grant licenses on terms that ultimately may prove to be
unfavorable to us, either of which could reduce the market value of our common
stock.

We face intense competition in the pharmaceutical industry from both brand name
and generic manufacturers, and wholesalers that could severely limit our growth
and results of operations.

The pharmaceutical industry is highly competitive and many of our competitors
have longer operating histories and substantially greater financial, research
and development, marketing, and other resources than us. We are subject to
competition from numerous other entities that currently operate in the
pharmaceutical industry, including companies that are engaged in the development
of controlled-release drug-delivery technologies and products, and other
manufacturers that may decide to undertake in-house development of these
products. Our generic products may be subject to competition from, among other
products, competing generic products marketed by the patent holder. The
following table, based upon publicly available information, reflects the
companies which to our knowledge market brand name or generic products that
compete with our five largest product families currently on the market which
accounted for approximately 92% of our revenues for the year ended December 31,
2003:

                                       47

<PAGE>

<TABLE>
<CAPTION>
                 Product                           Brand Competition                    Generic Competition
  --------------------------------------  ------------------------------------  -----------------------------------
<S>                                       <C>                                   <C>
  LIPRAM Capsules (Pancreatic enzymes)    McNeil Laboratories (Pancrease),      Ethex Corporation, Mutual
                                          Solvay Pharmaceuticals (Creon),       Pharmaceuticals, Contract Pharmacal
                                          Scandipharm (Ultrase)

  Terbutaline Sulfate 2.5 mg and 5.0 mg   aai Pharma (Brethine)                 None
  Tablets

  Loratadine and Pseudoephedrine          Schering-Plough (Claritin-D           Andrx
  Sulfate Extended Release Tablets        24-hour, Clarinex D)

  Fludrocortisone Acetate 0.1 mg Tablets  King Pharmaceuticals (Florinef)       Barr Laboratories

  Minocycline Hydrochloride 50mg, 75mg,   Wyeth (Minocin)                       Barr, Aligen, Breckenridge, ESI
  and 100mg Capsules                      Medicis (Dynacin)                     Lederle, Geneva, Ivax, H. C. Moore,
                                                                                Qualitest, Par, Ranbaxy, Teva,
                                                                                Watson, URL, Warner-Chilcott
</TABLE>

Some of our competitors have greater experience than we do in obtaining FDA and
other regulatory approvals. Our competitors may succeed in developing products
that are more effective or cheaper to use than products we may develop. These
developments may render our products uncompetitive. We may be unable to continue
to compete successfully with these companies.

The following table, based upon publicly available information, reflects the
companies which to our knowledge, market or will market brand name or generic
products that are likely to compete with the major products we currently have
under development:

<TABLE>
<CAPTION>
       Development Product                     Brand Competition                 Potential Generic Competition
-----------------------------------     ---------------------------------    --------------------------------------
<S>                                     <C>                                  <C>
Omeprazole Delayed Release Capsules     AstraZeneca (Prilosec, Nexium),      Andrx, Genpharm International, Dr.
                                        Proctor and Gamble (Prilosec 1)      Reddy Laboratories Ltd., KUDCO/Schwarz
                                                                             Pharma, Eon Labs, Lek International
                                                                             Pharmaceutical Group, Mylan
                                                                             Laboratories, Apotex USA and IVAX
                                                                             Pharmaceuticals

Bupropion Hydrochloride Extended        GlaxoSmithKline, Biovail             Andrx, Watson Laboratories, Eon Labs,
Release Tablets                         (Wellbutrin SR, Zyban, Wellbutrin    Excel Pharmaceuticals
                                        XL)

Loratadine Orally Disintegrating        Schering-Plough (Claritin            Cima Labs, Andrx
Tablets                                 Reditabs, Clarinex Reditabs),
                                        Wyeth (Alavert)

Fenofibrate Capsules and Tablets        Abbott Labs (Tricor Tablets)         Teva, Pharmaceutical Resources, Cypher
                                                                             Pharmaceuticals

Fexofenadine and Pseudoephedrine        Aventis (Allegra-D)                  Barr Laboratories, Mylan Laboratories
Hydrochloride Extended Release
Tablets

Carbidopa and Levodopa Extended         Bristol Myers Squibb (Sinemet CR)    Mylan Laboratories
Release Tablets

Oxycodone Hydrochloride Extended        Purdue Pharma (OxyContin)            Boehringer Ingelheim/Roxane
Release Tablets                                                              Pharmaceuticals, Endo Pharmaceuticals,
                                                                             Teva
</TABLE>

In order to obtain market share for our generic products, our products will need
to be successfully marketed to pharmaceutical wholesalers, chain drug stores
which warehouse products, mass merchandisers, mail-order pharmacies and others.
These entities often purchase generic products from a limited number of
suppliers, which they then sell to end-users. Among the factors considered by
these entities in purchasing a generic product are price, on-time delivery, a
good record with the FDA and relationship. In order to obtain market share for

                                       48

<PAGE>

our brand name products, we will be dependent on physicians prescribing our
products to their patients. Among the factors considered by physicians in
prescribing a brand name product is the quality and effectiveness of the
product. We have only limited experience in marketing our generic products and
have no experience in marketing brand name products. We, or our strategic
partners, may not be able to successfully market our products.

We face risks relating to our goodwill and intangibles.

At December 31, 2003, our goodwill and intangibles were approximately $28.0
million, or approximately 21% of our total assets. We may never realize the
value of our goodwill and intangibles. We will continue to evaluate, on a
regular basis, whether events or circumstances have occurred that indicate all,
or a portion, of the carrying amount of goodwill may no longer be recoverable,
in which case an impairment charge to earnings would become necessary. Although
as of December 31, 2003, the carrying value of goodwill was not impaired based
on our assessment performed in accordance with accounting principles generally
accepted in the U.S., any such future determination requiring the write-off of a
significant portion of carrying value of goodwill could have a material adverse
effect on our financial condition or results of operations.

Our limited capital may make it difficult for us to repay indebtedness, or
require us to modify our business operations and plans by spending less money on
research and development programs, developing fewer products, and filing fewer
drug applications with the FDA.

Our cash used in operations has exceeded cash generated from operations in each
period since our inception. We anticipate continuing to incur expenses
substantially in excess of our product revenues for the foreseeable future. As
of December 31, 2003, we had outstanding indebtedness of approximately
$22,564,000, of which $17,564,000 bears interest at rates ranging from 2.0% to
8.17% annually and the balance does not bear interest. For the quarter and year
ended December 31, 2003, we paid interest on our indebtedness of approximately
$214,000 and $952,000 respectively. Additionally, as of December 31, 2003, we
had an accumulated stockholders' deficit of approximately $104,549,000. We may
not be able to maintain adequate capital at any given time or from time to time
in the future, which could result in less money being spent on research and
development programs, fewer products being developed or at a slower pace, and
fewer drug applications being filed with the FDA.

If we are unable to continue to obtain financing, we may not be able to sustain
our business operations.

As of December 31, 2003, we had approximately $15.5 million of cash and cash
equivalents and $10.0 million in restricted cash that serves as collateral for
the $25.0 million revolving credit facility and loan agreement with Wachovia
Bank, N.A. Although we estimate that these funds will be sufficient for at least
the next 12 months of operations at our planned expenditure levels, these funds
may not be sufficient and additional financing may be required. We may seek
additional financing through strategic alliances and/or equity or debt markets
to fund the planned capital expenditures, if required, and to fund our research
and development plans, and potential revenue shortfalls due to delays in new
product introductions. The exact amount and timing of future capital
requirements will depend upon many factors, including continued progress with
our research and development programs, expansion of these programs, the approval
and launch of new products, as well as the amount of revenues generated by our
existing products. We may not be successful in obtaining additional capital in
amounts sufficient to fund our operations. Additional financing also may not be
available to us on terms favorable to us or our stockholders, or at all. In the
event that adequate funds are not available, our business operations and plans
may be adversely affected.

Generic drug makers are often most profitable when they are the first producer
of a generic drug, and we do not know if we will be the first producer of any
generic drug product.

The first generic drug manufacturers receiving FDA approval for generic
equivalents of related brand name products have often captured greater market
share from the brand name product than later arriving generic manufacturers. The
development of a new generic drug product, including its formulation, testing
and FDA approval, generally takes approximately three or more years.
Consequently, we may select drugs for development several years in advance of
their anticipated entry to market and cannot know what the market or level of
competition will be for that particular product if and when we begin selling the
product. In addition, by introducing generic versions of their own brand name
products prior to the expiration of the patents for those drugs, brand name drug
companies have attempted to prevent generic drug manufacturers from producing or
capturing market share for certain products. Brand name companies have also
attempted to prevent competing generic drug products from being treated as
equivalent to their brand name products. We expect efforts of this type to
continue.

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<PAGE>

The Congress amended provisions of the Hatch-Waxman Amendments clarifying
certain issues pertaining to 180-day exclusivity in Title X of the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (MMA) in November
2003. The first company to file a substantially complete ANDA for a reference
listed brand name drug certifying that any listed patent(s) for that drug is not
infringed and/or is invalid or unenforceable obtains, in most cases, upon the
FDA approval, 180 days of market exclusivity. There may continue to be
uncertainty about which generic applicant is entitled to 180-day exclusivity,
particularly as to applications filed before August 2003, the date specified in
the MMA. Issues relating to 180-day exclusivity have been subject to extensive
litigation and constantly changing guidance by the FDA.

In March 2004, the FDA announced that it would publish the date on which the
first ANDA was filed which will be entitled to 180-day exclusivity. We believe
we were the first to file with the FDA on only one ANDA. In addition, the laws
and regulations could result in us not being able to utilize all or any portion
of the 180-day market exclusivity period on ANDA products we were the first to
file on, depending on the timing and outcome of court decisions in patent
litigation. Issues relating to 180-day exclusivity may adversely affect our
business by reducing the exclusivity period we may have for one of our products
or delaying the approval of our products where another generic applicant has
180-day exclusivity.

Our inexperience in conducting clinical trials and submitting New Drug
Applications and uncertainties inherent in clinical trials could result in
delays in product development and commercialization.

Prior to seeking FDA approval for the commercial sale of brand name
controlled-release formulations under development or any drug we develop which
does not qualify for the FDA's abbreviated application procedures, we must
demonstrate through clinical trials that these products are safe and effective
for use. We have no experience in conducting and supervising clinical trials.
The process of completing clinical trials and preparing an NDA may take several
years and requires substantial resources. We have never submitted an NDA. Our
studies and filings may not result in FDA approval to market our new drug
products and, if the FDA grants approval, we cannot predict the timing of any
approval.

Additionally, a number of difficulties and uncertainties are associated with
clinical trials. The results of clinical trials may not be indicative of results
that would be obtained from large-scale testing. Clinical trials are often
conducted with patients having advanced stages of disease and, as a result,
during the course of treatment these patients can die or suffer adverse medical
effects for reasons that may not be related to the pharmaceutical agents being
tested, but which nevertheless affect the clinical trial results. Moreover, our
clinical trials may not demonstrate sufficient safety and efficacy to obtain FDA
approval. A number of companies in the pharmaceutical industry have suffered
significant setbacks in advanced clinical trials even after promising results in
pre-clinical studies. These failures have often resulted in decreases in the
stock prices of these companies. If any of our products under development are
not shown to be safe and effective in clinical trials, our business and
financial results could be materially harmed.

Our assumptions may not bear out as we expect.

Our expectations regarding the success of our products and our business are
based on assumptions which may not bear out as we expect. In our press releases
and other public documents, we have forecasted the accomplishment of objectives
material to our success, such as anticipated filings with the FDA and
anticipated receipt of FDA approvals. For example, we have assumed that we will
file with the FDA at least six ANDAs per year. The actual timing and results of
these events can vary dramatically due to factors such as the uncertainties
inherent in the drug development and regulatory approval process, and delays in
achieving manufacturing capacity and marketing infrastructure sufficient to
commercialize our products. We may not make regulatory submissions or receive
regulatory approvals as forecasted, or we may not be able to adhere to our
current schedule for product launches.

The time necessary to develop generic drugs may adversely affect if and when,
and the rate at which, we receive a return on our capital.

We begin our development activities for a new generic drug product several years
in advance of the patent expiration date of the brand name drug equivalent. The
development process, including drug formulation, testing, and FDA review and
approval, often takes three or more years. This process requires that we expend
considerable capital to pursue activities that do not yield an immediate or
near-term return. Also, because of the significant time necessary to develop a
product, the actual market for a product at the time it is available for sale
may be significantly less than the originally projected market for the product.
If this were to occur, our potential return on our investment in developing the
product, if approved for marketing by the FDA, would be adversely affected and
we may never receive a return on our investment in the product. It is also
possible for the manufacturer of the brand name product for which we are
developing a generic drug to obtain approvals from the FDA to switch the brand
name drug from the prescription market to the over-the-counter market. If this
were to occur, we would be prohibited from marketing our product other than as
an over-the-counter drug, in which case product revenues could be significantly
less than we anticipated.

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<PAGE>

Our revenues and operating results have fluctuated, and could fluctuate
significantly in the future, which may have a material adverse effect on our
results of operations and stock price.

Our revenues and operating results may vary significantly from quarter to
quarter as well as in comparison to the corresponding quarter of the preceding
year. Variations may result from, among other factors:

     o   the timing of FDA approvals we receive;
     o   the timing of process validation for particular generic drug products;
     o   the timing of product launches;
     o   the introduction of new products by others that render our products
         obsolete or noncompetitive;
     o   the outcome of our patent infringement litigation; and
     o   the addition or loss of customers.

Our results of operations will also depend on our ability to maintain selling
prices and gross profit margins. As competition from other manufacturers
intensifies, selling prices and gross profit margins often decline, which has
been our experience with our existing products. Our future operating results may
also be affected by a variety of additional factors, including the results of
future patent challenges and the market acceptance of our new products.

Extensive regulations govern the manufacturing, labeling, distribution, and
promotion of our products.

The manufacturing, distribution, processing, formulation, packaging, labeling
and advertising of our products are subject to extensive regulation by federal
agencies, including the FDA, the Federal Trade Commission (FTC), the Drug
Enforcement Administration (DEA), the Consumer Product Safety Commission and the
Environmental Protection Agency (EPA), among others. We are also subject to
state and local laws, regulations and agencies in California, Pennsylvania and
elsewhere.

In addition to approval prior to marketing any of our products, the FDA also
requires that certain records be kept and reports be made, mandates registration
of the facilities of drug manufacturers and listing of their products, and has
the authority to inspect manufacturing facilities for compliance with its
current Good Manufacturing Practices regulation. Moreover, after the FDA
approves one of our products, we may have to withdraw it from the market if our
manufacturing is not in accordance with FDA standards, the approval for the
product or our own internal specifications or standards. The FDA has the
authority to withdraw approvals of previously approved drugs for cause, to
request recalls of products, to bar companies and individuals from future drug
application submissions and, through action in court, to seize products,
institute criminal prosecution, or close manufacturing plants in response to
violations. Our business and financial results could be materially harmed by any
failure to comply with the FDA's manufacturing and other regulatory
requirements.

In addition, numerous federal and state requirements exist for a variety of
controlled substances which may be part of our product formulations. For
example, the DEA regulates narcotics and the California Bureau of Narcotic
Enforcement (BNE) regulates certain precursor substances, including ephedrine
and similar substances. These and other regulatory agencies have far-reaching
authority. For example, the DEA has similar authority to the FDA and may also
pursue monetary penalties, and the California BNE has authority to issue,
suspend and revoke precursor permits. Compliance with the complex and extensive
regulatory requirements is difficult and expensive. If we fail to comply with
the numerous federal, state and local rules and regulations, our current or
future operations could be curtailed and our business and financial results
could be materially harmed.

We will need an effective sales organization to market and sell our future brand
name products and our failure to build or maintain an effective sales
organization may harm our business.

We do not currently market products under our own brand and we cannot assure you
that we ever will do so. Currently, we do not have an active sales division to
market and sell any brand name products that we may develop or acquire. We may
not be able to recruit qualified sales personnel to market our brand name
products prior to the time those products are available for commercial launch.
Our inability to enter into satisfactory sales and marketing arrangements in the
future may materially harm our business and financial results. We may have to
rely on collaborative partners to market our branded products. These partners
may not have our same interests in marketing the products and may fail to
effectively market the products, and we may lose control over the sales of these
products.

Decreases in health care reimbursements could limit our ability to sell our
products or decrease our revenues.

Our ability to maintain revenues for our products will depend in part on the
extent to which reimbursement for the cost of pharmaceuticals will be available
from government health administration agencies, private health insurers, and
other organizations. In addition, third-party payors are attempting to control

                                       51

<PAGE>

costs by limiting the level of reimbursement for medical products, including
pharmaceuticals, which may adversely affect the pricing of our products.
Moreover, health care reform has been, and is expected to continue to be, an
area of national and state focus, which could result in the adoption of measures
that could adversely affect the pricing of pharmaceuticals or the amount of
reimbursement available from third-party payors. We cannot assure you that
health care providers, patients, or third-party payors will accept and pay for
our pharmaceuticals. In addition, there is no guarantee that health care
reimbursement laws or policies will not materially harm our ability to sell our
products profitably or prevent us from realizing an appropriate return on our
investment in product development.

