United States Securities and Exchange CommissionWashington, D.C. 20549

**Form 10-Q**

(Mark One)

| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 |
|-----|----------------------------------------------------------------------------------------|

| For the quarterly    period ended June 30, 2004 |
|-------------------------------------------------|
|                                                 |

OR

| [  ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|----------------|------------------------------------------------------------------------------------------|

For the transition period from ____________ to _____________

| Commission file    number 0-27354  |   |
|-----------------------------------------|--------|
|                                         |        |

|        Impax Laboratories, Inc.        |
|--------------------------------------------------------------------------------------------------------------|
|                                                                                                              |
| (Exact name of registrant as specified in its charter)                                                       |

| Delaware                                                      |   |   | 65-0403311                          |   |
|---------------------------------------------------------------|--------|--------|-------------------------------------|--------|
|                                                               |        |        |                                     |        |
| (State or other jurisdiction ofincorporation or organization) |   |   | (I.R.S. EmployerIdentification No.) |   |

| 30831 Huntwood Avenue – Hayward, California |   |   | 94544      |   |
|--------------------------------------------------|--------|--------|------------|--------|
|                                                  |        |        |            |        |
| (Address of principal executive offices)         |   |   | (Zip code) |   |

| Registrant’s telephone number    including area code (510) 476-2000   |
|---------------------------------------------------------------------------------------|
|                                                                                       |

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes    X     No      

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

The number of shares outstanding of the registrant’s common stock as of        July 30, 2004         was approximately         58,464,926        .

 

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**IMPAX LABORATORIES, INC.**

**INDEX TO FORM 10-Q**

**FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004**

**PART I.  FINANCIAL INFORMATION**

|           |   |   |                                                                                                              |   |   | **PAGE** |   |
|----------------|--------|--------|-------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|
|                |        |        |                                                                                                                   |        |        |          |        |
|           |   |   |                                                                                                              |   |   |     |   |
| Item 1.        |   |   | Financial Statements:                                                                                             |   |   |     |   |
|           |   |   |                                                                                                              |   |   |     |   |
|           |   |   | Condensed Balance Sheets as of June 30, 2004 and December 31, 2003 (unaudited)                                    |        |        | 1        |   |
|           |   |   |                                                                                                              |   |   |     |   |
|           |   |   | Condensed      Statements of Income for the Three Months and Six Months  Ended June 30, 2004 and 2003 (unaudited) |        |        | 2        |   |
|           |   |   |                                                                                                              |   |   |     |   |
|           |   |   | Condensed Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 (unaudited)                    |        |        | 3        |   |
|           |   |   |                                                                                                              |   |   |     |   |
|           |   |   | Notes to Financial Statements (unaudited)                                                                         |        |        | 4        |   |
|           |   |   |                                                                                                              |   |   |     |   |
| Item 2.        |        |        | Management’s    Discussions and Analysis of Financial Condition and Results of Operations                   |        |        | 12       |   |
|           |   |   |                                                                                                              |   |   |     |   |
| Item 3.        |        |        | Quantitative and Qualitative Disclosures About Market Risk                                                        |        |        | 22       |   |
|           |   |   |                                                                                                              |   |   |     |   |
| Item 4.        |        |        | Controls and Procedures                                                                                           |        |        | 23       |   |
|           |   |   |                                                                                                              |   |   |     |   |
|           |   |   |                                                                                                              |   |   |     |   |
|           |   |   | **PART II.  OTHER INFORMATION AND SIGNATURES**                                                                    |   |   |     |   |
|           |   |   |                                                                                                              |   |   |     |   |
|           |   |   |                                                                                                              |   |   |     |   |
| Item 1.        |        |        | Legal Proceedings                                                                                                 |        |        | 23       |   |
|           |   |   |                                                                                                              |   |   |     |   |
| Item 2.        |        |        | Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities                                 |        |        | 28       |   |
|           |   |   |                                                                                                              |   |   |     |   |
| Item 4.        |        |        | Submission of Matters to a Vote of Security Holders                                                               |        |        | 28       |   |
|           |   |   |                                                                                                              |   |   |     |   |
| Item 6.        |        |        | Exhibits and Reports on Form 8-K                                                                                  |        |        | 29       |   |
|           |   |   |                                                                                                              |   |   |     |   |
| Signatures     |        |        |                                                                                                              |        |        | 30       |   |
|           |   |   |                                                                                                              |   |   |     |   |
| Certifications |   |   |                                                                                                              |   |   | 31       |   |

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**PART I – FINANCIAL INFORMATION****ITEM      1.     FINANCIALSTATEMENTS**