We depend on our patents and trade secrets, and our future success is dependent
on our ability to protect these secrets and not infringe on the rights of
others.

We believe that patent and trade secret protection is important to our business
and that our future success will depend, in part, on our ability to obtain
patents, maintain trade secret protection, and operate without infringing on the
rights of others. We have been issued six U.S. patents and various foreign
patent applications relating to our drug-delivery technologies. Our U.S. patents
are for our Concentric Multiple-Particulate Delivery System, our Timed
Multiple-Action Delivery System, our Particle Dispersion System, our Dividable
Multiple-Action Drug Delivery System, our Multiplex Drug Delivery System, and
our Pharmaceutical Stabilization System. We expect to apply for additional U.S.
and foreign patents in the future. The issuance of a patent is not conclusive as
to its validity or as to the enforceable scope of the claims of the patent. In
addition, the issuance of a patent to us does not mean that our products do not
infringe on the patents of others. We cannot assure you that:

     o   our patents, or any future patents, will prevent other companies from
         developing similar or functionally equivalent products or from
         successfully challenging the validity of our patents;
     o   any of our future processes or products will be patentable;
     o   any pending or additional patents will be issued in any or all
         appropriate jurisdictions;
     o   our processes or products will not infringe upon the patents of third
         parties; or
     o   we will have the resources to defend against charges of patent
         infringement by third parties or to protect our own patent rights
         against infringement by third parties.

We also rely on trade secrets and proprietary knowledge which we generally seek
to protect by confidentiality and non-disclosure agreements with employees,
consultants, licensees and pharmaceutical companies. If these agreements are
breached, we may not have adequate remedies for any breach, and our trade
secrets may otherwise become known by our competitors.

Our business and financial results could be materially harmed if we fail to
avoid infringement of the patent or proprietary rights of others or to protect
our patent rights.

We have exposure to patent infringement litigation as a result of our product
development efforts, which could adversely affect our product introduction
efforts and be costly. The patent position of pharmaceutical firms involves many
complex legal and technical issues and has recently been the subject of much
litigation. There is no clear policy establishing the breadth of claims allowed
or the degree of protection afforded under these patents. During the past
several years, there has been an increasing tendency for the innovator of the
original patented product to bring patent litigation against a generic drug
company. This litigation is often initiated as an attempt to delay the entry of
the generic drug product and reduce its market penetration.

We obtained $7.0 million of patent infringement liability insurance from AISLIC
covering us against the costs associated with patent infringement claims made
against us relating to seven ANDAs we filed under Paragraph IV of the
Hatch-Waxman Amendments. Correspondence received from AISLIC indicated that as
of February 4, 2004, one of the policies had approximately $19,770 remaining on
its limit of liability, and the second of the policies had reached the limit of
its liability. We do not believe that this type of litigation insurance will be
available to us on acceptable terms for our other current or future ANDAs. While
Teva has agreed to pay 45% to 50% of the attorneys' fees and costs in excess of
$7.0 million related to the twelve products covered by our strategic alliance
agreement with it, we will be responsible for the remaining expenses and costs
for these products and all of the costs associated with patent litigation for
our other products and our future products.

Our liability insurance coverage may not be sufficient to cover any liability
resulting from alleged or proven patent infringement. If a court determines that
we infringed on patent or proprietary rights, the liability could materially
harm our business and financial results.

                                       52

<PAGE>

We may be subject to product liability litigation and any claims brought against
us could have a material adverse effect on us.

The design, development and manufacture of our products involve an inherent risk
of product liability claims and associated adverse publicity. We currently have
product liability insurance which covers us for liability of up to $20 million.
This insurance may not be adequate to cover any product liability claims to
which we may become subject. Product liability insurance coverage is expensive,
difficult to obtain, and may not be available in the future on acceptable terms,
or at all. Any claims brought against us, whether fully covered by insurance or
not, could have a material adverse effect on us.

Since we derive a substantial percentage of our revenue from contracts with a
few customers, the loss of one or all of these customers would have a negative
impact on our results of operations and financial condition.

We derive a substantial portion of our revenue from a few customers. Our four
major customers, Amerisource-Bergen, Cardinal Health, McKesson, and
Schering-Plough accounted for approximately 64% of total revenue for the year
ended December 31, 2003. At December 31, 2003, accounts receivable from these
four customers represented approximately 75% of total trade receivables. The
loss of one or all of these customers would have a substantial negative impact
on our results of operations and financial condition.

We are dependent on a small number of suppliers for our raw materials, and any
delay or unavailability of raw materials can materially adversely affect our
ability to produce products.

The FDA requires identification of raw material suppliers in applications for
approval of drug products. If raw materials were unavailable from a specified
supplier, FDA approval of a new supplier could delay the manufacture of the drug
involved. In addition, some materials used in our products are currently
available from only one supplier or a limited number of suppliers. Approximately
17% of our 2003 net sales were attributable to one product family, which is
supplied by a sole -source supplier, Eurand America, Inc., under an exclusive
licensing agreement that expires in 2007. Generally, we would need up to one
year to find and qualify a new sole-source supplier. If we receive less than one
year's notice from a sole -source supplier that it intends to cease supplying
raw materials, it could result in disruption of our ability to produce the drug
involved. Further, a significant portion of our raw materials may be available
only from foreign sources. Foreign sources can be subject to the special risks
of doing business abroad, including:

     o   greater possibility for disruption due to transportation or
         communication problems;
     o   the relative instability of some foreign governments and economies;
     o   interim price volatility based on labor unrest, materials or equipment
         shortages, export duties, restrictions on the transfer of funds, or
         fluctuations in currency exchange rates; and
     o   uncertainty regarding recourse to a dependable legal system for the
         enforcement of contracts and other rights.

In addition, recent changes in patent laws in certain foreign jurisdictions
(primarily in Europe) may make it increasingly difficult to obtain raw materials
for research and development prior to expiration of applicable United States or
foreign patents. Any inability to obtain raw materials on a timely basis, or any
significant price increases that cannot be passed on to customers, could have a
material adverse effect on us.

The delay or unavailability of raw materials can materially adversely affect our
ability to produce products. This can materially adversely affect our business
and operations.

We depend on key officers and qualified scientific and technical employees, and
our limited resources may make it more difficult to attract and retain these
personnel.

As a small company with approximately 453 full-time employees as of February 27,
2004, the success of our present and future operations will depend to a great
extent on the collective experience, abilities, and continued service of Charles
Hsiao, our Chairman, Barry R. Edwards, our Chief Executive Officer, Larry Hsu,
our President, and certain of our other executive officers. We do not have any
employment agreements with any of our executive officers, other than Dr. Hsiao,
Mr. Edwards and Dr. Hsu. We do not maintain key man life insurance on the lives
of any of our executives. If we lose the services of any of these executive
officers, it could have a material adverse effect on us. Because of the
specialized scientific nature of our business, we are also highly dependent upon
our ability to continue to attract and retain qualified scientific and technical
personnel. Loss of the services of, or failure to recruit, key scientific and
technical personnel would be significantly detrimental to our product
development programs. Our small size and limited financial and other resources
may make it more difficult for us to attract and retain qualified officers and
qualified scientific and technical personnel.

                                       53

<PAGE>

We have limited manufacturing capacity requiring us to build additional capacity
for products in our pipeline. Our manufacturing facilities must comply with
stringent FDA and other regulatory requirements.

We currently have seven facilities, five of which are in California: (i)
Building 1, a 35,125 square foot facility which serves as our corporate
headquarters and our primary research and development center; (ii) Building 2, a
50,400 square foot facility, which serves as our primary manufacturing center;
(iii) Building 3, a 14,400 square foot facility used as an administrative office
and warehouse facility; (iv) Building 5, a 61,800 square foot facility used for
warehousing production materials; and (v) Building 6, a 3,280 square foot
facility used for research and development. The other two facilities are located
in Pennsylvania: (i) Building 4, a 113,000 square foot facility which serves as
our main center for packaging, warehousing and distribution; and (ii) Building
7, a 44,000 square foot facility will be used as our center for sales and
marketing and additional warehousing. See "Item 2 - Properties."

In June 2002, we completed construction of our Hayward, California manufacturing
center (Building 2). This new manufacturing facility must continue to be in
compliance with current Good Manufacturing Practices. Our facilities are subject
to periodic inspections by the FDA and we cannot assure you that the facilities
will continue to be in compliance with current Good Manufacturing Practices or
other regulatory requirements. Failure to comply with such requirements could
result in significant delays in the development, approval, and distribution of
our planned products, and may require us to incur significant additional expense
to comply with current Good Manufacturing Practices or other regulatory
requirements.

The DEA also periodically inspects facilities for compliance with security,
recordkeeping, and other requirements that govern controlled substances. We
cannot assure you that we will be in compliance with DEA requirements in the
future.

Our compliance with environmental, safety, and health laws may necessitate
substantial expenditures in the future, the capital for which may not be
available to us.

We cannot accurately predict the outcome or timing of future expenditures that
we may be required to make in order to comply with the federal, state, and local
environmental, safety, and health laws and regulations that are applicable to
our operations and facilities. We must comply with environmental laws that
govern, among other things, airborne emissions, waste water discharges,
workplace safety, and solid and hazardous waste disposal. We are also subject to
potential liability for the remediation of contamination associated with both
present and past hazardous waste generation, handling, and disposal activities.
We are subject periodically to environmental compliance reviews by
environmental, safety, and health regulatory agencies. Environmental laws have
changed in recent years and we may become subject to stricter environmental
standards in the future and face larger capital expenditures in order to comply
with environmental laws. Our limited capital makes it uncertain whether we will
be able to pay for larger than expected capital expenditures. Also, future costs
of compliance with new environmental, safety, and health requirements could have
a material adverse effect on our financial condition or results of operations
and cash flows.

If we are unable to manage our growth, our business will suffer.

We have experienced rapid growth of our operations. We have increased our
full-time employee count from 273 as of February 28, 2003 to 453 as of February
27, 2004. The number of ANDAs pending approval at the FDA has increased from 11
at June 30, 2001 to 20 at December 31, 2003. This growth has required us to
expand, upgrade, and improve our administrative, operational, and management
systems, controls and resources. We anticipate additional growth in connection
with the expansion of our manufacturing operations, development of our brand
name products, and our marketing and sales efforts for the products we develop.
Although we cannot assure you that we will, in fact, grow as we expect, if we
fail to manage growth effectively or to develop a successful marketing approach,
our business and financial results will be materially harmed.

Terrorist attacks, such as the attacks that occurred in New York and Washington,
DC on September 11, 2001, and other acts of violence or war may materially
adversely affect us.

Terrorist attacks may negatively affect our operations. These attacks or armed
conflicts may directly impact our physical facilities or those of our suppliers
or customers. Furthermore, these attacks may make travel and the transportation
of our products more difficult and more expensive, and ultimately affect our
sales.

Also as a result of terrorism, the United States may be involved in armed
conflicts that could have a further impact on our sales, our supply chain, and
our ability to deliver products to our customers. Political and economic
instability in some regions of the world may also result, and could negatively
impact our business. The consequences of armed conflicts are unpredictable, and
we may not be able to foresee events that could have an adverse effect on our
business or your investment.

                                       54

<PAGE>

More generally, any of these events could cause consumer confidence and spending
to decrease or result in increased volatility in the United States and worldwide
financial markets and economy. They also could result in, or exacerbate,
economic recession in the United States or abroad. Any of these occurrences
could have a significant impact on our operating results, revenues, and costs
and may result in the volatility of the market price for our securities and on
the future prices of our securities.

Our corporate headquarters, manufacturing, and research and development
activities are located in an earthquake zone and these operations could be
interrupted in the event of an earthquake.

Our corporate headquarters, manufacturing operations in California, and research
and development activities related to process technologies are located near
major earthquake fault lines. In the event of a major earthquake, we could
experience business interruptions, destruction of facilities, and/or loss of
life, all of which could materially adversely affect our business.

Our stockholders may sustain future dilution in ownership as a result of the
terms of some of our outstanding securities or future issuances of securities.

We may need to raise additional capital in the future to fund our operations and
planned expansion. To the extent we raise additional capital by issuing equity
securities or securities convertible into or exchangeable for equity securities,
ownership dilution to our stockholders will result. For instance, on January 30,
2004, 75,000 outstanding shares of our Series 2 preferred stock, were converted
into an aggregate of 1,500,000 shares of our common stock. On January 15, 2004,
we paid the outstanding amount of $2.5 million of the refundable deposit to Teva
by the issuance of 160,751 shares of our common stock. In addition, as of
December 31, 2003, we also had outstanding warrants to purchase 1,571,232 shares
of common stock and outstanding stock options to purchase 5,886,815 shares of
common stock. To the extent that holders exercise their warrants and options to
purchase common stock, stockholders' ownership interest in our common stock will
be diluted.

A substantial number of our shares are eligible for future sale and the sale of
our shares into the market may depress our stock price.

Our stock price may be depressed by future sales of our shares or perception
that future sales may occur. We had 55,307,136 shares outstanding as of December
31, 2003, of which approximately 15,582,778 shares were owned by our officers
and directors or their affiliates and are considered restricted shares.
Substantially all of these shares have been registered for sale under the
Securities Act of 1933, as amended (which we refer to as the Securities Act)
and, subject to certain limitations, may be sold at any time without
restriction. The remaining shares of our outstanding common stock are freely
tradable. In addition, on January 30, 2004, 75,000 outstanding shares of our
Series 2 Preferred Stock were converted into an aggregate of 1,500,000 shares of
common stock, and on January 15, 2004, we paid the outstanding amount of $2.5
million of the refundable deposit to Teva by the issuance of 160,751 shares of
our common stock. The common stock into which the Series 2 Preferred Stock was
converted has been, and the common stock issued to Teva, will be registered for
sale under the Securities Act and, subject to certain limitations and, upon
registration, may be sold at any time without restriction. Warrants for
1,571,232 shares (and the shares underlying these warrants) have been registered
for sale under the Securities Act and, subject to certain limitations, may be
sold at any time. As of December 31, 2003, we also had outstanding warrants to
purchase 1,571,232 shares of common stock, and outstanding stock options to
purchase 5,886,815 shares of common stock. The shares underlying the stock
options have been registered under the Securities Act and, subject to certain
limitations, may be sold upon exercise of the stock options without restriction.
As of December 31, 2003, we had 3,172,605 shares of common stock available for
issuance under employee benefit plans in addition to the 5,886,815 shares
issuable upon exercise of the options referred to above. We are unable to
estimate the amount, timing, or nature of future sales of common stock. Sales of
substantial amounts of the common stock in the public market, or the perception
that these sales may occur, may lower the common stock's market price.

Control of our company is concentrated among our directors and executive
officers, its affiliates and related entities who own approximately 28% of our
outstanding common stock and who can exercise significant influence over all
matters requiring stockholder approval.

As of December 31, 2003, our present directors, executive officers and their
respective affiliates and related entities owned approximately 28% of our
outstanding common stock. Certain of these stockholders have the right to obtain
additional shares of our equity securities under certain circumstances. They are
entitled to preemptive rights, meaning that they are entitled to purchase
additional shares of our equity securities when we sell shares of our equity in
order to maintain their percentage ownership in our company, and are also
entitled to anti-dilution protection, meaning that they will receive additional
shares of our common stock in the event that we issue shares of our common or
preferred stock at a lower purchase price than the purchase price paid for
shares issued to these stockholders. These stockholders can exercise significant
influence over all matters requiring stockholder approval, including the
election of directors and the approval of significant corporate transactions.
This concentration of ownership may also potentially delay or prevent a change
in control of our company.

                                       55

<PAGE>

Our stock price is likely to remain volatile.

The stock market has, from time to time, experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, the market price of our common stock, like
the stock price of many publicly traded specialty pharmaceutical companies, has
been and will likely continue to be volatile. For example, the sale price of our
stock during 2003 ranged from a high of $16.49 during the quarter ended
September 30, 2003 to a low of $3.01 during the quarter ended March 31, 2003.

Prices of our common stock may be influenced by many factors, including:

     o   investor perception of us;
     o   analyst recommendations;
     o   market conditions relating to specialty pharmaceutical companies;
     o   announcements of new products by us or our competitors;
     o   publicity regarding actual or potential development relating to
         products under development by us or our competitors;
     o   developments or disputes concerning patent or proprietary rights;
     o   delays in the development or approval of our product candidates;
     o   regulatory developments;
     o   period to period fluctuations in our financial results and those of our
         competitors;
     o   future sales of substantial amounts of common stock by stockholders;
         and
     o   economic and other external factors.

We have and may in the future issue additional preferred stock which could
adversely affect the rights of holders of our common stock.

Our Board of Directors has the authority to issue up to 2,000,000 shares of our
preferred stock and to determine the price, rights, preferences, and privileges
of those shares without any further vote or action by the stockholders.
Preferred stockholders could adversely affect the rights and interests of
holders of common stock by:

     o   exercising voting, redemption, and conversion rights to the detriment
         of the holders of common stock;
     o   receiving preferences over the holders of common stock regarding assets
         or surplus funds in the event of our dissolution or liquidation;
     o   delaying, deferring, or preventing a change in control of our company;
     o   discouraging bids for our common stock at a premium over the market
         price of the common stock; and
     o   otherwise adversely affecting the market price of the common stock.

We are not likely to pay dividends.

We have not paid any cash dividends on our common stock and we do not plan to
pay any cash dividends in the foreseeable future. We plan to retain any earnings
for the operation and expansion of our business. Our loan agreements and our
strategic agreement with Teva prohibit the payment of dividends without the
other party's consent.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's investment portfolio consisted of cash and cash equivalents and
marketable securities stated at cost which approximates market value. The
primary objective of the Company's investment activities is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, the Company maintains its portfolio
in a variety of high credit quality securities, including U.S. Government
securities, treasury bills, short-term commercial paper, and highly rated money
market funds. One hundred percent of the Company's portfolio matures in less
than one year. The carrying value of the investment portfolio approximates the
market value at December 31, 2003. The Company's debt instruments at December
31, 2003, are subject to fixed and variable interest rates and principal
payments. We believe that the fair value of our fixed and variable rate
long-term debt and refundable deposit approximates its carrying value of
approximately $23 million at December 31, 2003. While changes in market interest
rates may affect the fair value of our fixed and variable rate long-term debt,
we believe the effect, if any, of reasonably possible near-term changes in the
fair value of such debt on the Company's financial statements will not be
material.

                                       56

<PAGE>

We do not use derivative financial instruments and have no material foreign
exchange or commodity price risks.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is included in the financial statements
set forth in Item 15(a) under the heading "Financial Statements" as a part of
this report.

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

On September 18, 2003, the Company dismissed PricewaterhouseCoopers LLP as its
independent accountants. The Company's Audit Committee made and approved the
decision to change independent accountants. The reports of
PricewaterhouseCoopers LLP on the Company's financial statements for the past
two fiscal years contained no adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principle. In connection with its audits for the two most recent fiscal years
and through September 18, 2003, there were no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PricewaterhouseCoopers
LLP, would have caused them to make reference thereto in their report on the
financial statements for such years. During the two most recent fiscal years and
through September 18, 2003, there were no reportable events (as defined in
Regulation S-K, Item 304 (a)(1)(v)).

As of October 2, 2003, the Company engaged Deloitte & Touche LLP as its new
independent accountants. The decision to engage Deloitte & Touche LLP was made
and approved by the Audit Committee of the Board of Directors. During the two
most recent fiscal years and through October 2, 2003, the Company had not
consulted with Deloitte & Touche LLP regarding (i) either the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company's financial
statements; or (ii) any matter that was either the subject of a disagreement,
(as that term is described in Item 304 (a)(1)(iv) of Regulation S-K and the
related instructions to Item 304 of Regulation S-K) or a reportable event (as
that term is described in Item 304(a)(1)(v) of Regulation S-K).

ITEM 9A. CONTROLS AND PROCEDURES

The Company, under the supervision and with the participation of its management,
including its principal executive officer and principal financial officer,
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures as of the end of the period covered by this report.
Based on this evaluation, the principal executive officer and principal
financial officer concluded that the Company's disclosure controls and
procedures are effective in reaching a reasonable level of assurance that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time period specified in the Securities and
Exchange Commission's rules and forms.

The principal executive officer and principal financial officer also conducted
an evaluation of internal control over financial reporting ("Internal Control")
to determine whether any changes in Internal Control occurred during the
Company's fourth fiscal quarter that have materially affected or which are
reasonably likely to materially affect Internal Control. Based on that
evaluation, there has been no such change during the quarter covered by this
report.

A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected. The
Company conducts periodic evaluations to enhance, where necessary, its
procedures and controls.

                                       57

<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

The information concerning directors of Impax Laboratories, Inc. required under
this Item is incorporated herein by reference to our definitive proxy statement
to be filed pursuant to Regulation 14A, relating to the Registrant's 2004 Annual
Meeting of Stockholders, to be held on May 17, 2004 (the "2004 Proxy
Statement").

Executive Officers

The information concerning executive officers of Impax Laboratories, Inc.
required under this Item is provided under Item 1 of this report.

ITEM 11. EXECUTIVE COMPENSATION

The information required under this Item is incorporated herein by reference to
our 2004 Proxy Statement.

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

The following table details information regarding the company's existing equity
compensation plans as of December 31, 2003:

<TABLE>
<CAPTION>
                                                                                                             (c)
                                                                                                    Number of securities
                                                     (a)                        (b)                remaining available for
                                         Number of securities to be      Weighted-average       future issuance under equity
                                           issued upon exercise of       exercise price of           compensation plans
                                             outstanding options,        outstanding options,        (excluding securities
         Plan Category                       warrants and rights        warrants and rights        reflected in column (a))
---------------------------------------  --------------------------     --------------------    -----------------------------
<S>                                                <C>                         <C>                        <C>
Equity compensation plans                          5,886,815                   $5.11                      2,704,553
     approved by security holders...
Equity Compensation Plans not
     approved by security holders(1)                  31,948                      --                        468,052
                                                   ---------                   -----                      ---------
Total...............................               5,918,763                                              3,172,605
                                                   ---------                                              ---------
</TABLE>

(1) See page F-24, Note 15 for information on IMPAX Employee Stock Purchase
    Plan.

The remaining information required under this Item is incorporated herein by
reference to our 2004 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required under this Item is incorporated herein by reference to
our 2004 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required under this item is incorporated herein by reference to
our 2004 Proxy Statement.

                                       58

<PAGE>


                                     PART IV


ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
(a) 1. FINANCIAL STATEMENTS

       The following are included herein under Item 8:                                                     Page Number
                                                                                                           -----------
<S>                                                                                                              <C>
       Independent Auditors' Report..................................................................          F-2

       Report of Independent Accountants.............................................................          F-3

       Balance Sheets as of December 31, 2003 and 2002...............................................          F-4

       Statements of Operations for each of the three years in the period
          ended December 31, 2003....................................................................          F-5

       Statements of Changes in Stockholders' Equity for each of the three years in the period
          ended December 31, 2003....................................................................          F-6

       Statements of Cash Flows for each of the three years in the period
          ended December 31, 2003....................................................................          F-7

       Notes to Financial Statements.................................................................      F-8 to F-27
</TABLE>

2.     FINANCIAL STATEMENT SCHEDULES

       Schedules have been omitted since they are either not required, not
       applicable, or the information has otherwise been included.


3.     EXHIBITS

       Exhibit
       Number     Description of Document
       ------     -----------------------

       3.1        Restated Certificate of Incorporation of the Company of Global
                  Pharmaceutical Corporation dated November 2, 1995. (1)

       3.12       Certificate of Amendment of Restated Certificate of
                  Incorporation of Global Pharmaceutical Corporation, dated May
                  14, 1999. (5)

       3.13       Certificate of Amendment of Restated Certificate of
                  Incorporation of Global Pharmaceutical Corporation, dated
                  December 14, 1999. (5)

       3.14       Certificate of Merger of Impax Pharmaceuticals, Inc. and
                  Global Pharmaceutical Corporation (5)

       3.15       Certificate of Designations of Series 1-A Convertible
                  Preferred Stock and Series 1-B Convertible Preferred Stock.
                  (5)

       3.16       Certificate of Designations of Series 2 Convertible Preferred
                  Stock dated as of March 23, 2000. (5)

       3.17       Certificate of Amendment of Restated Certificate of
                  Incorporation of Impax Laboratories dated as of October 3,
                  2000 (13)

       3.6        By-laws of the Company. (13)

       10.1       Exclusivity Transfer Agreement with Andrx and Teva (14)

                                       59

<PAGE>

       10.6       The Company's 1995 Stock Incentive Plan. (1)

       10.19      Security Agreement by and between the Company and PIDC Local
                  Development Corporation, dated October 15, 1993, with related
                  Note and Commitment, and Waiver and Consent dated November 13,
                  1995. (1)

       10.21      Loan Agreement by and between PIDC Financing Corporation and
                  the Pennsylvania Industrial Development Authority ("PIDA") for
                  a loan in a principal amount not to exceed $1,026,000, dated
                  April 18, 1994, with Waiver and Consent dated November 13,
                  1995. (1)

       10.22      Open-End Mortgage between PIDC Financing Corporation and PIDA
                  dated April 18, 1994. (1)

       10.25      Assignment of Installment Sale Agreement by and among PIDC
                  Financing Corporation, PIDA and GPC Florida, dated April 18,
                  1994. (1)

       10.26      Installment Sale Agreement by and between PIDC Financing
                  Corporation and GPC Florida dated April 18, 1994. (1)

       10.27      PIDC Financing Corporation Note to the PIDA, dated April 18,
                  1994. (1)

       10.29      Consent, Subordination and Assumption Agreement by and among
                  GPC Florida, PIDC Financing Corporation and PIDA, dated April
                  18, 1994. (1)

       10.40      Technical Collaboration Agreement by and between the Company
                  and Genpharm Inc. dated January 8, 1997. (2)

       10.43      Development, License and Supply Agreement with Eurand America,
                  Inc. dated August 20, 1997. (3)

       10.44      License and Supply Agreement with Eurand America, Inc. dated
                  August 20, 1997. (3)

       10.48      Employment Agreement of Charles Hsiao, Ph.D., dated as of
                  December 14, 1999. (4) (6)

       10.49      Employment Agreement of Barry R. Edwards, dated as of December
                  14, 1999. (4) (6)

       10.50      Employment Agreement of Larry Hsu, Ph.D., dated as of December
                  14, 1999. (4) (6)

       10.51      1999 Equity Incentive Plan of Impax Laboratories, Inc. (4) (6)
                  (7)

       10.55      Strategic Alliance Agreement between TEVA PHARMACEUTICALS
                  CURACAO N.V. and IMPAX LABORATORIES, INC. dated June 27, 2001
                  (8)

       10.56      Business and Loan Agreement between IMPAX LABORATORIES, INC.
                  and CATHAY BANK dated June 22, 2001. (8)

       10.57      Business Loan Agreement between IMPAX LABORATORIES, INC. and
                  CATHAY BANK dated November 12, 2001. (9)

       10.58      License Agreement between Novartis Consumer Health, Inc. and
                  Impax Laboratories, Inc. dated December 17, 2001. (9)

       10.59      Supply Agreement between Novartis Consumer Health, Inc. and
                  Impax Laboratories, Inc. dated December 17, 2001. (9)

       10.60      Supply Agreement between Wyeth Consumer Healthcare Division.
                  and Impax Laboratories, Inc. dated June 20, 2002 for
                  Claritin-D 12-hour (Loratadine and Pseudoephedrine Sulfate 5
                  mg/120 mg 12-hour Extended Release Tablets) and Claritin-D 24
                  (Loratadine and Pseudoephedrine Sulfate 10 mg/240 mg 24-hour
                  Extended Release Tablets). (10)

                                       60

<PAGE>

       10.61      Supply Agreement between Schering-Plough (Loratadine and
                  Pseudoephedrine Sulfate 5 mg/120 mg 12-Hour Extended Release
                  Tablets) dated June 24, 2002. (10)

       10.62      Loan and Security Agreement with Congress Financial dated
                  October 23, 2002. (11)

       10.63      2002 Equity Incentive Plan (12)

       10.64      First Amendment to Loan and Security Agreement between
                  Wachovia Bank, successor by specific assignment to Congress
                  Financial Corporation, and Impax Laboratories, Inc. dated
                  December 2, 2003.(15)

       10.65      Amendment No. 1 to Exclusivity Transfer Agreement dated
                  December 30, 2003. (15)

       14.1       Code of Ethics(15)

       23.1       Consent of PricewaterhouseCoopers LLP (15)

       23.2       Consent of Deloitte & Touche LLP (15)

       31.1       Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive
                  Officer (15)

       31.2       Rule 13a-14(a)/15d-14(a) Certifications of Chief Financial
                  Officer(15)

       32.1       Section 1350, Certification of Chief Executive Officer (15)

       32.2       Section 1350, Certification of Chief Financial Officer (15)

       _________________________________________________

       (1)  Previously filed with the Commission as Exhibits to, and
            incorporated herein by reference from , the Registrant's
            Registration Statement on Form SB-2 (File No. 33-99310-NY)
       (2)  Previously filed with the Commission as Exhibit to, and incorporated
            herein by reference from , the Registrant's Annual Report on Form
            10-KSB for the year ended December 31, 1996.
       (3)  Previously filed with the Commission as Exhibits to, and
            incorporated herein by reference from , the Registrant's Quarterly
            Report on Form 10-QSB for the quarterly period ended September 30,
            1997.
       (4)  Indicates management contract or compensatory plan or arrangement.
       (5)  Previously filed with the Commission as Exhibit to, and incorporated
            herein by reference from, the Registrant's Annual Report on Form
            10-KSB for the year ended December 31, 1999.
       (6)  Previously filed with the Commission as Exhibit to, and incorporated
            herein by reference from, the Registrant's Registration Statement on
            Form S-4 (File No. 333-90599).
       (7)  Previously filed with the Commission as Exhibit to, and incorporated
            herein by reference from, the Registrant's Registration Statement on
            Form S-8 (File No. 333-37968).
       (8)  Previously filed with the Commission as Exhibit to, and incorporated
            herein by reference from, the Registrant's Quarterly Report on Form
            10-QSB for the quarterly period ended June 30, 2001.
       (9)  Previously filed with the Commission as Exhibit 10, and incorporated
            herein by reference from, the Registrant's Annual Report on Form
            10-K for the year ended December 31, 2001.
       (10) Previously filed with the Commission as Exhibit to, and incorporated
            herein by reference from, the Registrant's Quarterly Report on Form
            10-Q for the quarterly period ended June 30, 2002.
       (11) Previously filed with the Commission as Exhibit to, and incorporated
            herein by reference from, the Registrant's Quarterly Report on Form
            10-Q for the quarterly period ended September 30, 2002.
       (12) Previously filed with the Commission, and incorporated herein by
            reference from, the Registrant's Registration Statement on Form S-8
            filed on May 24, 2002 (File No. 333-89098).
       (13) Previously filed with the Commission as Exhibit to, and incorporated
            herein by reference from, the Registrant's Annual Report on Form
            10-K for the year ended December 31, 2002.
       (14) Previously filed with the Commission as Exhibit to, and incorporated
            herein by reference from, the Registrant's Quarterly Report on Form
            10-Q for the quarterly period ended September 30, 2003.
       (15) Filed herewith.

                                       61

<PAGE>

   (b) Reports on Form 8-K.

       o  On October 2, 2003, the Company filed a report on Form 8-K (Item 4)
          announcing that it had elected Deloitte & Touche LLP as its new
          independent accountants.

       o  On October 28, 2003, the Company furnished a report on Form 8-K (Item
          9) regarding a press release announcing that the Company had entered
          into a settlement and license agreement with Schering-Plough related
          to IMPAX's Claritin-D 24-hour Extended Release Tablets.

       o  On November 5, 2003, the Company furnished a report on Form 8-K (Item
          9) announcing earnings for the third quarter ended September 30, 2003.

       o  On December 24, 2003, the Company furnished a report on Form 8-K (Item
          9) regarding a press release announcing that the FDA had granted
          tentative approval to the Company's ANDA for generic versions of
          OxyContin Controlled Release Tablets 10 mg, 20 mg, and 40 mg.

       o  On December 30, 2003, the Company furnished a report on Form 8-K (Item
          9) regarding a press release announcing that Shire Laboratories Inc.
          had filed a lawsuit against the Company related to IMPAX's filing of
          an ANDA for a generic version of 30 mg Adderall XR.







                                       62

<PAGE>


                                   SIGNATURES

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


                                            IMPAX LABORATORIES, INC.
                                            -------------------------
                                            (Registrant)


                                            By /s/ BARRY R. EDWARDS
                                            -------------------------
                                            Chief Executive  Officer
                                            Date: March 12, 2004


                                            By /s/ CORNEL C. SPIEGLER
                                            -------------------------
                                            Chief Financial Officer
                                            Date: March 12, 2004

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


<TABLE>
<CAPTION>
<S>                                   <C>                                                        <C>
/s/  CHARLES HSIAO, Ph.D.             Chairman and Director                                      March 12, 2004
------------------------------
      (Charles Hsiao, Ph.D.)