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

|                                                                                                                                                                                                              |   |   | **June 30,****2004**                                                           |   |   | **December 31,****2003**                         |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------|--------|--------|--------------------------------------------------|--------|
|                                                                                                                                                                                                                   |        |        |                                                                                |        |        |                                                  |        |
| **ASSETS**                                                                                                                                                                                                        |   |   |                                                                           |   |   |                                             |   |
|                                                                                                                                                                                                              |   |   |                                                                           |   |   |                                             |   |
| Current assets:                                                                                                                                                                                                   |   |   |                                                                           |   |   |                                             |   |
| Cash    and cash equivalents                                                                                                                                                                                      |   | $      |    53,312                                                       |   | $      | 15,505                                           |   |
| Short    term investments                                                                                                                                                                                         |   |   | 45,244                                                                         |   |   | —                                           |   |
| Accounts    receivable, net                                                                                                                                                                                       |   |   | 23,340                                                                         |   |   | 9,885                                            |   |
| Inventory                                                                                                                                                                                                         |   |   | 37,102                                                                         |   |   | 28,479                                           |   |
| Prepaid    expenses and other assets                                                                                                                                                                              |   |   |            2,692        |   |   | 1,427                                            |   |
|                                                                                                                                                                                                                   |        |        |                                                                                |        |        |                                                  |        |
| Total    current assets                                                                                                                                                                                           |   |   | 161,690                                                                        |   |   | 55,296                                           |   |
| Restricted cash                                                                                                                                                                                                   |   |   | —                                                                         |   |   | 10,000                                           |   |
| Property, plant and equipment, net                                                                                                                                                                                |   |   | 42,511                                                                         |   |   | 38,132                                           |   |
| Investments and other assets                                                                                                                                                                                      |   |   | 3,844                                                                          |   |   | 1,325                                            |   |
| Goodwill, net                                                                                                                                                                                                     |   |   | 27,574                                                                         |   |   | 27,574                                           |   |
| Intangibles, net                                                                                                                                                                                                  |   |   |       187                                        |   |   | 379                                              |   |
|                                                                                                                                                                                                                   |        |        |                                                                                |        |        |                                                  |        |
| Total    assets                                                                                                                                                                                                   |   | $      |       235,806                                    |   | $      | 132,706                                          |   |
|                                                                                                                                                                                                                   |        |        |                                                                                |        |        |                                                  |        |
|                                                                                                                                                                                                              |   |   |                                                                           |   |   |                                             |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                    |   |   |                                                                           |   |   |                                             |   |
|                                                                                                                                                                                                              |   |   |                                                                           |   |   |                                             |   |
| Current liabilities:                                                                                                                                                                                              |   |   |                                                                           |   |   |                                             |   |
| Current    portion of long-term debt                                                                                                                                                                              |   | $      | 915                                                                            |   | $      | 1,068                                            |   |
| Accounts    payable                                                                                                                                                                                               |   |   | 22,312                                                                         |   |   | 22,783                                           |   |
| Revolving    line of credit                                                                                                                                                                                       |   |   | 5,000                                                                          |   |   | 7,642                                            |   |
| Accrued    expenses and deferred revenues                                                                                                                                                                         |   |   |        12,719                               |   |   | 10,872                                           |   |
|                                                                                                                                                                                                                   |        |        |                                                                                |        |        |                                                  |        |
| Total    current liabilities                                                                                                                                                                                      |   |   | 40,946                                                                         |   |   | 42,365                                           |   |
| Convertible senior subordinated debentures                                                                                                                                                                        |   |   | 95,000                                                                         |   |   | —                                           |   |
| Refundable deposit from Teva                                                                                                                                                                                      |   |   | —                                                                         |   |   | 5,000                                            |   |
| Long term debt                                                                                                                                                                                                    |   |   | 7,507                                                                          |   |   | 8,854                                            |   |
| Deferred revenues and other liabilities                                                                                                                                                                           |   |   |          2,768                    |   |   | 2,879                                            |   |
|                                                                                                                                                                                                                   |        |        |                                                                                |        |        |                                                  |        |
| Total    liabilities                                                                                                                                                                                              |   |   |          146,221                  |   |   | 59,098                                           |   |
|                                                                                                                                                                                                                   |        |        |                                                                                |        |        |                                                  |        |
|                                                                                                                                                                                                              |   |   |                                                                           |   |   |                                             |   |
| Commitments and Contingencies                                                                                                                                                                                     |   |   |                                                                           |   |   |                                             |   |
| Mandatorily redeemable convertible    Preferred Stock:                                                                                                                                                            |   |   |                                                                           |   |   |                                             |   |
| Series      2 mandatory redeemable convertible Preferred Stock, $0.01 par value 0 shares outstanding at June      30, 2004, and 75,000 shares outstanding at December 31,      2003, redeemable at $100 per share |   |   |            —       |   |   |        7,500  |   |
|                                                                                                                                                                                                                   |        |        |                                                                                |        |        |                                                  |        |
|                                                                                                                                                                                                              |   |   |                                                                           |   |   |                                             |   |
| Stockholders’ equity:                                                                                                                                                                                       |   |   |                                                                           |   |   |                                             |   |
| Common      stock, $0.01 par value, 90,000,000 shares authorized and58,463,237 and 55,307,136 shares issued and      outstanding at June 30, 2004, and December 31, 2003, respectively                            |   |   | 584                                                                            |        |   | 553                                              |   |
| Additional    paid-in capital                                                                                                                                                                                     |   |   | 183,930                                                                        |   |   | 170,104                                          |   |
| Accumulated    deficit                                                                                                                                                                                            |   |   |          (94,929                  | )      |   | (104,549                                         | )      |
|                                                                                                                                                                                                                   |        |        |                                                                                |        |        |                                                  |        |
| Total    stockholders’ equity                                                                                                                                                                               |   |   |             89,585 |   |   |        66,108 |   |
|                                                                                                                                                                                                                   |        |        |                                                                                |        |        |                                                  |        |
| Total    liabilities and stockholders’ equity                                                                                                                                                               |   | $      |          235,806                  |   | $      | 132,706                                          |   |
|                                                                                                                                                                                                                   |        |        |                                                                                |        |        |                                                  |        |