/s/  BARRY R. EDWARDS                 Chief Executive Officer and Director                       March 12, 2004
------------------------------        (Principal Executive Officer)
     (Barry R. Edwards)

/s/  LARRY HSU, Ph.D.                 President and Director                                     March 12, 2004
------------------------------
     (Larry Hsu, Ph.D.)

/s/  CORNEL C. SPIEGLER               Chief Financial Officer and Corporate Secretary            March 12, 2004
------------------------------        (Principal Financial and Accounting Officer)
     (Cornel C. Spiegler)

/s/  LESLIE Z. BENET, Ph.D.           Director                                                   March 12, 2004
------------------------------
     (Leslie Z. Benet, Ph.D.)

/s/  ROBERT L. BURR                   Director                                                   March 12, 2004
------------------------------
     (Robert L. Burr)

/s/  DAVID J. EDWARDS                 Director                                                   March 12, 2004
------------------------------
     (David J. Edwards)

/s/  NIGEL FLEMING, Ph.D.             Director                                                   March 12, 2004
------------------------------
     (Nigel Fleming, Ph.D.)

/s/  MICHAEL MARKBREITER              Director                                                   March 12, 2004
------------------------------
     (Michael Markbreiter)

/s/  OH KIM SUN                       Director                                                   March 12, 2004
------------------------------
     (Oh Kim Sun)

/s/  PETER R. TERRERI                 Director                                                   March 12, 2004
------------------------------
     (Peter R. Terreri)
</TABLE>

                                       63

<PAGE>


                            IMPAX LABORATORIES, INC.

                          INDEX TO FINANCIAL STATEMENTS





<TABLE>
<CAPTION>
<S>                                                                                                      <C>
         Independent Auditors' Report..............................................................         F-2

         Report of Independent Accountants.........................................................         F-3

         Balance Sheets as of December 31, 2003 and December 31, 2002..............................         F-4

         Statements of Operations for each of the three years in the period ended December 31, 2003         F-5

         Statements of Changes in Stockholders' Equity for each of the three years in the period
         ended December 31, 2003...................................................................         F-6

         Statements of Cash Flows for each of the three years in the period ended December 31, 2003         F-7

         Notes to Financial Statements.............................................................      F-8 to F-27
</TABLE>





                                      F-1

<PAGE>




                          INDEPENDENT AUDITORS' REPORT









To the Board of Directors and Stockholders of
Impax Laboratories, Inc.
Hayward, California




We have audited the accompanying balance sheet of Impax Laboratories, Inc. as of
December 31, 2003, and the related statements of operations, changes in
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the 2003 financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2003, and the
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.

DELOITTE & TOUCHE LLP




Philadelphia, Pennsylvania

March 10, 2004


                                      F-2

<PAGE>




                        REPORT OF INDEPENDENT ACCOUNTANTS








To the Board of Directors
and Stockholders of Impax Laboratories, Inc.



In our opinion, the financial statements listed in the index appearing under
Item 15(a)(1) on page 59 present fairly, in all material respects, the financial
position of Impax Laboratories, Inc. at December 31, 2002, and the results of
its operations and its cash flows for each of the two years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the financial statements, on January 1, 2002, Impax
Laboratories, Inc. adopted Statement of Financial Accounting Standard No. 142,
"Goodwill and Other Intangible Assets."

PRICEWATERHOUSECOOPERS LLP




March 24, 2003
Philadelphia, Pennsylvania





                                      F-3

<PAGE>


                            IMPAX LABORATORIES, INC.
                                 BALANCE SHEETS
                 (in thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                                                ------------
                                                                                           2003                2002
                                                                                        ---------           ---------
<S>                                                                                      <C>                <C>
ASSETS

Current assets:
                  Cash and cash equivalents                                             $  15,505           $  10,219
                  Accounts receivable, net                                                  9,885               6,524
                  Inventory                                                                28,479              10,478
                  Prepaid expenses and other assets                                         1,427                 973
                                                                                        ---------           ---------
                                       Total current assets                                55,296              28,194
Restricted Cash                                                                            10,000              10,000
Property, plant and equipment, net                                                         38,132              37,065
Investments and other assets                                                                1,325                 807
Goodwill, net                                                                              27,574              27,574
Intangibles, net                                                                              379                 763
                                                                                        ---------           ---------
                                       Total assets                                     $ 132,706           $ 104,403
                                                                                        =========           =========
</TABLE>

LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S>                                                                                    <C>
Current liabilities:
                  Current portion of long-term debt                                     $   1,068           $     861
                  Accounts payable                                                         22,783               7,529
                  Revolving Line of Credit                                                  7,642               3,999
                  Accrued expenses and deferred revenues                                   10,872              10,859
                                                                                        ---------           ---------
                                       Total current liabilities                           42,365              23,248
Long term debt                                                                              8,854               9,105
Refundable deposit from Teva                                                                5,000              22,000
Deferred revenues and other liabilities                                                     2,879               1,486
                                                                                        ---------           ---------
                                                                                           59,098              55,839
                                                                                        ---------           ---------
Commitments and contingencies
Mandatorily redeemable convertible Preferred Stock:
Series 2 mandatorily redeemable convertible Preferred Stock, $0.01 par
       value 75,000 shares outstanding at December 31, 2003, and 2002,
       redeemable at $100 per share                                                         7,500               7,500
                                                                                        ---------           ---------
                                                                                            7,500               7,500
                                                                                        ---------           ---------
Stockholders' equity:

         Common stock, $0.01 par value, 75,000,000 shares authorized and
             55,307,136 and 47,874,614 shares issued and outstanding
             at December 31, 2003, and 2002, respectively                                     553                 479
         Additional paid-in capital                                                       170,104             131,085
         Unearned compensation                                                                 --                (158)
         Accumulated deficit                                                             (104,549)            (90,342)
                                                                                        ---------           ---------
                                       Total stockholders' equity                          66,108              41,064
                                                                                        ---------           ---------
                                       Total liabilities and stockholders' equity       $ 132,706           $ 104,403
                                                                                        =========           =========
</TABLE>




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

                                      F-4

<PAGE>


                            IMPAX LABORATORIES, INC.
                            STATEMENTS OF OPERATIONS
             (dollars in thousands, except share and per share data)






<TABLE>
<CAPTION>
                                                                                             Year Ended December 31,
                                                                                             -----------------------
                                                                                 2003                 2002                 2001
                                                                                 ----                 ----                 ----
<S>                                                                          <C>                  <C>                  <C>
Net sales                                                                    $    53,565          $    23,758          $     6,591
Revenue from reversal of refundable deposit from Teva                              3,500                   --                   --
Other Revenue                                                                      1,753                  757                   --
                                                                             -----------          -----------          -----------
Total Revenues                                                               $    58,818          $    24,515          $     6,591

Cost of sales                                                                     43,769               18,492                9,669
                                                                             -----------          -----------          -----------
Gross margin (loss)                                                               15,049                6,023               (3,078)

Research and development                                                          17,185               16,254               11,890
Less:  Reimbursements from Teva                                                     (247)                (705)                (918)
                                                                             -----------          -----------          -----------
Research and development, net                                                     16,938               15,549               10,972

Selling Expenses                                                                   2,497                2,836                2,186
General and administrative                                                         9,176                8,396                9,258
Other operating  income (expense), net                                                27                  (36)                 164
                                                                             -----------          -----------          -----------
Net loss from operations                                                         (13,535)             (20,794)             (25,330)

Interest income                                                                      280                  644                1,148
Interest (expense)                                                                  (952)                 110                 (929)
                                                                             -----------          -----------          -----------
Net loss before provision for income taxes                                   $   (14,207)         $   (20,040)         $   (25,111)
                                                                             -----------          -----------          -----------

Provision for income taxes                                                            --                   --                   --

Net loss                                                                     $   (14,207)         $   (20,040)         $   (25,111)
                                                                             ===========          ===========          ===========

Net loss per share (basic and diluted)                                       $     (0.28)         $     (0.42)         $     (0.60)
                                                                             ===========          ===========          ===========

Weighted average common shares outstanding                                    51,346,587           47,444,364           41,555,818
                                                                             ===========          ===========          ===========
</TABLE>









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

                                      F-5

<PAGE>


                            IMPAX LABORATORIES, INC.
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
        FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2003
                        (dollars and shares in thousands)




<TABLE>
<CAPTION>
                                                                           Additional
                                                        Common Stock         Paid In       Unearned         Accumulated
                                                      Shares   Amount        Capital      Compensation        Deficit       Total
                                                      ------   ------        -------      ------------        -------       -----

<S>                                                   <C>        <C>         <C>            <C>              <C>           <C>
Balance at January 1, 2001........................    32,295     $323        $76,740        ($1,118)         ($45,191)     $30,754

Sale of Common Stock..............................     2,773       28         25,036             --                --       25,064
Conversion of Series 1 Mandatory
    Redeemable Convertible  Preferred Stock.......    10,041      100         16,203             --                --       16,303
Conversion of Series 2  Mandatory
   Redeemable Convertible Preferred Stock.........       900        9          4,491             --                --        4,500
Exercise of warrants and options .................       672        6            667             --                --          673
Expenses related to sale of stock.................        --       --           (233)            --                --         (233)
Fair value of stock options issued to consultant..        --       --             53            (27)               --           26
Amortization of unearned compensation.............        --       --             --            472                --          472
Net loss..........................................        --       --             --             --           (25,111)     (25,111)
                                                      ------     ----       --------          -----         ---------      -------
Balance at December 31, 2001......................    46,681     $466       $122,957          ($673)         ($70,302)     $52,448

Sale of Common Stock..............................       883       10          7,490             --                --        7,500
Exercise of warrants and options
   and sale of stock under ESPP...................       311        3            406             --                --          409
Reversal of previous year expenses
   related to sale of stock, (net) ...............        --       --            146             --                --          146
Fair value of stock options issued to consultant..        --       --             86            (63)               --           23
Amortization of unearned compensation.............        --       --             --            578                --          578
Net loss..........................................        --       --             --             --           (20,040)     (20,040)
                                                      ------     ----       --------          -----         ---------      -------
Balance at December 31, 2002......................    47,875     $479       $131,085          ($158)         ($90,342)     $41,064

Sale of Common Stock..............................     5,466       55         36,761             --                --       36,816
Exercise of warrants and options
   and sale of stock under ESPP...................     1,966       19          1,977             --                --        1,996
Fair value of stock options issued to consultant..        --       --            281             --                --          281
Amortization of unearned compensation.............        --       --             --            158                --          158
Net loss..........................................        --       --             --             --           (14,207)     (14,207)
                                                      ------     ----       --------          -----         ---------      -------
Balance at December 31, 2003......................    55,307     $553       $170,104            $ 0         ($104,549)     $66,108
                                                      ======     ====       ========          =====         =========      =======
</TABLE>













    The accompanying notes are an integral part of these financial statements

                                      F-6

<PAGE>


                            IMPAX LABORATORIES, INC.
                            STATEMENTS OF CASH FLOWS
                             (dollars in thousands)


<TABLE>
<CAPTION>
                                                                                                  Year ended December 31,
                                                                                                  -----------------------
                                                                                          2003             2002           2001
                                                                                       ---------       -----------    -----------
<S>                                                                                    <C>             <C>            <C>
Cash flows from operating activities:
    Net loss                                                                           $ (14,207)      $   (20,040)   $   (25,111)
    Adjustments to reconcile net loss to net cash used by operating activities:
        Depreciation and amortization                                                      3,719             2,707          5,828
        Reversal of refundable deposit from Teva                                          (3,500)               --             --
        Non-cash compensation charge (warrants and options)                                  439               515            498
        Change in assets and liabilities:
             Accounts receivable                                                          (3,361)           (3,001)        (1,942)
             Inventory                                                                   (18,001)           (6,990)          (539)
             Prepaid expenses and other assets                                              (972)              300         (1,018)
             Accounts payable                                                             15,254             3,533          1,720
             Other liabilities                                                             1,406             7,777          2,687
                                                                                       ---------       -----------    -----------

                Net cash used in operating activities                                    (19,223)          (15,199)       (17,877)
                                                                                       ---------       -----------    -----------

Cash flows from investing activities:
    Purchases of property and equipment                                                   (4,402)          (15,054)       (16,575)
    Purchases of short-term investments                                                       --                --        (32,232)
    Sale and maturities of short term investments                                                           20,422         19,590
                                                                                       ---------       -----------    -----------

                Net cash provided by (used in) investing activities                       (4,402)            5,368        (29,217)
                                                                                       ---------       -----------    -----------


Cash flows from  financing activities:
    Revolving line of credit borrowings (repayments)                                       3,643             3,999         (2,425)
    Additions to long-term debt                                                              949             3,150          5,770
    Repayment of long-term debt                                                             (993)             (284)          (159)
    Proceeds from sale of common stock (net of expense)                                   23,317             7,500         24,831
    Proceeds from issuance of common stock (upon exercise of stock
        options and warrants) and sale of common stock under ESPP                          1,995               409            673
    Reversal of previous year expenses related to sales of stock (net)                        --               232             --
    Refundable deposit from Teva                                                              --                --         22,000
    Restricted Cash Account with Wachovia Securities                                          --           (10,000)            --
                                                                                       ---------       -----------    -----------
        Net cash provided by financing activities                                         28,911             5,006         50,690
                                                                                       ---------       -----------    -----------

    Net increase in cash and cash equivalents                                              5,286            (4,825)         3,596
    Cash and cash equivalents, beginning of the year                                      10,219            15,044         11,448
                                                                                       ---------       -----------    -----------
    Cash and cash equivalents, end of year                                                15,505            10,219         15,044
                                                                                       =========       ===========    ===========

    Cash paid for interest                                                             $ 959,000       $   561,000    $   224,000
                                                                                       =========       ===========    ===========

    Cash paid for income taxes                                                                 0                 0              0
                                                                                       =========       ===========    ===========
</TABLE>


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

Supplemental disclosure of non-cash investing and financing activities: In
September 2003, the Company issued 888,918 shares of common stock to Teva,
paying $13.5 million of the original $22 million refundable deposit.

                                      F-7

<PAGE>



                          NOTES TO FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 2003, 2002, AND 2001



NOTE 1. - THE COMPANY

Nature of Operations

The financial statements included herein have been prepared by the Company,
pursuant to the rules and regulations of the Securities and Exchange Commission.

Impax Laboratories, Inc.'s ("IMPAX," "we," "us," or "the Company") main business
is the development, manufacturing, and marketing of specialty prescription
pharmaceutical products utilizing its own formulation expertise and drug
delivery technologies. As of March 5, 2004, the Company is marketing thirty-one
generic pharmaceuticals, which represent dosage variations of thirteen different
pharmaceutical compounds, and has nineteen Abbreviated New Drug Applications
(ANDAs) under review with the U.S. Food and Drug Administration (FDA). Fourteen
of these ANDAs were filed under Paragraph IV of the Hatch-Waxman Amendments. The
Company has approximately twenty-four other products in various stages of
development for which applications have not yet been filed.

We have experienced, and expect to continue to experience, operating losses and
negative cash flow from operations, and our future profitability is uncertain.
We do not know whether or when our business will ever be profitable or generate
positive cash flow, and our ability to become profitable or obtain positive cash
flow is uncertain. We have not generated significant revenues to date and have
experienced operating losses and negative cash flow from operations since our
inception. As of December 31, 2003, our accumulated deficit was $104,549,000 and
we had outstanding indebtedness in an aggregate amount of $22,564,000, including
the $5,000,000 refundable deposit from Teva. To remain operational, we must,
among other things:

     o   continue to obtain sufficient capital to fund our operations;
     o   obtain from the FDA approval for our products;
     o   prevail in patent infringement litigations in which we are involved;
     o   successfully launch our new products; and
     o   comply with the many complex governmental regulations that deal with
         virtually every aspect of our business activities.

We expect to incur significant operating expenses, particularly research and
development, for the foreseeable future in order to execute our business plan.
We, therefore, anticipate that such operating expenses, as well as planned
capital expenditures, will constitute a material use of our cash resources.

Although our existing cash and cash equivalents are expected to decline during
the remainder of 2004, we believe that our existing cash and cash equivalent
balances, together with our term loan and revolving line of credit, will be
sufficient to meet our requirements for the next twelve months. We may, however,
seek additional financing through strategic alliances and/or equity or debt
markets to fund the planned capital expenditures, and to fund our research and
development plans, and potential revenues shortfall due to delays in new product
introductions. However, we may be unable to obtain such financing at all, or on
terms acceptable to us.

To date, the Company has funded its research and development and other operating
activities through equity, debt financings and strategic alliances.

NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

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

                                      F-8

<PAGE>

Cash and Cash Equivalents

The Company considers all short-term investments with maturity of three months
or less at the date of purchase to be cash equivalents. Cash and cash
equivalents are stated at amortized cost, which approximates market value.

Short-Term Investments

Short-term investments represent investments in fixed rate financial instruments
with maturities of greater than three months but less than twelve months at the
time of purchase. They are stated at cost, which approximates market value.

Fair Value of Financial Instruments

The fair values of the Company's cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate their carrying values due to
their relative short maturities. The Company believes that the fair value of its
fixed and variable rate long-term debt and refundable deposit approximates its
carrying value.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments; these
allowances are for specific accounts.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of
credit risk are cash, cash equivalents, short-term investments, and accounts
receivable. The Company limits its credit risk associated with cash, cash
equivalents and investments by placing its investments with highly rated money
market funds, U.S. Government securities, treasury bills and short-term
commercial paper. The Company limits its credit risk with respect to accounts
receivable by performing ongoing credit evaluations and, when deemed necessary,
requiring letters of credit, guarantees, or collateral.

The Company has four major customers, Amerisource-Bergen, Cardinal Health,
McKesson, and Schering-Plough, that account for approximately 64% of total
revenue for the year ended December 31, 2003. At December 31, 2003, accounts
receivable from these four customers, represent approximately 75% of total trade
receivables. The Company had three major customers in 2002 and 2001 that
accounted for 57% and 55% of total revenue for the years ended December 31, 2002
and 2001. At December 31, 2002 and 2001, accounts receivable due from the three
customers were 64% and 69%, respectively. The Company's net revenue attributable
to one product family, which is supplied by Eurand America, Inc., for the years
ended December 31, 2003, 2002, and 2001 was 17%, 35% and 64%, respectively.

Inventory

Inventory is stated at the lower of cost or market. Cost is determined using a
standard cost method, which assumes a first-in, first-out (FIFO) flow of goods.
Standard costs are revised annually, and significant variances between actual
costs and standard costs are apportioned to inventory and cost of goods sold
based upon inventory turnover. Costs include materials, labor, quality control,
and production overhead. Inventory is adjusted for short-dated, unmarketable
inventory equal to the difference between the cost of inventory and the
estimated value based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected
by management, additional inventory write-downs may be required. During 2003,
the Company evaluated the risk of building commercial quantities as inventories
of certain products that had not received FDA approval. The Company decided to
build and capitalize inventories in commercial quantities prior to receiving FDA
approval.

We are dependent on a small number of suppliers for our raw materials, and any
delay or unavailability of raw materials can materially adversely affect our
ability to produce products. The Company believes it has, and will continue to
have, adequate and dependable sources for the supply of raw materials and
components for its manufacturing requirements.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Maintenance and repairs are
charged to expense as incurred and costs of improvements and renewals are
capitalized. Costs incurred in connection with the construction or major
renovation of facilities, including interest directly related to such projects,
are capitalized as construction in progress. Depreciation is recognized using
the straight-line method based on the estimated useful lives of the related
assets. The Company complies with SFAS No. 34, "Capitalization of Interest Cost"
and, accordingly, is capitalizing interest based on capital expenditures during
the year and the weighted average of borrowing interest rates. For the years
ended December 31, 2003 and 2002, capitalized interest was $0 and $201,000,
respectively.

                                      F-9

<PAGE>

Investments

The Company's investments in other than cash equivalents are carried at fair
value based upon the nature of the investments, their ultimate maturity date,
the restrictions imposed by the PIDA and PIDC loan agreements dated July 29,
1997 (See Note 10) and management's intention with respect to holding these
securities.

Goodwill

Prior to the adoption of Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets," we amortized goodwill on a
straight-line basis over its estimated useful life. The Company adopted the
provisions of SFAS No. 142, effective January 1, 2002; no impairment was noted.
In adopting SFAS 142, we no longer amortize goodwill. The table below
illustrates the effects of removing goodwill amortization, by period, on our
reported net loss for the twelve months ended December 31, 2003, 2002, and 2001:

<TABLE>
<CAPTION>
                                                                       For the Years Ended December 31,
Net Loss                                                             2003            2002             2001
                                                                     ----            ----             ----
<S>                                                               <C>             <C>              <C>
Reported net loss                                                 $14,207,000     $20,040,000      $25,111,000
Add back:  Goodwill amortization                                           --              --       (3,502,000)
                                                                  -----------     -----------      -----------
Adjusted net loss                                                ($14,207,000)   ($20,040,000)    ($21,609,000)
                                                                  -----------     -----------      -----------
</TABLE>

<TABLE>
<CAPTION>
                                                                           For the Years Ended December 31,
Basic and diluted loss per common share                                 2003            2002             2001
                                                                        ----            ----             ----
<S>                                                                    <C>             <C>              <C>
     Reported net loss                                                 $(0.28)         $(0.42)          $(0.60)
                                                                       ------          ------           ------
     Add back:  goodwill                                                   --              --             0.08
                                                                       ------          ------           ------
Adjusted net loss per share (basic and diluted)                        $(0.28)         $(0.42)          $(0.52)
                                                                       ======          ======           ======
</TABLE>

Under the provisions of SFAS No. 142, the Company performs the annual review for
impairment at the reporting unit level, which the Company has determined to be
consistent with its business segment, that is, the entire Company.

Effective January 1, 2002, we evaluated the recoverability and measured the
possible impairment of our goodwill under SFAS 142. The impairment test is a
two-step process that begins with the estimation of the fair value of the
reporting unit. The first step screens for potential impairment and the second
step measures the amount of the impairment, if any. Our estimate of fair value
considers publicly available information regarding the market capitalization of
our Company, as well as (i) publicly available information regarding comparable
publicly-traded companies in the generic pharmaceutical industry, (ii) the
financial projections and future prospects of our business, including its growth
opportunities and likely operational improvements, and (iii) comparable sales
prices, if available.

As part of the first step to assess potential impairment, we compare our
estimate of fair value for the Company to the book value of our consolidated net
assets. If the book value of our net assets is greater than our estimate of fair
value, we would then proceed to the second step to measure the impairment, if
any.

The second step compares the implied fair value of goodwill with its carrying
value. The implied fair value is determined by allocating the fair value of the
reporting unit to all of the assets and liabilities of that unit as if the
reporting unit had been acquired in a business combination, and the fair value
of the reporting unit was the purchase price paid to acquire the reporting unit.
The excess of the fair value of the reporting unit over the amounts assigned to
its assets and liabilities is the implied fair value of goodwill. If the
carrying amount of the reporting unit goodwill is greater than its implied fair
value, an impairment loss will be recognized in the amount of the excess.

On a quarterly basis, we perform a review of our business to determine if events
or changes in circumstances have occurred which could have a material adverse
effect on the fair value of the Company and its goodwill. If such events or
changes in circumstances were deemed to have occurred, we would consult with one
or more valuation specialists in estimating the impact on our estimate of fair
value. We believe the estimation methods are reasonable and reflective of common
valuation practices. We perform our annual goodwill impairment test in the
fourth quarter of each year. No impairments were noted during the years ended
December 31, 2003 and 2002.

                                      F-10

<PAGE>

Intangibles

Intangible assets, comprised of product rights and licenses, are amortized on a
straight-line basis over the estimated useful life of 3 to 8 years.

Impaired Assets

The Company evaluates the carrying value of long-lived assets to be held and
used, including definite lived intangible assets, when events or changes in
circumstances indicate that the carrying value may not be recoverable. The
carrying value of a long-lived asset is considered impaired when the total
projected undiscounted cash flows from such asset are separately identifiable
and are less than its carrying value. In that event, a loss is recognized based
on the amount by which the carrying value exceeds the fair value of the
long-lived asset. Fair value is determined primarily using the projected cash
flows discounted at a rate commensurate with the risk involved. Losses on
long-lived assets to be disposed of are determined in a similar manner, except
that fair values are reduced for disposal costs. As the Company's assumptions
related to assets to be held and used are subject to change, additional
write-downs may be required in the future.

Revenue Recognition

     The Company recognizes revenue in accordance with SEC Staff Accounting
     Bulletin ("SAB") 101 issued by the Securities and Exchange Commission
     ("SEC") in December 1999. We recognize revenue from the sale of products
     when the shipment of products is received and accepted by the customer.
     Provisions for estimated discounts, rebates, chargebacks, returns and other
     adjustments are provided for in the period the related sales are recorded.
     In December 2003, the Staff Accounting Bulletin (SAB) 104 was issued by the
     SEC. This bulletin revises and clarifies portions of Topic 13 of the Staff
     Accounting Bulletin to be consistent with current accounting and auditing
     guidance and SEC rules and regulations.

Emerging Issues Task Force ("EITF") Issue No. 00-21 supplemented SAB 101 for
accounting for multiple element arrangements.

The Company has entered into several strategic alliances that involve the
delivery of multiple products and services over an extended period of time. In
multiple element arrangements, the Company must determine whether any or all of
the elements of the arrangement can be separated from one another. If separation
is possible, revenue is recognized for each deliverable when the revenue
recognition criteria for the specific deliverable is achieved. If separation is
not possible, revenue recognition is required to be spread over an extended
period.

Under EITF Issue No. 00-21, an arrangement with multiple elements, the delivered
item should be considered a separate unit of accounting if all of the following
criteria are met:

         1) the delivered item has value to the customer on a standalone basis;
         2) there is objective and reliable evidence of the fair value of the
            undelivered item; and
         3) if the arrangement included a general right of return, or whether
            delivery or performance of the undelivered item is considered
            probable.

The Company reviews all of the terms of its strategic alliances and follows the
guidance from EITF Issue No. 00-21 for multiple element arrangements.

Returns

The sales return reserve is calculated using an historical lag period (that is,
the time between when the product is sold and when it is ultimately returned as
determined from the Company's system generated lag period report) and return
rates, adjusted by estimates of the future return rates based on various
assumptions which may include changes to internal policies and procedures,
changes in business practices and commercial terms with customers, competitive
position of each product, amount of inventory in the pipeline, the introduction
of new products, and changes in market sales information.

Our returned goods policy requires prior authorization for the return, with
corresponding credits being issued at the original invoice prices, less amounts
previously granted to the customer for rebates and chargebacks. Products
eligible for return must be expired and returned within one year following the
expiration date of the product. Prior to 2002, we required returns of products
within six months of expiration date. Because of the lengths of the lag period
and volatility that may occur from quarter to quarter, we are currently using a
rolling 21-month calculation to estimate our product return rate.


                                      F-11

<PAGE>

In addition to the rolling 21-month calculation, we review the level of pipeline
inventory at major wholesalers to assess the reasonableness of our estimate of
future returns. Although the pipeline inventory information may not always be
accurate or timely, it represents another data point in estimating the sales
returns reserve. If we believe that a wholesaler may have too much inventory on
hand, a discussion with the wholesaler takes place and an action plan is
developed to reduce inventory levels related to a particular product including,
but not limited to, suspending new orders and redirecting the inventory to other
distribution centers.

Further, in 2003, we have developed an order flagging mechanism based on
historical purchases by individual customers. This new process allows the
Company to evaluate any customer orders for quantities higher than historical
purchases.

The Company believes that its estimated returns reserves were adequate at each
balance sheet date since they were formed based on the information that was
known and available, which were supported by the Company's historical experience
when similar events occurred in the past, and management's overall knowledge of
and experience in the generic pharmaceutical industry. In estimating its returns
reserve, the Company looks to returns after the balance sheet date but prior to
filing its financial statements to ensure that any unusual trends are
considered.

Rebates and Chargebacks

The sales rebates are calculated at the point of sale, based on pre-existing
written customer agreements by product, and accrued on a monthly basis.
Typically, these rebates are for a fixed percentage, as agreed to by the Company
and the customer in writing, multiplied by the dollar volume purchased.

The vast majority of chargebacks are also calculated at the point of sale as the
difference between the list price and contract price by product (with the
wholesalers) and accrued on a monthly basis. Therefore, for these chargebacks,
the amount is fixed and determinable at the point of sale. Additionally, a
relatively small percentage of chargebacks are estimated at the point of sale to
the wholesaler as the difference between the wholesalers' contract price and the
Company's contract price with retail pharmacies or buying groups.

Shelf-Stock Reserve

A reserve is estimated at the point of sale for certain products for which it is
probable that shelf-stock credits to customers for inventory remaining on their
shelves following a decrease in the market price of these products will be
granted. When estimating this reserve, we consider the competitive products, the
estimated decline in market prices, and the amount of inventory in the pipeline.
At December 31, 2003 and 2002, the shelf-stock reserve, included in accrued
expenses, was $232,000 and $660,000 respectively.

Shipping and Handling Fees and Costs

Shipping and handling fees related to sales transactions are recorded as sales
expense. Shipping and handling costs which are recorded in selling expense were
$232,000, $195,000, and $132,000, in 2003, 2002, and 2001, respectively.

Research and Development

Research and development activities are expensed as incurred and consist of
self-funded research and development costs and costs associated with work
performed under collaborative research and development agreements.

Derivatives

On January 1, 2001 the Company adopted SFAS No. 133, as amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
The adoption of SFAS No. 133, was amended by SFAS No. 138. In April 2003, the
FASB issued SFAS No. 149, "Amendment of Statement No. 133 on Derivative
Instruments and Hedging Activity" which amended SFAS No. 138 and clarified
financial accounting and reporting for derivative instruments. The adoption of
this Statement did not have a material impact on the Company's financial
condition or results of operations.

Income Taxes

The Company utilizes the asset and liability method of accounting for income
taxes as set forth in SFAS No. 109, "Accounting for Income Taxes." Under this
method, deferred tax liabilities and assets are recognized for the expected
future tax consequences attributable to temporary differences between the
carrying amounts and the tax basis of assets and liabilities. Valuation
allowances are provided on deferred tax assets for which it is more likely than
not that some portion or all will not be realized.


                                      F-12

<PAGE>

Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees". Compensation cost for stock options,
if any, is measured as the excess of the quoted market price of the stock at the
date of grant over the amount an employee must pay to acquire the stock. The
Company has adopted the disclosure only provisions of SFAS No. 123 and SFAS No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure - An
Amendment to FASB Statement No. 123".

Had compensation cost for the Company's Plans been determined based on the fair
value at the grant dates for the awards under a method prescribed by SFAS No.
148, "Accounting for Stock Based Compensation," the Company's loss would have
been increased to the pro forma amounts indicated below (in thousands):

<TABLE>
<CAPTION>
                                                                      Twelve Months Ended
                                                                         December 31,
                                                     ---------------------------------------------------
<S>                                                  <C>                  <C>                 <C>
                                                          2003                2002                2001
                                                          ----                ----                ----

Net loss, as reported                                 $ (14,207)          $ (20,040)          $ (25,111)
Add: Stock-based employee compensation
included in reported net income,
net of related tax effects                                  158                 578                 472

Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects                               (3,498)             (2,718)             (1,450)
                                                      ---------           ---------           ---------
Pro forma net loss                                    $ (17,547)          $ (22,180)          $ (26,089)
                                                      =========           =========           =========


Earnings per share:
         Basic - as reported                          $   (0.28)          $   (0.42)          $   (0.60)
                                                      ---------           ---------           ---------
         Basic - pro forma                            $   (0.34)          $   (0.47)          $   (0.63)
                                                      ---------           ---------           ---------

         Diluted - as reported                        $   (0.28)          $   (0.42)          $   (0.60)
                                                      ---------           ---------           ---------
         Diluted - pro forma                          $   (0.34)          $   (0.47)          $   (0.63)
                                                      ---------           ---------           ---------
</TABLE>

The pro forma results may not be representative of the effect on reported
operations for future years. The Company calculated the fair value of each
option grant on the date of grant using the Black-Scholes pricing method with
the following assumptions: dividend yield at 0%; weighted average expected
option term of five years; risk free interest rate of 3.03%, 4.39%, and 4.30%
for the years ended December 31, 2003, 2002, and 2001, respectively. The
expected stock price volatility for the years ended December 31, 2003, 2002 and
2001 were 81.7%, 50.0% and 50.0%, respectively. The weighted average fair value
of options granted during 2003, 2002, and 2001 was $4.23, $3.18, and $4.43,
respectively.

Comprehensive Income

The Company has adopted the provisions of SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for the reporting and display of
comprehensive income and its components. Comprehensive income is defined to
include all changes in equity during a period except those resulting from
investments by owners and distributions to owners. Since inception, the Company
has not had transactions that are required to be reported in other comprehensive
income. Comprehensive income (loss) for each period presented is equal to the
net income (loss) for each period as presented in the Statements of Operations.

Business Segments

The Company operates in one business segment and has one group of products,
generic pharmaceuticals. The Company's revenues are derived from, and its assets
are located in, the United States of America.

                                      F-13

<PAGE>

Computation of Basic and Diluted Net Loss Per Share

The Company reports both basic earnings per share, which is based on the
weighted-average number of common shares outstanding, and diluted earnings per
share, which is based on the weighted average number of common shares
outstanding and all dilutive potential common shares outstanding. Because the
Company had net losses in each of the years presented, only the weighted average
of common shares outstanding has been used to calculate both basic earnings per
share and diluted earnings per share, as inclusion of the potential common
shares would be anti-dilutive.