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

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**IMPAX LABORATORIES, INC.****CONDENSED STATEMENTS OF INCOME****(unaudited)****(dollars in thousands, except share and per share data)**

|                                                     |   |   | **Three Months Ended  June 30,**                                                            |   |   | **Six Months Ended  June 30,**                                                 |   |
|----------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------|--------|
|                                                     |   |        |                                                                                             |   |        |                                                                                |   |
|                                                     |   |   | **2004**                                                                                    |   |   | **2003**                                                                       |   |   | **2004** |   |   | **2003** |   |
|                                                          |        |        |                                                                                             |        |        |                                                                                |        |  |  |  |  |  |  |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Net sales                                                |   | $      |      30,304                                                        |   | $      | 13,460                                                                         |   | $ |   66,126  |   | $ |       24,526 |   |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Revenue    from reversal of refundable deposit from Teva |   |   | —                                                                                      |   |   | —                                                                         |   |   | 2,500 |   |   | — |   |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Other revenues                                           |   |   |             541                 |   |   | 607                                                                            |   |   |        1,072 |   |   | 966 |   |
|                                                          |        |        |                                                                                             |        |        |                                                                                |        |  |  |  |  |  |  |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Total revenues                                           |   |   |       30,845                                                  |   |   | 14,067                                                                         |   |   |     69,698 |   |   | 25,492 |   |
|                                                          |        |        |                                                                                             |        |        |                                                                                |        |  |  |  |  |  |  |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Cost of sales                                            |   |   |        18,537                                            |   |   | 9,321                                                                          |   |   |     37,087 |   |   | 17,468 |   |
|                                                          |        |        |                                                                                             |        |        |                                                                                |        |  |  |  |  |  |  |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Gross margin                                             |   |   | 12,308                                                                                      |   |   | 4,746                                                                          |   |   | 32,611 |   |   | 8,024 |   |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Research and development                                 |   |   | 5,104                                                                                       |   |   | 3,558                                                                          |   |   | 9,810 |   |   | 7,006 |   |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Reimbursements from Teva                                 |   |   |            (78                       | )      |   | (22                                                                            | )      |   |          (89 | ) |   | (154 | ) |
|                                                          |        |        |                                                                                             |        |        |                                                                                |        |  |  |  |  |  |  |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Research and development, net                            |   |   | 5,026                                                                                       |   |   | 3,536                                                                          |   |   | 9,721 |   |   | 6,852 |   |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Patent and patent litigation expenses                    |   |   | 2,563                                                                                       |   |   | 789                                                                            |   |   | 4,361 |   |   | 1,096 |   |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Selling expenses                                         |   |   | 711                                                                                         |   |   | 438                                                                            |   |   | 1,437 |   |   | 1,006 |   |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| General and administrative expenses                      |   |   | 3,117                                                                                       |   |   | 2,083                                                                          |   |   | 6,468 |   |   | 4,205 |   |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Other operating income (expense), net                    |   |   |                4 |   |   | 10                                                                             |   |   |           11 |   |   | 21 |   |
|                                                          |        |        |                                                                                             |        |        |                                                                                |        |  |  |  |  |  |  |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Net income (loss) from operations                        |   |   | 895                                                                                         |   |   | (2,090                                                                         | )      |   | 10,635 |   |   | (5,114 | ) |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Interest income                                          |   |   | 271                                                                                         |   |   | 70                                                                             |   |   | 327 |   |   | 112 |   |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Interest expense                                         |   |   |            (564                      | )      |   |      (264                                                       | )      |   |         (836 | ) |   |       (495 | ) |
|                                                          |        |        |                                                                                             |        |        |                                                                                |        |  |  |  |  |  |  |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Net income (loss) before provision for income taxes      |   | $      |          602                                   |   | $      |      (2,284                                                     | )      | $ |       10,126 |   | $ |     (5,497 | ) |
|                                                          |        |        |                                                                                             |        |        |                                                                                |        |  |  |  |  |  |  |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Provision for income taxes                               |   |   |               30      |   |   |             — |   |   |       506 |   |   |             — |   |
|                                                          |        |        |                                                                                             |        |        |                                                                                |        |  |  |  |  |  |  |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Net income (loss)                                        |   | $      |         572                                         |   | $      |        (2,284                               | )      | $ |       9,620 |   | $ |        (5,497 | ) |
|                                                          |        |        |                                                                                             |        |        |                                                                                |        |  |  |  |  |  |  |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Earnings per share:                                      |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Basic                                                    |   | $      |            0.01                      |   | $      |        (0.05                                | )      | $ |        0.17 |   | $ |        (0.11 | ) |
|                                                          |        |        |                                                                                             |        |        |                                                                                |        |  |  |  |  |  |  |
| Diluted                                                  |   | $      |             0.01                |   | $      |          (0.05                    | )      | $ |          0.16 |   | $ |         (0.11 | ) |
|                                                          |        |        |                                                                                             |        |        |                                                                                |        |  |  |  |  |  |  |
|                                                     |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Weighted average common shares outstanding:              |   |   |                                                                                        |   |   |                                                                           |   |   |   |   |   |   |   |
| Basic                                               |   |   |     58,152,703                                                          |   |   |     50,608,445                                             |   |   |   57,543,768 |   |   |   49,250,049 |   |
|                                                          |        |        |                                                                                             |        |        |                                                                                |        |  |  |  |  |  |  |
| Diluted                                                  |   |   |     62,417,454                                                          |   |   |     50,608,445                                             |   |   |    61,808,519 |   |   |   49,250,049 |   |
|                                                          |        |        |                                                                                             |        |        |                                                                                |        |  |  |  |  |  |  |

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

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

|                                                                                    |   |   | **Six Months Ended  June 30,**                                                |   |
|-----------------------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------------------------|--------|
|                                                                                    |   |        |                                                                               |   |
|                                                                                    |   |   | **2004**                                                                      |   |   | **2003** |   |
|                                                                                         |        |        |                                                                               |        |  |  |  |
|                                                                                    |   |   |                                                                          |   |   |   |   |
|                                                                                    |   |   |                                                                          |   |   |   |   |
| **Cash flows from operating activities:**                                               |   |   |                                                                          |   |   |   |   |
| Net    income / (loss)                                                                  |   | $      |         9,620                         |   | $ |     (5,497 | ) |
| Adjustments    to reconcile net income (loss) to net cash used by operating activities: |   |   |                                                                          |   |   |   |   |
| Depreciation    and amortization                                                        |   |   | 2,082                                                                         |   |   | 1,782 |   |
| Reversal    of refundable deposit from Teva                                             |   |   | (2,500                                                                        | )      |   | — |   |
| Non-cash    compensation charge (options)                                               |   |   | 87                                                                            |   |   | 429 |   |
| Change    in assets and liabilities:                                                    |   |   |                                                                          |   |   |   |   |
| Accounts    receivable                                                                  |   |   | (13,455                                                                       | )      |   | (2,060 | ) |
| Inventory                                                                               |   |   | (8,623                                                                        | )      |   | (4,564 | ) |
| Prepaid    expenses and other assets                                                    |   |   | (172                                                                          | )      |   | (127 | ) |
| Accounts    payable                                                                     |   |   | (471                                                                          | )      |   | 2,853 |   |
| Other    liabilities                                                                    |   |   |            1,736       |   |   |             (981 | ) |
|                                                                                         |        |        |                                                                               |        |  |  |  |
|                                                                                    |   |   |                                                                          |   |   |   |   |
| Net    cash provided by (used in) operating activities                                  |   |   |         (11,696                       | )      |   |         (8,165 | ) |
|                                                                                         |        |        |                                                                               |        |  |  |  |
|                                                                                    |   |   |                                                                          |   |   |   |   |
| **Cash flows from investing activities:**                                               |   |   |                                                                          |   |   |   |   |
| Purchase    of short term investments                                                   |   |   | (45,244                                                                       | )      |   | (13,920 | ) |
| Purchases    of property and equipment                                                  |   |   |           (6,269                 | )      |   |         (1,125 | ) |
|                                                                                         |        |        |                                                                               |        |  |  |  |
| Net    cash (used in) provided by investing activities                                  |   |   |         (51,513                            | )      |   |       (15,045 | ) |
|                                                                                         |        |        |                                                                               |        |  |  |  |
|                                                                                    |   |   |                                                                          |   |   |   |   |
| **Cash flows from  financing activities:**                                              |   |   |                                                                          |   |   |   |   |
| Revolving    line of credit borrowings (repayments)                                     |   |   | (2,642                                                                        | )      |   | 1,779 |   |
| Additions    to long-term debt                                                          |   |   | —                                                                        |   |   | 896 |   |
| Repayment    of long-term debt                                                          |   |   | (1,501                                                                        | )      |   | (412 | ) |
| Proceeds    from convertible debentures                                                 |   |   | 95,000                                                                        |   |   | — |   |
| Capitalized    Financing Costs                                                          |   |   | (3,612                                                                        | )      |   | — |   |
| Proceeds    from sale of common stock                                                   |   |   | —                                                                        |   |   | 23,324 |   |
| Reversal    of Restricted Cash                                                          |   |   | 10,000                                                                        |   |   | — |   |
| Proceeds    from issuance of common stock (upon exercise of                             |   |   |                                                                          |   |   |   |   |
| stock    options and warrants)                                                          |   |   |             3,771 |   |   |               277 |   |
|                                                                                         |        |        |                                                                               |        |  |  |  |
| Net    cash provided by financing activities                                            |   |   |        101,016                             |   |   |          25,864 |   |
|                                                                                         |        |        |                                                                               |        |  |  |  |
| Net    increase in cash and cash equivalents                                            |   |   |          37,807                  |   |   |            2,654 |   |
|                                                                                         |        |        |                                                                               |        |  |  |  |
| Cash    and cash equivalents, beginning of the period                                   |   | $      |        15,505                              |   | $ |        10,219 |   |
|                                                                                         |        |        |                                                                               |        |  |  |  |
| Cash    and cash equivalents, end of the quarter                                        |   | $      |        53,312                              |   | $ |        12,873 |   |
|                                                                                         |        |        |                                                                               |        |  |  |  |
|                                                                                    |   |   |                                                                          |   |   |   |   |
| Cash    paid for interest                                                               |   | $      |       266                                       |   | $ |             497 |   |
|                                                                                         |        |        |                                                                               |        |  |  |  |
| Cash    paid for income taxes                                                           |   | $      |            —      |   | $ |            —  |   |
|                                                                                         |        |        |                                                                               |        |  |  |  |

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

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**NOTES TO CONDENSED FINANCIAL STATEMENTS****Six Months Ended****June 30, 2004 and June 30, 2003****(unaudited)**

**Note 1.  **These condensed financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading.  These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K.  The results of operationsfor the six months ended  June 30, 2004 are not necessarily indicative of the results of operations expected for the year ending December 31, 2004.

Impax Laboratories, Inc. (“IMPAX,” “we,” “us,” or “the Company”) focuses on the development, manufacturing, and marketing of specialty pharmaceutical products utilizing its own formulation expertise and drug delivery technologies.  As of June 30, 2004, the Company is marketing thirty-three generic pharmaceuticals, which represent dosage variations of fourteen different pharmaceutical compounds, and has fourteen applications under review with the Food and Drug Administration (FDA), including five tentatively approved.  Eleven of these pending filings were filed under Paragraph IV of the Hatch-Waxman Amendments.  The Company has approximately twenty-four other products in various stages of developmentfor which applications have not yet been filed.  