Mandatorily redeemable convertible stock of 1,500,000 common shares (on an
as-converted basis), warrants to purchase 1,571,232, 2,548,266 and 2,798,266
common shares, and stock options to purchase 5,886,815, 4,625,525 and 3,285,069
common shares were outstanding at December 31, 2003, 2002, and 2001, but were
not included in the calculation of diluted earnings per share, as their effect
would be anti-dilutive.

Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 143, "Accounting for Asset Retirement Obligations," which addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 applies to legal obligations associated with the retirement
of long-lived assets that result from the acquisition, construction, development
and/or normal use of the asset.

The Company adopted the provisions of SFAS No. 143 on January 1, 2003. Upon
initial application of the provisions of SFAS No. 143, entities are required to
recognize a liability for any existing asset retirement obligations adjusted for
cumulative accretion to the date of adoption of this Statement, an asset
retirement cost capitalized as an increase to the carrying amount of the
associated long-lived asset, and accumulated depreciation on that capitalized
cost. The provisions of this Statement did not have a material impact on the
Company's financial condition or results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
This Statement, which updates, clarifies and simplifies existing accounting
pronouncements, addresses the reporting of debt extinguishments and accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. The provisions of this Statement are generally
effective for the Company's 2003 fiscal year or, in the case of specific
provisions, for transactions occurring after May 15, 2002 or for financial
statements issued on or after May 15, 2002. The provisions of this Statement did
not have a material impact on the Company's financial condition or results of
operations.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue ("EITF") No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." This Statement
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, and concludes that an
entity's commitment to an exit plan does not, by itself, create a present
obligation that meets the definition of a liability. This Statement also
establishes that fair value is the objective of initial measurement of the
liability. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged. The Company adopted SFAS No. 146 on January 1, 2003. The provisions
of this Statement did not have a material impact on the Company's financial
condition or results of operations.

In November 2002, the EITF reached a consensus on Issue No. 00-21, "Revenue
Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance
on how to account for arrangements that involve the delivery or performance of
multiple products, services, and/or rights to use assets. The provisions of EITF
Issue No. 00-21 applies to revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. We implemented the provisions of EITF Issue No.
00-21 in revenue recognition of certain strategic agreements. The Company
reviews all of the terms of its strategic alliances and follows the guidance
from this Issue for all multiple element arrangements.

Also in November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34." FIN
45 clarifies the requirements of SFAS No. 5, "Accounting for Contingencies,"
relating to the guarantor's accounting for, and disclosure of, the issuance of
certain types of guarantees. The disclosure provisions of FIN 45 were effective
for the year ended December 31, 2002. The provisions for initial recognition and
measurement are effective on a prospective basis for guarantees that are issued
or modified after December 31, 2002, irrespective of a guarantor's year-end. The
Company has not issued any guarantees as of December 31, 2003 and 2002,
respectively.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, amendment of FASB Statement No. 123."
This statement provides additional transition guidance for those entities that
elect to voluntarily adopt the provisions of SFAS No. 123, "Accounting for Stock
Based Compensation." Furthermore, SFAS No. 148 mandates new disclosures in both
interim and year-end financial statements within the Company's Significant
Accounting Policies footnote. The Company has elected not to adopt the
recognition provisions of SFAS No. 123, as amended by SFAS No. 148. However, the
Company has adopted the disclosure provisions for the current fiscal year and
has included this information in Note 1 to the Company's financial statements.


                                      F-14

<PAGE>

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. FIN 46 applies to public enterprises as of the
beginning of the applicable interim or annual period. On October 8, 2003, the
FASB decided to defer FIN 46 until the first reporting period ending after
December 15, 2003. The provisions of this Interpretation did not have a material
impact on the Company's financial condition or results of operations.

In December 2003, the FASB issued FIN No. 46R, Consolidation of Variable
Interest Entities, clarifying the application of Accounting Research Bulletin
No. 51, Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support. The provisions of this
Interpretation do not have a material impact on the Company's financial
condition or results of operations.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The changes in this Statement
improve financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. In particular, this Statement (1)
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative discussed in paragraph 6(b) of
Statement 133, (2) clarifies when a derivative contains a financing component,
(3) amends the definition of an underlying to conform it to language used in
FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and (4)
amends certain other existing pronouncements. Those changes will result in more
consistent reporting of contracts as either derivatives or hybrid instruments.
The provisions of this Statement did not have a material impact on the Company's
financial condition or results of operations.

In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." The
Statement improves the accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity. This new Statement
requires that those instruments be classified as liabilities in the balance
sheet and is effective at the beginning of the first interim period beginning
after June 15, 2003. The Company adopted SFAS No. 150 on July 1, 2003. The
provisions of this Statement did not have a material impact on the Company's
financial condition or results of operations.

In December 2003, the FASB revised SFAS 132, "Employers' Disclosure About
Pensions and Other Post Retirement Benefits." This Statement does not change the
measurement or recognition of those plans required by FASB 87, "Employers'
Accounting for Pensions," and No. 106, "Employers' Accounting for Post
Retirement Benefits Other than Pensions." This Statement retains the disclosure
requirements contained in FASB No. 132, "Employers' Disclosure about Pensions
and Other Post Retirement Plans." The provisions of this Statement do not have a
material impact on the Company's financial condition or results of operations.

NOTE 3 - ACCOUNTS RECEIVABLE

Gross receivables and related deductions at December 31, 2003, 2002 and 2001 are
set forth below:
<TABLE>
<CAPTION>
<S>                                               <C>                  <C>                  <C>
     (in $000's)                                  Year 2003             Year 2002            Year 2001
                                                  ---------             ---------            ---------
     Gross accounts receivable                    $ 17,091               $ 9,827               $ 5,112
     Less:  Accrued rebates                         (2,700)               (1,525)                 (886)
     Less:  Accrued chargebacks                     (4,101)               (1,373)                 (580)
     Less:  Other deductions                         ( 405)                 (405)                 (123)
                                                  --------               -------               -------
     Net accounts receivable                      $  9,885               $ 6,524               $ 3,523
                                                  --------               -------               -------

</TABLE>

Other deductions include allowance for disputed items, doubtful accounts, and
cash discounts.

                                      F-15

<PAGE>

Chargebacks and Rebates Accruals activity for the years ended December 31, 2003,
2002 and 2001, is set forth below.

<TABLE>
<CAPTION>
                                                    CHARGEBACKS ACCRUAL
<S>                                                                        <C>             <C>           <C>
   (in $000's)                                                             Year 2003       Year 2002      Year 2001
                                                                           ---------       ---------      ---------
   Beginning Balance                                                         $ 1,373        $   580        $   144
   Add:  Provision related to sales made in current period                    10,571          4,632          1,938
   Less: Credits issued during the current period                             (7,843)        (3,839)        (1,502)
                                                                             -------        -------        -------
   Ending Balance                                                            $ 4,101        $ 1,373        $   580
                                                                             -------        -------        -------


                                                      REBATES ACCRUAL
   (in $000's)                                                             Year 2003       Year 2002      Year 2001
                                                                           ---------       ---------      ---------
   Beginning Balance                                                        $  1,525        $   886        $   181
   Add:  Provision related to sales made in current period                     6,680          4,095          2,052
   Less:  Credits issued during the current period                            (5,505)        (3,456)        (1,347)
                                                                            --------        -------        -------
   Ending Balance                                                           $  2,700        $ 1,525        $   886
                                                                            --------        -------        -------

</TABLE>

NOTE 4 - INVENTORY

Our inventory consists of the following:
<TABLE>
<CAPTION>
                                                                             December 31,     December 31,
   (in $000s)                                                                    2003             2002
                                                                             ------------     ------------
<S>                                                                          <C>               <C>
Raw materials.........................................................        $  9,671         $   7,122
Work in process.......................................................           5,303               365
Finished goods........................................................          13,505             2,991
                                                                              --------         ---------
                                                                              $ 28,479         $  10,478
                                                                              ========         =========
</TABLE>

Historically, IMPAX considered product costs as inventory once the Company
received FDA approval to market its ANDA related products. During the twelve
months ended December 31, 2003, the Company evaluated the risk of building
commercial quantities as inventories of certain products that have not received
FDA approval. For the first time, the Company decided to build and capitalize
inventories in commercial quantities prior to receiving FDA approval. The
Company, as do most companies in the generic pharmaceutical industry, may build
inventories of certain products that have not yet received FDA approval and/or
satisfactory resolution of patent infringement litigation, when it believes that
such action is appropriate to increase its commercial opportunity.

As of December 31, 2003, the Company's total inventory of $28,479,000 included
approximately $16,956,000 in inventories relating to products pending launch
while IMPAX awaits receipt of FDA marketing approval and/or satisfactory
resolution of patent infringement litigation, as follows:

                           (in $000s)
                           Raw materials                       $  2,561
                           Work in process                        3,744
                           Finished goods                        10,651
                                                               --------
                                Total                          $ 16,956
                                                               --------

                                      F-16

<PAGE>

Of the $16,956,000 inventories related to products pending launch, approximately
$9,342,000 are considered risk protected because of our strategic alliance
agreements.

Subsequent to December 31, 2003, we received final FDA approval for two
products, tentative approval for one product, and commenced shipping of another
product for which we received final FDA approval in 2003.

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
                                                                                                      December 31,
                                                                     Estimated                  2003                  2002
                                                                    useful life               --------              --------
                                                                      (years)                          (in thousands)
                                                                    -----------
<S>                                                                 <C>                      <C>                   <C>
Land..........................................................           -                    $  1,984              $   1,970
Building and building improvements............................          15                      23,585                 22,190
Equipment.....................................................         7 - 10                   17,810                 13,757
Office furniture and equipment................................           5                       1,292                  1,161
Construction in progress......................................           -                       2,658                  3,869
                                                                                              --------              ---------
                                                                                                47,329                 42,947
Less:  Accumulated depreciation                                                                 (9,197)                (5,882)
                                                                                              --------              ---------
                                                                                              $ 38,132              $  37,065
                                                                                              ========              =========

</TABLE>

Depreciation expense was $3,335,000, $2,323,000, and $1,940,000 for the years
ended December 31, 2003, 2002, and 2001, respectively.

NOTE 6 - INTANGIBLES

Intangibles consist of the following:
<TABLE>
<CAPTION>

                                                                                         December 31,
                                                        Estimated                 2003                 2002
                                                       useful life              --------             --------
                                                         (years)                        (in thousands)
                                                       -----------
<S>                                                    <C>                     <C>                      <C>
Product rights and licenses......................         3 - 8                 $  2,691             $  2,691

Less:  Accumulated amortization                                                   (2,312)              (1,928)
                                                                                --------             --------
                                                                                $    379             $    763
                                                                                ========             ========
</TABLE>

Amortization expense was $384,000, $384,000, and $388,000 for the years ended
December 31, 2003, 2002, and 2001 respectively. Expected amortization for 2004
is $379,000. The existing intangible assets will be fully amortized by December
31, 2004.

NOTE 7 - ACCRUED EXPENSES AND DEFERRED REVENUES
<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                               2003                 2002
                                                                               ----                 ----
                                                                                    (in thousands)
<S>                                                                          <C>                  <C>
Sales returns...............................................                $  4,121            $  3,100
Deferred revenues...........................................                   1,751               3,633
Accrued salaries and payroll related expenses...............                   1,649                 984
Patent infringement and other legal expenses ...............                   1,327                 516
Accrued Medicaid rebates....................................                     613                 275
Accrued royalty and gross profit sharing expense............                     559                 446
Other accruals..............................................                     469                 914
Accrued shelf stock price protection  ......................                     232                 660
Accrued professional fees ..................................                     151                 331
                                                                            --------            --------
                                                                            $ 10,872            $ 10,859
                                                                            ========            ========
</TABLE>


<TABLE>
<CAPTION>
                                                      RETURNS ACCRUAL
   (in $000's)                                                                   Year 2003       Year 2002      Year 2001
                                                                                 ---------       ---------      ---------
<S>                                                                             <C>             <C>            <C>
   Beginning Balance                                                             $  3,100        $  1,900        $   216
   Add:  Provision related to sales made in current period                          2,276           2,462          4,525
   Less:  Credits issued during the current period                                 (1,255)         (1,262)        (2,841)
                                                                                 --------        --------        -------
   Ending Balance                                                                $  4,121        $  3,100        $ 1,900
                                                                                 ========        ========        =======
</TABLE>


                                      F-17

<PAGE>

During the years ended 2003, 2002, and 2001, the Company has received product
returns, for primarily expired product of $1,255,000, $1,262,000, and
$2,841,000, respectively. Based on its product returns reserve calculation,
taking into account the historical lag time and various management assumptions
and reviews, the Company has increased its reserve for future returns from
$3,100,000 at December 31, 2002 to $4,121,000 at December 31, 2003. Therefore,
the total reduction in sales recognized for the years ended December 31, 2003,
2002, and 2001 was $2,276,000, $2,462,000, and $4,525,000, respectively.

NOTE 8 - INCOME TAXES

Due to the Company's losses since inception, no provision for income taxes is
recorded for any period. The difference between the federal statutory tax rate
and the Company's effective income tax rate is attributable to losses and future
tax deductions for which valuation allowances have been established.

The net deferred tax assets balance is comprised of the tax effects of
cumulative temporary differences, as follows:
<TABLE>
<CAPTION>

                                                                                                        December 31,
                                                                                               2003                      2002
                                                                                              -------                   -------
                                                                                                       (in thousands)
<S>                                                                                         <C>                      <C>
Net operating  losses...........................................................             $ 37,827                  $ 34,100
Research and development credit.................................................                3,095                     2,764
Other...........................................................................                7,629                     4,974
                                                                                             --------                  --------
 Total gross deferred tax assets................................................               48,551                    41,838
Deferred tax liability
 Tax depreciation and amortization in excess of book depreciation...............                 (563)                     (260)
Valuation allowance.............................................................              (47,988)                  (41,578)
                                                                                             --------                  --------
 Net deferred tax asset/(liability).............................................             $      -                  $      -
                                                                                             ========                  ========

</TABLE>

Deferred start-up and organization expenditures are amortized for tax purposes
over a 60-month period ending 2003. Cash paid for income taxes was $0, $0, and
$0 for the years ended December 31, 2003, 2002, and 2001, respectively. Due to
historical losses incurred by the Company, a full valuation allowance for net
deferred tax assets has been provided. If the Company achieves profitability,
certain of these net deferred tax assets would be available to offset future
income taxes. Under the Tax Reform Act of 1986, the amounts of and benefits from
net operating loss-carryforwards may be impaired or limited in certain
circumstances. Events which cause limitations in the amount of net operating
losses that the Company may utilize in any one year include, but are not limited
to, a cumulative ownership change of more than 50%, as defined, over a three
year period.

At December 31, 2003, the Company had a net operating loss-carryforward totaling
approximately $94,600,000, which expires from 2009 through 2023. The Company
also had research and development expenditure tax credits totaling approximately
$3,095,000 at December 31, 2003, which begin to expire in 2011. As indicated
above, these losses and credits will have limitations. Of the $94,600,000,
approximately $90,000,000 will be currently available as of December 31, 2003,
to offset any potential future taxable profits, with the remainder being fully
available by December 31, 2004.

NOTE 9 - REVOLVING LINE OF CREDIT

On October 23, 2002, we signed a three year, $25 million Loan and Security
Agreement with Congress Financial Corporation, comprised of a revolving loan of
up to $20,500,000, and a term loan of up to $4,500,000. In December 2003, we
transferred this loan agreement from Congress Financial to Wachovia Bank N.A.,
thereby securing lower interest and less restrictive borrowing terms. The
revolving loan is collateralized by eligible accounts receivable and inventory,
subject to sublimits and other terms, and the term loan is collateralized by
machinery and equipment, with a 60-month amortization. In addition, a $10
million restricted cash account was established as collateral for this credit
facility to be reduced based on meeting certain cumulative positive cash flow
targets. The interest rates for the revolving loans are prime rate plus 0.75%,
or eurodollar rate plus 2.75%, at our option, based on excess availability. The
term loan has an interest rate of prime rate plus 1.5%, or eurodollar rate plus
4%, at our option. As of December 31, 2003, we borrowed approximately $7,642,000
against the revolving credit line and $3,290,000 against the term loan. The
borrowing availability under the revolving credit line changes daily based on
eligible accounts receivable and inventory. The revolving credit facility and
the term loan agreement have two financial covenants: one related to Adjusted
Excess Availability, and the other one related to Capital Expenditures limits.
At December 31, 2003, both financial covenants were met.