Except for the six months ended June    30, 2004, we have experienced operating losses and our future profitability continues to be uncertain. We have also experienced negative cash flow from operations. As of June 30, 2004, our accumulated deficit    was $94,929,000 and we had outstanding indebtedness in an aggregate principalamount of $108,422,000. To remain operational, we must, among other things:

|  | • | obtain FDA approvals for our products; |
|--|--------|----------------------------------------|

|  | • | prevail in patent infringement litigation in which we are involved; |
|--|--------|---------------------------------------------------------------------|

|  | • | successfully launch our new products; and |
|--|--------|-------------------------------------------|

|  | • | 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 for 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 for the next twelve months, of $18 to $22 million, primarily in plant capacity expansion, will constitute a material use of our cash resources.  

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

**Critical Accounting Policy Related to Revenue Recognition**

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 SAB 104 was issued by the SEC. This bulletin clarifies portions    of Topic 13 of the Staff Accounting Bulletin to be consistent with current    accounting and auditing guidance and SEC rules and regulations, and revises    accounting guidance contained in SAB101 related to multiple element revenue    arrangements of Emerging Issues Task Force (EITF) No. 00-21 superseded as    a result of the issuance.

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 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; |
|--|----|---------------------------------------------------------------------|

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|  | 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 SAB104 and EITF    No. 00-21 for multiple element arrangements. Upfront and milestone payments    from    these strategic alliances are deferred and recognized over the life of the    agreements as the Company fulfills its contractual obligation to manufacture    and supplies products during this period. In addition, in some agreements,    the Company receives and records royalty revenue based on a percentage ofthe strategic partner’s total sales to their customers of the productssupplied by IMPAX.

In June 2001, the Company entered into a Strategic Alliance Agreement with a subsidiary of Teva for twelve controlled-release generic pharmaceutical products.  The agreement granted Teva exclusive U.S. prescription marketing rights for these products for a period of ten years from the date of Teva’s first sale of the products. 

Revenues from product sales for these products under our strategic alliance are recognized at the time title and risk of loss transfers to Teva’s customers.  During the six months ended June 30, 2004, the Company commenced shipping its Bupropion Hydrochloride 100 mg and 150 mg Controlled Release Tablets.  Teva ships the Bupropion products to its customers and reports the results on a monthly basis.  Teva provides to IMPAX a financial report detailing its gross sales less applicable chargebacks, rebates and other credits to arrive at net sales, cost of sales information and gross margins for the Bupropion products.  The information on the financial report is used by IMPAX to record its monthly revenue for the Bupropion products.Additionally, the amount of revenue that IMPAX earns is based on a fixed gross margin sharing percentage.  

Under the July 2003 Exclusivity Transfer Agreement with Andrx and Teva pertaining to the Bupropion Hydrochloride products, Andrx is entitled to certain payments for the sales of the 150 mg strength for a 180-day period from the product launch date.  These payments are made directly by Teva to Andrx.

**Earnings Per Share (EPS)**

Basic earnings per share is computed by dividing net income by the weighted average common shares outstanding.  Diluted earnings per share is based on the treasury stock method and is computed by dividing net income by the weighted average number of common shares and dilutive potential common shares outstanding, assuming the exercise of all in-the-money stock options.  A reconciliation of the numerators and denominators of basic and diluted earnings per share consisted of the following (in thousands, except per share amounts):  

|                                                        |   |   | **Three Months Ended June 30, **                                         |   |   | **Six Months Ended June 30, **                          |   |
|-------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------|--------|--------|-------------------------------------------------------------------|--------|
|                                                             |        |        |                                                                                    |        |        |                                                                   |        |
|                                                        |   |   | ** 2004 **                                                               |   |   | ** 2003 **                                              |   |   | ** 2004 ** |   |   | ** 2003 ** |   |
|                                                             |        |        |                                                                                    |        |        |                                                                   |        |  |  |  |  |  |  |
| Numerator:                                                  |   |   |                                                                               |   |   |                                                              |   |   |   |   |   |   |   |
| Net    income(loss)                                         |   | $      |              572  |   | $      |         (2,284            | )      | $ |            9,620 |   | $ |           (5,497 | ) |
|                                                             |        |        |                                                                                    |        |        |                                                                   |        |  |  |  |  |  |  |
| Denominator:                                                |   |   |                                                                               |   |   |                                                              |   |   |   |   |   |   |   |
| Basic    weighted average common shares outstanding         |   |   |    58,152,703                                                       |   |   |    50,608,445                                      |   |   |   57,543,768 |   |   |     49,250,049 |   |
|                                                             |        |        |                                                                                    |        |        |                                                                   |        |  |  |  |  |  |  |
| Effect    of dilutive options and warrants                  |   |   |      4,264,750                                            |   |   |         —            |   |   |     4,264,750 |   |   |         — |   |
|                                                             |        |        |                                                                                    |        |        |                                                                   |        |  |  |  |  |  |  |
| Fully    diluted weighted average common shares outstanding |   |   |     62,417,453                                                 |   |   |     50,608,445                                |   |   |    61,808,518 |   |   |    49,250,049 |   |
|                                                             |        |        |                                                                                    |        |        |                                                                   |        |  |  |  |  |  |  |
| Basic earnings per share                                    |   | $      |              0.01 |   | $      |           (0.05 | )      | $ |             0.17 |   | $ |           (0.11 | ) |
|                                                             |        |        |                                                                                    |        |        |                                                                   |        |  |  |  |  |  |  |
| Fully diluted earnings per share                            |   | $      |          0.01                         |   | $      |           (0.05 | )      | $ |             0.16 |   | $ |           (0.11 | ) |
|                                                             |        |        |                                                                                    |        |        |                                                                   |        |  |  |  |  |  |  |

Included in the computation of fully diluted earnings per share are outstanding stock options and warrants with an exercise price less than the average market price of the common shares for the period.

Excluded from the computation of diluted earnings per share are outstanding common stock options with an exercise price greater than the average market price of the common shares for the period reported.  For the three month period ended June 30, 2004, excluded from the computation of diluted earnings per share were stock options to purchase 969,389 common shares.  For the six month period ended June 30, 2003, excluded from the computation of diluted earnings per share were stock options to purchase 969,389 common shares.

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The effect of approximately 3.4 million shares related to the assumed conversion of the $95 million convertible senior subordinated debentures has been excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2004 as none of the conditions that would permit conversion have been satisfied.

**Stock-Based Employee 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, “Accounting for Stock-Based Compensation” 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. 123, the Company’s income and earnings per share would have been decreased to the pro forma amounts indicated below (in thousands, except per share amounts):

|                                                                                                                                                |   |   | **Three Months EndedJune 30,**                      |   |   | **Six Months EndedJune 30,**   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------------------------------------------------|--------|--------|--------------------------------|--------|
|                                                                                                                                                     |        |        |                                                     |        |        |                                |        |
|                                                                                                                                                |   |   | **2004**                                            |   |   | **2003**                       |   |   | **2004** |   |   | **2003** |   |
|                                                                                                                                                     |        |        |                                                     |        |        |                                |        |  |  |  |  |  |  |
| Net income (loss), as reported                                                                                                                      |   | $      |         572 |   | $      |     (2,284 | )      | $ |       9,620 |   | $ |     (5,497 | ) |
| Add: Stock-based employee compensation included    in reported net income, net of related    tax effects                                            |   |   | 87                                                  |   |   | —                         |   |   | 87 |   |   | — |   |
|                                                                                                                                                |   |   |                                                |   |   |                           |   |   |   |   |   |   |   |
| Deduct: Total stock-based employee compensation    expense determined underfair value based    method for all awards, net of related    tax effects |   |   |       (1,990                         | )      |   |          (946   | )      |   |       (2,999 | ) |   |        (1,808 | ) |
|                                                                                                                                                     |        |        |                                                     |        |        |                                |        |  |  |  |  |  |  |
| Pro forma net income (loss)                                                                                                                         |   | $      |     (1,331                      | )      | $      |     (3,230 | )      | $ |     6,708 |   | $ |      (7,305 | ) |
|                                                                                                                                                     |        |        |                                                     |        |        |                                |        |  |  |  |  |  |  |
| Earnings per share:                                                                                                                                 |   |   |                                                |   |   |                           |   |   |   |   |   |   |   |
| Basic – as    reported                                                                                                                         |   | $      |    0.01                              |   | $      |     (0.05  | )      | $ |       0.17 |   | $ |     (0.11 | ) |
|                                                                                                                                                     |        |        |                                                     |        |        |                                |        |  |  |  |  |  |  |
| Basic – pro    forma                                                                                                                           |   | $      |      (0.02                 | )      | $      |     (0.06  | )      | $ |        0.12 |   | $ |     (0.15 | ) |
|                                                                                                                                                     |        |        |                                                     |        |        |                                |        |  |  |  |  |  |  |
|                                                                                                                                                |   |   |                                                |   |   |                           |   |   |   |   |   |   |   |
| Diluted – as    reported                                                                                                                       |   | $      |       0.01                                     |   | $      |     (0.05  | )      | $ |         0.16 |   | $ |     (0.11 | ) |
|                                                                                                                                                     |        |        |                                                     |        |        |                                |        |  |  |  |  |  |  |
| Diluted – pro    forma                                                                                                                         |   | $      |     (0.02                       | )      | $      |     (0.06  | )      | $ |         0.11 |   | $ |    (0.15 | ) |
|                                                                                                                                                     |        |        |                                                     |        |        |                                |        |  |  |  |  |  |  |

The Company calculated the fair value of each option grant on the date of the grant using Black-Scholes pricing method with the following assumptions: for the six months ended June 30, 2004 and 2003, the dividend yield was 0% and 0%; the weighted average expected option term was five years; risk-free interest rate was 3.5% and 2.8%; the stock volatility for the six months ended June 30, 2004 and 2003 was 78% and 69%, respectively.  The weighted average fair value of options for June 30, 2004 and 2003 was $14.17 and  $2.87, respectively.

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.

**Note 2.**  Convertible Senior Subordinated Debentures

On April 5, 2004, the Company issued and sold $95.0 million in aggregate principal amount of its 1.250% convertible senior subordinated debentures due 2024.  The debentures were sold by the Company to Citigroup Global Markets Inc., Wachovia Capital Markets, LLC and First Albany Capital Inc., as initial purchasers, in a private placement exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”).  We have been advised by the initial purchasers that they have resold, and/or intend in the future to resell, the debentures to “qualified institutional buyers” (as defined in Rule 144A promulgated under the Securities Act) in transactions exempt from the registration requirements of the SecuritiesAct in reliance on Rule 144A.  

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The issuance and sale of the debentures resulted in net proceeds to the Company of approximately $91,388,000.  These proceeds are being used for general corporate purposes, including working capital requirements, manufacturing of our products and research and development.  