                                      F-18

<PAGE>


NOTE 10 - LONG TERM DEBT
<TABLE>
<CAPTION>
                                                                                                 December 31,
                                                                                         2003                     2002
                                                                                        -------                 -------
                                                                                                (in thousands)
<S>                                                                                       <C>                  <C>
2% loan payable to PIDA (No.1) in 180 monthly installments of $6,602
 commencing June 1, 1994, through May 1, 2009...................................        $   406                 $   477
3.75% loan payable to PIDA (No. 2) in 180 monthly installments of $5,513
 commencing September 1, 1997, through August 1, 2012...........................            489                     536
5% loan payable to DRPA in 120 monthly installments of $3,712 commencing
 September 1, 1997, through August 1, 2007.......................................           149                     185
8.17% loan payable to Cathay Bank in 83 monthly installments of $19,540
 commencing June 28, 2001, through May 27, 2008, with a balance of
 $2,208,843 due on June 28, 2008................................................          2,388                   2,422
7.50% loan payable to Cathay Bank in 83 monthly installments of $24,629
 commencing November 14, 2001, through October 13, 2008, with a balance
 of $2,917,598 due on November 14, 2008                                                   3,200                   3,248
Loan payable to Wachovia N.A. in 60 monthly installments of $52,500
 commencing December 1, 2002, through November 30, 2007, at prime
 interest rate plus 1.5%........................................................          3,290                   3,098
                                                                                        -------                 -------
                                                                                        $ 9,922                 $ 9,966
Less:  Current portion of long-term debt                                                 (1,068)                   (861)
                                                                                        -------                 -------
                                                                                        $ 8,854                 $ 9,105
                                                                                        =======                 =======
</TABLE>


The PIDA (No. 1) loan is collateralized by land, building and building
improvements in the Philadelphia facility. The PIDA (No. 2) and the DRPA loans
are collateralized by land, building, and building improvements in the
Philadelphia facility, and additional collateral of $472,000 invested in
interest bearing certificates of deposit owned by the Company.

The PIDA loans contain financial and non-financial covenants, including certain
covenants regarding levels of employment, which were not effective until
commencement of operations. The Company is in compliance with all loan
covenants.

The 8.17% Cathay Bank loan is collateralized by land, building and building
improvements in the Huntwood Avenue, Hayward facility. The 7.50% Cathay Bank
loan is collateralized by land, building and building improvements in the San
Antonio Street, Hayward facility.

The Wachovia Bank term loan is collateralized by machinery and equipment in all
the facilities owned by the Company. As previously mentioned in Note 9, the
Company is in compliance with all loan covenants.

Scheduled maturities of long-term debt as of December 31, 2003, are as follows,
in thousands:

      2004...............................................           $ 1,068
      2005...............................................             1,073
      2006...............................................             1,086
      2007...............................................             1,099
      2008...............................................               250
      Thereafter.........................................             5,346
                                                                    -------
             Total                                                  $ 9,922
                                                                    =======
We believe that the fair value of our fixed and variable rate long-term debt and
refundable deposit approximates its carrying value of approximately $23 million
at December 31, 2003.

The interest paid during the years ended December 31, 2003, 2002, and 2001 was
approximately $959,000, $561,000, and $224,000, respectively.

                                      F-19


<PAGE>

NOTE 11 - STRATEGIC ALLIANCE AGREEMENTS

Strategic Alliance with Teva

In June 2001, we entered into a Strategic Alliance Agreement with a subsidiary
of Teva for twelve controlled-release generic pharmaceutical products. According
to Teva, which is headquartered in Israel, Teva is among the top 30
pharmaceutical companies and among the largest generic pharmaceutical companies
in the world. Close to 90% of Teva's sales are in North America and Europe. Teva
develops, manufactures, and markets generic and brand name pharmaceuticals and
active pharmaceutical ingredients.

The agreement granted Teva exclusive U.S. prescription marketing rights for six
of our products pending approval at the FDA and six products under development
at the time the agreement was signed. The six products for which ANDAs were
already filed at the time of the agreement were Omeprazole 10 mg, 20 mg, and 40
mg Delayed Released Capsules (generic of Prilosec), Bupropion Hydrochloride 100
mg and 150 mg Extended Release Tablets (generic of Wellbutrin SR), Bupropion
Hydrochloride 150 mg Extended Release Tablets (generic of Zyban), Loratadine and
Pseudoephedrine Sulfate 5 mg/120 mg 12-hour Extended Release Tablets (generic of
Claritin-D 12-Hour) and Loratadine and Pseudoephedrine Sulfate 10 mg/240 mg 24
hour Extended Release Tablets (generic of Claritin-D 24-hour) and Loratadine
Orally Disintegrating Tablets (generic of Claritin Reditabs). Of the six
products under development, four have since been filed with the FDA. Teva
elected to commercialize a competing product to one of the four products filed
since June 2001, which it developed internally. Pursuant to the agreement, we
have elected to participate in the development and commercialization of Teva's
competing product and share in the gross margins of such product. Teva also had
an option to acquire exclusive marketing rights in the rest of North America,
South America, the European Union, and Israel for these products. We will be
responsible for supplying Teva with all of its requirements for these products
and will share with Teva in the gross margins from its sale of the products. We
will depend on our strategic alliance with Teva to achieve market penetration
for these products and to generate product revenues for us. Teva's exclusive
marketing right for each product will run for a period of ten years in each
country from the date of Teva's first sale of that product. Unless either party
provides appropriate notice, this ten-year period will automatically be extended
for two additional years.

As part of the strategic alliance agreement, Teva will share some of our costs
relating to the twelve products. For the six products which were pending
approval at the FDA in June 2001, Teva will pay 50% of the attorneys' fees and
costs of obtaining FDA approval, including the fees and costs for the patent
infringement litigation instituted by brand name pharmaceutical manufacturers in
excess of the $7.0 million covered by our patent litigation insurer. For
three other products, for which we have since filed ANDAs with the FDA, Teva
will pay 45% of all fees, costs, expenses, damages or awards, including
attorneys' fees, related to patent infringement claims with respect to these
products. For the remaining three products, Teva will pay 50% of these fees,
costs, expenses, damages or awards.

We also agreed to sell to Teva an aggregate of $15.0 million worth of our common
stock in four equal installments, with the last sale occurring on June 15, 2002.
Teva purchased a total of 1,462,083 shares of our common stock. The price of the
common stock was equal to the average closing sale price of our common stock
measured over a ten-trading-day period ending two days prior to the date when
Teva acquired the common stock. However, on the date Teva completes its first
sale of any one of six of products specified in our alliance agreement, we may
repurchase from Teva 16.66% (243,583) of these shares for an aggregate of $1.00.

In addition, in consideration for the potential transfer of the marketing
rights, we received $22.0 million from Teva which assisted in the construction
and improvement of our Hayward, California facilities and the development of the
twelve products specified in our Strategic Alliance Agreement. The $22 million
was reflected on the balance sheet as a refundable deposit. The refundable
deposit was provided in the form of a loan. Pursuant to the agreement, accrued
and future interest on the refundable deposit was forgiven during 2002 as a
result of our receipt of tentative or final approvals for at least three of our
products. In addition, Teva forgave portions of this loan as we achieved certain
milestones relating to the development and launch dates of the products
described in our strategic alliance agreement. In addition, by requiring us to
repay only 50% of the portion of the loan related to certain missed milestones,
Teva chose to continue to have exclusive marketing rights for those products. At
our option, we could repay Teva any amounts we owed them as part of the loan in
cash or in shares of our common stock. The price of the common stock for
purposes of repaying any amounts owed under the loan will be the average closing
sale price of our common stock measured over a ten-trading-day period ending two
days prior to repayment.

In September 2003, we issued 888,918 shares of our common stock to Teva, paying
$13.5 million of the original $22.0 million refundable deposit. In December
2003, Teva exercised its option to retain marketing exclusivity for certain
products and, accordingly, reduced the refundable deposit by $3.5 million to
$5.0 million.

In January 2004, Teva's exercise of the marketing exclusivity option for certain
products reduced the refundable deposit to $2.5 million. On January 15, 2004, we
satisfied the remaining $2.5 million refundable deposit obligation to Teva by
issuing 160,951 shares of our common stock to Teva. As of February 27, 2004, to
our knowledge, Teva owns 2,511.952 shares of our common stock, or approximately
4.3% of the outstanding common stock.

                                      F-20

<PAGE>

Strategic Alliance with Andrx and Teva

In July 2003, we entered into an Exclusivity Transfer Agreement with Andrx and a
subsidiary of Teva pertaining to pending ANDAs for bioequivalent versions of
Wellbutrin SR and Zyban (Bupropion Hydrochloride) 100 mg and 150 mg Extended
Release Tablets filed by Andrx, as well as by us. Pursuant to our existing
strategic alliance agreement with Teva, Teva has U.S. marketing rights to our
versions of these products. These two strengths of Wellbutrin SR and Zyban,
marketed by GlaxoSmithKline, had U.S. sales of over $1.74 billion for the
twelve-month period ended December 31, 2003 according to NDCHealth.

The parties to the agreement believe that the Andrx ANDAs for the products are
entitled, under the Hatch-Waxman Act, to a 180-day period of marketing
exclusivity. Under the Exclusivity Transfer Agreement, Andrx will continue to
seek approval of its ANDAs. The agreement provides, among other things, that if
Andrx is unable to launch its own products within a defined period of time, and
we are able to market our products, Andrx will enable us to launch our own
products through Teva by waiving its exclusivity, with the parties sharing
certain payments with Andrx relating to the sale of the products for a 180-day
period. Should Andrx launch its own products prior to the Impax product launch,
it will share with IMPAX certain payments for a 180-day period.

OTC Alliances

In December 2001, we entered into a License and Supply Agreement granting to
Novartis exclusive rights to market our OTC Loratadine Orally Disintegrating
Tablets (generic Claritin Reditabs) for the pediatric market. Under the terms of
the agreement, IMPAX is responsible for developing and manufacturing the
product, while Novartis is responsible for its marketing and sale. The structure
of the agreement includes payment upon achievement of milestones and royalties
paid to IMPAX on Novartis' sales on a quarterly basis. Novartis launched this
product in February 2004 as Triaminic AllerChews.

In June 2002, we signed a semi-exclusive Development, License and Supply
Agreement with Wyeth relating to our Loratadine and Pseudoephedrine Sulfate 5
mg/120 mg 12-hour Extended Release Tablets and Loratadine and Pseudoephedrine
Sulfate 10 mg/240 mg 24-hour Extended Release Tablets for the OTC market under
the Alavert brand. IMPAX is responsible for developing and manufacturing the
products, while Wyeth is responsible for their marketing and sale. The structure
of the agreement includes payment upon achievement of milestones and royalties
to IMPAX on Wyeth's sales on a quarterly basis. Wyeth launched this product in
May 2003 as Alavert D-12.

In June 2002, we signed a non-exclusive Licensing, Contract Manufacturing and
Supply Agreement with Schering-Plough relating to our Loratadine and
Pseudoephedrine Sulfate 5 mg/120 mg 12-hour Extended Release Tablets for the OTC
market under the Claritin-D 12-hour brand. The structure of the agreement
included milestone payments by Schering-Plough and agreed sales prices.
Shipments to Schering-Plough commenced at the end of January 2003.
Schering-Plough launched our product as its OTC Claritin-D 12-hour in March
2003.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

Leases

The Company leases office, warehouse and laboratory facilities under
non-cancelable operating leases through April 2009. Rent expense for the years
ended December 31, 2003, 2002 and 2001 was $215,000, $56,000, and $463,000,
respectively. The Company recognizes rent expense on a straight-line basis over
the lease period.

The Company also leases certain equipment under various non-cancelable operating
leases with various expiration dates through 2008. Future minimum lease payments
under the non-cancelable operating leases are as follows (in thousands):

               Year Ended
               December 31
                 2004                                                  725
                 2005                                                  658
                 2006                                                  287
                 2007                                                  273
                 2008                                                  247
                                                                   -------
                 Total minimum lease payments                      $ 2,190
                                                                   =======

In November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." Guarantees and claims arise during the ordinary course
of business from relationships with suppliers, customers, and strategic partners
when the Company undertakes an obligation to guarantee the performance of others
through the delivery of cash or other assets if specified triggering events
occur. Non-performance under a contract by the guaranteed party triggers the
obligation of the Company. We reviewed all material agreements and concluded
that all indemnifications are excluded from the FIN No. 45 scope of
interpretation since they relate primarily to our own future performance and do
not require any contingent payments.

                                      F-21


<PAGE>

We currently have no relationships with variable interest entities as defined in
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" as of
December 31, 2003.

Patent Litigation

There has been substantial litigation in the pharmaceutical, biological, and
biotechnology industries with respect to the manufacture, use, and sale of new
products that are the subject of conflicting patent rights. One or more patents
cover most of the brand name controlled-release products for which we are
developing generic versions. Under the Hatch-Waxman Amendments, when a drug
developer files an ANDA for a generic drug, and the developer believes that an
unexpired patent which has been listed with the FDA as covering that brand name
product will not be infringed by the developer's product or is invalid or
unenforceable, the developer must so certify to the FDA. That certification must
also be provided to the patent holder, who may challenge the developer's
certification of non-infringement, invalidity or unenforceability by filing a
suit for patent infringement within 45 days of the patent holder's receipt of
such certification. If the patent holder files suit, the FDA can review and
approve the ANDA, but is prevented from granting final marketing approval of the
product until a final judgment in the action has been rendered, or 30 months
from the date the certification was received, whichever is sooner. Should a
patent holder commence a lawsuit with respect to an alleged patent infringement
by us, the uncertainties inherent in patent litigation make the outcome of such
litigation difficult to predict. The delay in obtaining FDA approval to market
our product candidates as a result of litigation, as well as the expense of such
litigation, whether or not we are successful, could have a material adverse
effect on our results of operations and financial position. In addition, there
can be no assurance that any patent litigation will be resolved prior to the
30-month period. As a result, even if the FDA were to approve a product upon
expiration of the 30-month period, we may not commence marketing that product if
patent litigation is still pending.

Lawsuits have been filed against us in connection with fourteen of our Paragraph
IV filings. The outcome of such litigation is difficult to predict because of
the uncertainties inherent in patent litigation.

As part of our patent litigation strategy, we obtained two policies covering up
to $7.0 million of patent infringement liability insurance from American
International Specialty Line Company ("AISLIC"), an affiliate of AIG
International. This litigation insurance covers us against the costs associated
with patent infringement claims made against us relating to seven of the ANDAs
we filed under Paragraph IV of the Hatch-Waxman Amendments. Correspondence
received from AISLIC indicated that, as of February 4, 2004, one of the policies
had approximately $19,770 remaining on the limit of liability and the second of
the policies had reached its limit of liability. In addition, pursuant to the
agreement with Teva, for the six products with ANDAs already filed with the FDA
at the time of the agreement, Teva will pay 50% of the attorneys' fees and costs
in excess of $7.0 million. For three of the products with ANDAs filed since the
agreement was signed, Teva will pay 45% of the attorneys' fees and costs, and
for the remaining three products, Teva will pay 50% of the attorneys' fees and
costs.

While Teva has agreed to pay 45% to 50% of the attorneys' fees and costs in
excess of $7 million related to the twelve products covered by our strategic
alliance agreement with them, we will be responsible for the remaining expenses
and costs for these products, and all of the costs associated with patent
litigation for our other products and our future products.

We do not believe that this type of litigation insurance will be available to us
on acceptable terms for our other current or future ANDAs. In those cases, our
policy is to record such expenses as incurred.

Although the outcome and costs of the asserted and unasserted claims is
difficult to predict because of the uncertainties inherent in patent litigation,
management does not expect the Company's ultimate liability for such matters to
have a material adverse effect on its financial condition, results of
operations, or cash flows.

NOTE 13 - MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

The Company has authorized 2,000,000 shares of preferred stock, $0.01 par value
per share (the "Preferred Stock"). The Company issued in March 2000, 150,000
shares of Series 2 Preferred Stock from which 75,000 were outstanding at
December 31, 2003 and December 31, 2002, respectively, and are classified as
Mandatorily Redeemable Convertible Preferred Stock. The remaining authorized but
unissued shares could be issued with or without mandatory redemption or
conversion features.