The debentures bear interest at the rate of 1.250% per year.  Interest on the debentures is payable on April 1 and October 1 of each year, beginning on October 1, 2004.  The debentures are convertible by holders into shares of our common stock at a conversion price of $28.08 per share  (which are subject to adjustment upon certain events, but represented a 30% premium over our stock price at the time the debentures were issued).  The debentures are convertible by holders into shares of our common stock if: (1) the price of our common stock reaches a specific threshold; (2) the trading price for the debentures falls below certain thresholds; (3) the debentures have been called for redemption; or (4) certain corporate transactions occur.

The debentures mature on April 1, 2024, unless earlier redeemed, repurchased or converted.  Before April 5, 2007, we may redeem some or all of the debentures if the price of our common stock reaches a specific threshold, at a redemption price that includes an additional payment on the redeemed debentures equal to $230.77 per $1,000 principal amount of debentures, less the amount of any interest actually paid or accrued and unpaid on the debentures.  On and after April 5, 2007, the Company may redeem some or all of the debentures at certain specified redemption prices.  

The debentures are the Company’s unsecured obligations and are subordinated in right of payment to all of the Company’s existing and future senior indebtedness.  On April 1, 2009, April 1, 2014, and April 1, 2019, and under certain circumstances, holders of the debentures will have the right to require us to repurchase all or any part of their debentures at a repurchase price equal to 100% of the principal amount of the debentures, plus accrued and unpaid interest and liquidated damages, if any, to, but excluding the repurchase date.

In June 2004, the FASB discussed EITF 04-08, The Effect of Contingently Convertible Debt on Diluted Earnings Per Share.  The EITF task force has proposed that companies count the shares that could be issued upon conversion of securities like the Company’s debentures when calculating fully diluted per share earnings.  Had EITF 04-08 been effective as of June 30, 2004, the Company’s income and earnings per share would have been as indicated below:

|                                                                                          |   |   | **Three Months Ended June 30, **                                         |   |   | **Six Months Ended June 30, **                                                |   |
|-----------------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------|--------|
|                                                                                               |        |        |                                                                                    |        |        |                                                                                         |        |
|                                                                                          |   |   | ** 2004 **                                                               |   |   | ** 2003 **                                                                    |   |   | ** 2004 ** |   |   | ** 2003 ** |   |
|                                                                                               |        |        |                                                                                    |        |        |                                                                                         |        |  |  |  |  |  |  |
| Numerator:                                                                                    |   |   |                                                                               |   |   |                                                                                    |   |   |   |   |   |   |   |
| Net    income (loss) plus interest expense                                                    |   | $      | 869                                                                                |   | $      | (2,284                                                                                  | )      | $ | 9,917 |   | $ | (5,497 | ) |
|                                                                                               |        |        |                                                                                    |        |        |                                                                                         |        |  |  |  |  |  |  |
| Denominator:                                                                                  |   |   |                                                                               |   |   |                                                                                    |   |   |   |   |   |   |   |
| Basic    weighted average common shares outstanding                                           |   |   |    58,152,703                                                       |   |   |    50,608,445                                                            |   |   |   57,543,768 |   |   |     49,250,049 |   |
|                                                                                               |        |        |                                                                                    |        |        |                                                                                         |        |  |  |  |  |  |  |
| Effect    of dilutive options and warrants                                                    |   |   |      4,264,750                                            |   |   |         —                                  |   |   |     4,264,750 |   |   |         — |   |
|                                                                                               |        |        |                                                                                    |        |        |                                                                                         |        |  |  |  |  |  |  |
| Fully    diluted weighted average common shares outstanding                                   |   |   |     62,417,453                                                 |   |   |     50,608,445                                                      |   |   |    61,808,518 |   |   |    49,250,049 |   |
|                                                                                               |        |        |                                                                                    |        |        |                                                                                         |        |  |  |  |  |  |  |
| Convertible debenture shares as converted                                                     |   |   |       3,383,191                                                          |   |   |         —                                  |   |   |      3,383,191 |   |   |               — |   |
|                                                                                               |        |        |                                                                                    |        |        |                                                                                         |        |  |  |  |  |  |  |
| Fully diluted weighted average common shares outstanding including converted shares pro-forma |   |   |     65,800,644                                                                |   |   |            —                |   |   |    65,191,709 |   |   |         — |   |
|                                                                                               |        |        |                                                                                    |        |        |                                                                                         |        |  |  |  |  |  |  |
| Basic earnings per share                                                                      |   | $      |              0.01 |   | $      |           (0.05                       | )      | $ |             0.17 |   | $ |           (0.11 | ) |
|                                                                                               |        |        |                                                                                    |        |        |                                                                                         |        |  |  |  |  |  |  |
| Fully diluted earnings per share                                                              |   | $      |          0.01                         |   | $      |           (0.05                       | )      | $ |             0.16 |   | $ |           (0.11 | ) |
|                                                                                               |        |        |                                                                                    |        |        |                                                                                         |        |  |  |  |  |  |  |
| Fully diluted earnings per share include converted shares – pro forma                    |   | $      |          0.01                         |   |   |           N/A     |   | $ |             0.15 |   |   |           N/A     |   |
|                                                                                               |        |        |                                                                                    |        |        |                                                                                         |        |  |  |  |  |  |  |

In connection with the offering of the debentures, we filed a shelf registration statement on June 14, 2004 with the Securities and Exchange Commission (SEC) covering resales of the debentures and of the common stock issuable upon conversion of the debentures.  If the registration statement on Form S-3 is not declared effective by the SEC by October 4, 2004, then the interest rate payable on the debentures will be subject to increase.

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**Note 3.  **Recent Accounting Pronouncements

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 firstfiscal 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 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.  During the six months ended June 30, 2004 and 2003, theemployer 401-K match was $218,000 and $150,000, respectively.