                                      F-22

<PAGE>

The holders of the Company's Series 2 Preferred Stock:

o  vote, in general, as a single class with the holders of the common stock on
   all matters voted on by the stockholders of the Company, with each holder of
   Series 2 Preferred entitled to a number of votes equal to the number of
   shares of common stock into which that holders' shares would then be
   convertible;

o  are entitled to receive dividends on an as-converted basis, with the
   outstanding shares of common stock payable when and as declared by the
   Company's Board of Directors;

o  have conversion rights with the conversion price adjusted for certain events;
   currently, the conversion price for the Series 2 is $5.00 per share;

o  have the benefit of (a) mandatory redemption by the Company at a price per
   share of preferred stock of $100 plus all declared but unpaid dividends on
   March 31, 2005, for the Series 2; (b) optional redemption at the option of
   the holders upon the occurrence of certain events, including the sale of the
   combined company or its assets, the elimination of a public trading market
   for shares of its common stock, or the insolvency of or bankruptcy filing by
   the combined company. In either case the redemption price can be paid, at the
   Company's option, in cash or shares of common stock, discounted (in the case
   of shares) by 10% from the then current market price of the common stock;

o  have pre-emptive rights entitling them to purchase a pro rata share of any
   capital stock, including securities, convertible into capital stock of the
   Company, issued by the Company in order for the holders to retain their
   percentage interest in the Company; except the Company can issue shares of
   its capital stock without triggering the preemptive rights when issued: as
   pro rata dividends to all holders of common stock; as stock options to
   employees, officers and directors; in connection with a merger, acquisition
   or business combination for consideration of less than $500,000 in any single
   permitted transaction and for less than $1,000,000 in the aggregate for all
   permitted transactions; and during the first five years in connection with a
   business relationship (there is a cap on the amount of shares the Company may
   issue without trigging the pre-emptive rights); and

o  after two years from the date of issuance, are subject to having their shares
   called for redemption at a price per share of preferred stock of $100 plus
   all declared but unpaid dividends, at the Company's option, when the common
   stock has traded on its principal market for a period of thirty consecutive
   days with an average daily volume in excess of 50,000 shares for the 30-day
   period and the market price of a share of the Company's common stock is, for
   the Series 2, at least equal to or greater than 300% of the applicable
   conversion price.

On January 30, 2004, the holders of the Series 2 Preferred Stock converted their
entire 75,000 preferred shares into 1,500,000 shares of common stock.

In addition, pursuant to its certificate of incorporation, the Company is
authorized to issue "blank check" preferred stock. This enables the Board of
Directors of the Company, from time to time, to create one or more new series of
preferred stock in addition to the Series 2 Preferred. The new series of
preferred stock can have the rights, preferences, privileges and restrictions
designated by the Company's Board of Directors. The issuance of any new series
of preferred stock could affect, among other things, the dividend, voting and
liquidation rights of the Company's common stock.

NOTE 14 - STOCKHOLDERS' EQUITY

Common Stock

The Company's Certificate of Incorporation, as amended, authorizes the Company
to issue 75,000,000 shares of common stock with $0.01 par value.

The Company has outstanding warrants as follows:

               Number of Shares                           Range of
                Under Warrants                         Exercise Price
                --------------                         --------------
                    765,650                      $2.000 to $4.125 per share
                    805,582                      $4.125 to $7.421 per share
                  ---------
                  1,571,232
                  =========

All the outstanding warrants are convertible into common stock. The warrants
expire five years from the date of issuance.

The Company issued warrants to purchase 625,000 shares of common stock for $4.00
per share to J. P. Morgan Chase (formerly Robert Fleming) in conjunction with
Series 2 Preferred Stock. These warrants were fully exercised on February 19,
2004. The Company issued warrants to purchase 878,815 shares of common stock for
$7.421 per share to a group of institutional investors in conjunction with a
Private Placement of 4,394,081 shares of common stock in May 2003. In October
2003, warrants for 73,233 shares of common stock were exercised.

                                      F-23

<PAGE>

On May 7, 2003, the Company completed a private placement of 4,394,081 shares of
common stock and warrants to purchase 878,815 shares of common stock to a group
of institutional investors for a purchase price of $24.0 million. In addition,
the investors purchased an additional 183,000 shares of common stock on May 16,
2003 for approximately $1.0 million. Gross proceeds from the private placement
were $25.0 million. The net proceeds of $23.3 million were used for general
corporate purposes. The sales were exempt from registration pursuant to Section
4(2) of the Securities Act and Regulation D promulgated thereunder.

If the Company issues shares of common stock or securities convertible into or
exercisable for shares of common stock at a price less than $5.462 per share
prior to May 6, 2004, the Company is required to issue additional shares of
common stock to the private placement purchasers equal to the additional number
of shares such purchasers would have received at such lower price based on the
consideration paid for the shares of common stock that such purchasers still
hold from the private placement and any exercise of warrants purchased in the
private placement.

Principal purchasers in the private placement (i.e., purchasers that purchased
more than 1.0 million shares) are entitled to rights of first refusal with
respect to certain offers and sales of the Company's securities prior to June
16, 2005.

The warrants are exercisable for a period of five years at an exercise price of
$7.421 per share. The warrants may also be exercised in a "cashless exercise."
Both the warrant exercise price and the number of shares issuable upon exercise
of the warrants are subject to adjustment for issuances of securities at prices
below the exercise price of the warrant. If such lower priced securities are
issued prior to May 8, 2004, the exercise price will be adjusted to equal the
price at which such securities were sold. If such lower priced securities are
issued on or after May 8, 2004, the adjustment will be based on a weighted
average formula. In addition, the exercise price and the number of securities
issuable upon exercise are subject to adjustment for stock splits, stock
dividends and certain other corporate events.

The securities sold in the private placement are entitled to registration
rights. A Form S-3 registration statement registering the resale of the shares
of common stock, the warrants and the shares of common stock underlying the
warrants was filed with the Securities and Exchange Commission on June 6, 2003.

Unearned Compensation

In April 1999, the Company granted 836,285 options to employees to purchase
common stock for $0.75 per share. As a result of the grant, the Company recorded
$1,805,000 of unearned compensation in accordance with APB Opinion No. 25;
$158,000, $578,000, and $472,000 of the unearned compensation was amortized to
expense during the years ended December 31, 2003, 2002, and 2001, respectively.
During 2003, the Company granted options to one consultant to purchase common
stock at market price. As a result of the grant, the Company expensed
approximately $59,000 during the year ended December 31, 2003. The Company
amortizes unearned compensation over the vesting period of the underlying
option.

NOTE  15 - EMPLOYEE BENEFIT PLANS

401-(K) Defined Contribution Plan

The Company sponsors a 401-(K) defined contribution plan covering all employees.
Contributions made by the Company are determined annually by the Board of
Directors. There were approximately $313,000, $195,000, and $40,000 in matching
contributions under this plan for the year ended December 31, 2003, 2002, and
2001, respectively.

Employee Stock Purchase Plan

In February 2001, the Board of Directors of the Company approved the 2001
Non-Qualified Employee Stock Purchase Plan ("ESPP"). Under this Plan, the
Company registered 500,000 shares of common stock under a Form S-8 Registration
Statement. The purpose of this Plan is to enhance employee interest in the
success and progress of the Company by encouraging employee ownership of common
stock of the Company. The Plan provides the opportunity to purchase the
Company's common stock at a 15% discount to the market price through payroll
deductions or lump-sum cash investments. During 2003, 9,757 shares of common
stock were sold by the Company to its employees under this Plan for net proceeds
of $58,345.

                                      F-24

<PAGE>

Deferred Compensation Plan

In February 2002, the Board of Directors of the Company approved the Executive
Non-Qualified Deferred Compensation Plan (the "Plan") effective August 15, 2002
covering any executive-level employee of the Company as designated by the Board
of Directors. There were approximately $150,856 in matching contributions under
this plan for the year ended December 31, 2003. The Plan has cash surrender
value of $655,242 and a deferred compensation liability of $726,000 as of
December 31, 2003.

NOTE 16 - STOCK OPTION PLANS

1996 Stock Option Plan

In September 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan"). The 1996 Plan provides for the granting of stock options to employees
and consultants of the Company. Options granted under the 1996 Plan may be
either incentive stock options or non-qualified stock options. Incentive stock
options ("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Non-qualified stock options ("NQSO") may be
granted to Company employees and consultants. The Company has reserved 500,000
shares (pre-recapitalization) of Common Stock for issuance under the 1996 Plan.

Effective June 1, 1998, the Company's Board of Directors approved the re-pricing
of all outstanding options to $0.75 per share, the fair market value of common
stock on that date. As a result, all outstanding options at June 1, 1998, were
effectively rescinded and re-issued at an exercise price of $0.75 per share.

As a result of the merger, each outstanding and unexercised option to purchase
shares of common stock was converted into new options by multiplying these
options by 3.3358. Therefore, at December 31, 1999, 266,800 outstanding and
unexercised options under the 1996 Plan were converted into 889,991 new options.
338,694 and 425,738 options were outstanding at December 31, 2003 and 2002,
respectively.

1999 Equity Incentive Plan (Pre-Merger)

In April 1999, the Company adopted the 1999 Equity Incentive Plan (the "1999
Pre-Merger Plan"). The 1999 Pre-Merger Plan reserves for issuance of 1,000,000
shares (pre-recapitalization) of common stock for issuance pursuant to stock
option grants, stock grants and restricted stock purchase agreements. As a
result of the merger, each outstanding and unexercised option to purchase shares
of common stock was converted into new options by multiplying these options by
3.3358. Therefore, at December 31, 1999, 249,300 outstanding and unexercised
options under the 1999 Pre-Merger Plan were converted into 831,615 new options.
760,985 and 765,658 options were outstanding at December 31, 2003 and 2002,
respectively.

Global's 1995 Stock Incentive Plan

In 1995, Global's Board of Directors adopted the 1995 Stock Incentive Plan. As a
result of the merger, each outstanding and unexercised option to purchase shares
of common stock was converted into one Impax Laboratories, Inc. option. 304,725
and 311,800 options were outstanding at December 31, 2003 and 2002,
respectively.

Impax Laboratories, Inc. 1999 Equity Incentive Plan

The Company's 1999 Equity Incentive Plan was adopted by IMPAX's Board of
Directors in December 1999, for the purpose of offering equity-based
compensation incentives to eligible personnel with a view toward promoting the
long-term financial success of the Company and enhancing stockholder value. In
October 2000, the Company's stockholders approved the increase in the aggregate
number of shares of common stock that may be issued pursuant to the Company's
1999 Equity Incentive Plan from 2,400,000 to 5,000,000. 3,092,702 and 3,069,829
options were outstanding at December 31, 2003 and 2002, respectively.

Impax Laboratories, Inc. 2002 Equity Incentive Plan

The 2002 Equity Incentive Plan was adopted by the Company's Stockholders at the
May 6, 2002 Annual Meeting for the purpose of attracting, retaining and
motivating key personnel with a view toward promoting the long-term financial
success of the Company and enhancing stockholder value. The aggregate number of
shares of common stock that may be issued pursuant to the 2002 Equity Incentive
Plan is 4,000,000 shares. 1,389,709 and 3,947,000 options were outstanding at
December 31, 2003 and 2002, respectively.

                                      F-25

<PAGE>

To date, options granted under each of the above plans vest from three to five
years and have a term of ten years. Stock option transactions in each of the
past three years under the aforementioned plans in total were:
<TABLE>
<CAPTION>

                                                         2003                           2002                          2001
                                              ------------------------       ------------------------       ------------------------
                                                              Weighted                       Weighted                       Weighted
                                                               Average                        Average                        Average
                                                              Exercise                       Exercise                       Exercise
                                                 Shares         Price          Shares          Price         Shares           Price
                                              ------------------------       ------------------------       ------------------------
<S>                                          <C>             <C>            <C>             <C>            <C>             <C>
Options Outstanding at January 1              4,625,525         4.85         3,285,069         $3.88        3,187,330         $2.56

            Granted                           1,733,292         6.00         1,679,934         $6.56          593,000         $9.81

            Exercised                          (172,646)        3.68          (192,293)        $1.08         (364,728)        $1.56

            Cancelled                          (299,356)        7.19          (147,185)        $9.00         (130,533)        $5.35
                                              ------------------------       ------------------------       ------------------------
Options outstanding at December 31            5,886,815        $5.11         4,625,525         $4.85        3,285,069         $3.88
                                              ---------        -----         ---------         -----        ----------        -----
Options exercisable at December 31            2,670,032        $3.39         1,754,538         $2.46        1,195,366         $1.81
                                              ---------        -----         ---------         -----        ----------        -----
Options available for grant at December 31    2,704,553                      4,138,789                      1,674,538
                                              ---------                      ---------                      ----------
</TABLE>


The following table summarizes information concerning outstanding and
exercisable options at December 31, 2003:
<TABLE>
<CAPTION>
                                   Options Outstanding                                             Options Exercisable
----------------------------------------------------------------------------------            --------------------------------
<S>                         <C>               <C>                   <C>                       <C>              <C>
                                               Weighted Average        Weighted                                    Weighted
       Range of               Number            Remaining Life          Average                 Number              Average
    Exercise Prices         of Options              (Years)         Exercise Price            of Options        Exercise Price
----------------------------------------------------------------------------------            --------------------------------
    $0.30 -$  0.75             766,099               4.19                $0.73                   760,095             $0.75
    $0.82 -$  2.06             353,580               5.03                $1.16                   353,580             $0.89
    $2.19 -$  5.63           2,589,524               7.37                $3.94                 1,092,353             $4.27
    $5.87 - $14.51           2,177,612               8.83                $8.71                   464,003             $7.58
----------------------------------------------------------------------------------            --------------------------------
    $0.30 - $14.51           5,886,815               7.36                $5.11                 2,670,031             $3.39
==================================================================================            ================================
</TABLE>


NOTE 17 - SUBSEQUENT EVENTS

o  In January 2004, Teva's exercise of the marketing exclusivity option for
   certain products reduced the refundable deposit to $2.5 million. On January
   15, 2004, we satisfied the remaining $2.5 million refundable deposit
   obligation to Teva in full by issuing 160,951 shares of our common stock to
   Teva. As of February 27, 2004, to our knowledge, Teva owns 2,511,952 shares
   of our common stock, or approximately 4.3% of the outstanding common stock.

o  On January 30, 2004, the holders of Series 2 Preferred Stock converted their
   entire 75,000 preferred shares into 1,500,000 shares of common stock. The
   warrants related to the Series 2 Preferred Stock were fully exercised on
   February 19, 2004.

NOTE 18 - SUPPLEMENTARY QUARTERLY DATA (UNAUDITED)

The following is the summary of the unaudited quarterly results of operations
for the fiscal years 2003 and 2002:


                                      F-26

<PAGE>

<TABLE>
<CAPTION>
(dollars in thousands except                                         Year 2003
 share and per share data)                                      For The Quarter Ended
                                        -----------------------------------------------------------------------
                                           March 31           June 30          September 30         December 31
                                           --------           -------          ------------         -----------
<S>                                      <C>               <C>                <C>                <C>
Gross Sales:
 Active Products                        $    14,153       $    17,932         $    21,628         $    19,749
 New NDC Lipram
 Other Revenues                                 359               607                 589               3,698
                                         ----------        ----------          ----------          ----------
       Total                                 14,512            18,539              22,217              23,347

Less:
 Rebates                                     (1,062)           (1,741)             (2,054)             (1,114)
 Chargebacks                                 (1,314)           (2,040)             (2,646)             (3,656)
 Returns(1)                                    (132)             (188)               (389)             (1,567)
 Other credits                                 (579)             (503)               (631)               (281)
                                         ----------        ----------          ----------          ----------
Net Sales                                    11,425            14,067              16,497              16,829
Gross margin (loss)                           3,278             4,746               3,521               3,504
                                         ----------        ----------          ----------          ----------
Net loss                                $    (3,213)      $    (2,284)        $    (3,608)        $    (5,102)

Net loss per share
 (basic and diluted)                    $     (0.07)      $     (0.05)        $     (0.07)        $     (0.09)

Weighted Average
Common Shares
Outstanding                              47,876,830        50,608,445          52,610,356          54,208,856
</TABLE>

(1) Includes additional reserve amounts.

<TABLE>
<CAPTION>
(dollars in thousands except                                               Year 2002
 share and per share data)                                           For The Quarter Ended
                                        ----------------------------------------------------------------------

                                          March 31            June 30          September 30        December 31
                                        -----------         -----------         -----------        -----------
<S>                                      <C>               <C>                <C>                <C>
Gross Sales:
 Active Products                              5,901               7,693               9,123             11,676
 New NDC Lipram                                 753               1,065               1,524                665
 Other Revenues                                  --                  --                 255                502
                                        -----------         -----------         -----------        -----------
       Total                                  6,654               8,758              10,902             12,843
Less:
 Rebates                                       (905)             (1,113)               (982)            (1,295)
 Chargebacks                                   (870)               (866)             (1,327)            (1,769)
 Returns(1)                                    (593)               (902)               (442)              (544)
 Other credits                                 (854)               (732)               (613)              (835)
                                        -----------         -----------         -----------        -----------
Net Sales                                     3,432               5,145               7,538              8,400
Gross margin (loss)                             293               1,163               2,385              2,182
                                        -----------         -----------         -----------        -----------
Net loss                                $    (5,421)        $    (5,938)        $    (5,210)       $    (3,471)

Net loss per share
 (basic and diluted)                    $     (0.12)        $     (0.13)        $     (0.11)       $     (0.07)

Weighted Average
Common Shares
Outstanding                              46,812,977          47,306,741          47,778,512         47,867,379
</TABLE>

(1) Includes additional reserve amounts.

                                      F-27