In February 2004, the FASB issued revised FASB Staff Positions (“FSP”) pertaining to FIN 46(R).  The revised FSPs replace certain previously issued FIN 46 FSP for entities to which FIN 46(R) is applicable.  This revision to FIN 46 did not have a material impact on the Company’s financial condition or results of operation.

In February 2004, the FASB revised SFAS 133, Accounting for Derivative Instruments and Hedging Activities for Implementation issue E2L, A1J, and C6. The revisions to SFAS 133 did not have a material impact on the Company’s financial condition or results of operation.

In June 2004, the FASB discussed EITF 04-08, The Effect of Contingently Convertible Debt on Diluted Earnings Per Share.  The EITF task force has proposed that companies count the shares that could be issued upon conversion of securities like the Company’s    debentures when calculating fully diluted per share earnings. This EITF is    not yet effective. However, we disclosed in Note 2 the potential effect ofthis EITF on the Company’s fully diluted EPS calculation.

**Note 4.**  Our gross receivables and related deductions activity for the six months ended June 30, 2004 and 2003, and the year ended December 31, 2003 was:

|                       |   |   | **Six Months Ended**                                                           |   |   | **Year Ended**                                                                 |   |
|----------------------------|--------|--------|--------------------------------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------|--------|
|                            |        |        |                                                                                |        |        |                                                                                |        |
| (in $000s)                 |   |   | **June 30,       2004     ** |   |   | **June 30,       2003     ** |   |   | **December 31,  2003** |   |
|                            |        |        |                                                                                |        |        |                                                                                |        |  |  |  |
| Gross accounts receivable  |   | $      |   31,744                                                             |   | $      | 12,329                                                                         |   | $ | 17,091 |   |
| Less:  Accrued rebates     |   |   | (3,632                                                                         | )      |   | (2,165                                                                         | )      |   | (2,700 | ) |
| Less:  Accrued chargebacks |   |   | (4,543                                                                         | )      |   | (1,200                                                                         | )      |   | (4,101 | ) |
| Less:  Other deductions    |   |   |    (229                                                         | )      |   |      (380                                             | )      |   |     (405 | ) |
|                            |        |        |                                                                                |        |        |                                                                                |        |  |  |  |
| Net accounts receivable    |   | $      |   23,340                                                             |   | $      | 8,584                                                                          |   | $ |  9,885   |   |
|                            |        |        |                                                                                |        |        |                                                                                |        |  |  |  |

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

Net accounts receivable balance at June 30, 2004 includes $8,541,000 due from Teva as compared to zero at December 31, 2003.

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Chargebacks and Rebates Accrual activity for the six months ended June 30, 2004 and 2003, and the year ended December 31, 2003 was: 

| **CHARGEBACKS ACCRUAL**                                 |   |
|---------------------------------------------------------|--------|
|                                                    |   |   |   |   |   |   |   |
|                                                    |   |   | **Six Months Ended** |   |   | **Year Ended** |   |
|                                                         |        |  |  |  |  |  |  |
| (in $000s)                                              |   |   | **June 30,         2004       ** |   |   | **June 30,      2003    ** |   |   | **December 31,       2003     ** |   |
|                                                         |        |  |  |  |  |  |  |  |  |  |
| Beginning Balance                                       |   | $ |     4,101 |   | $ |     1,373 |   | $ | 1,373 |   |
| Add:  Provision related to sales made in current period |   |   | 5,962 |   |   | 3,354 |   |   | 10,571 |   |
| Less:  Credits issued during the current period         |   |   |     (5,520 | ) |   |       (3,527 | ) |   | (7,843 | ) |
|                                                         |        |  |  |  |  |  |  |  |  |  |
| Ending Balance                                          |   | $ |  4,543 |   | $ |     1,200 |   | $ | 4,101 |   |
|                                                         |        |  |  |  |  |  |  |  |  |  |

| **REBATES ACCRUAL**                                     |   |
|---------------------------------------------------------|--------|
|                                                    |   |   |   |   |   |   |   |
|                                                    |   |   | **Six Months Ended** |   |   | **Year Ended** |   |
|                                                         |        |  |  |  |  |  |  |
| (in $000s)                                              |   |   | **June 30,       2004       ** |   |   | **June 30,    2003    ** |   |   | **December 31,     2003     ** |   |
|                                                         |        |  |  |  |  |  |  |  |  |  |
| Beginning Balance                                       |   | $ | 2,700 |   | $ | 1,525 |   | $ | 1,525 |   |
| Add:  Provision related to sales made in current period |   |   | 3,326 |   |   | 2,803 |   |   | 6,680  |   |
| Less:  Credits issued during the current period         |   |   |     (2,394 | ) |   |      (2,163 | ) |   |   (5,505 | ) |
|                                                         |        |  |  |  |  |  |  |  |  |  |
| Ending Balance                                          |   | $ |  3,632 |   | $ | 2,165 |   | $ | 2,700 |   |
|                                                         |        |  |  |  |  |  |  |  |  |  |

**Note 5.**  Our inventory consists of the following:

| (in $000s)                                                                                                                                        |   |   | **June 30,       2004       ** |   |   | **December 31,      2003      ** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                   |        |        |                                                                                                      |        |        |                                                                                              |        |
| Raw materials ........................................................... |   | $      | 22,247                                                                                               |   | $      | 9,671                                                                                        |   |
| Work in process .......................................................       |   |   | 4,256                                                                                                |   |   | 5,303                                                                                        |   |
| Finished goods ........................................................   |   |   |       10,599                                                           |   |   | 13,505                                                                                       |   |
|                                                                                                                                                   |        |        |                                                                                                      |        |        |                                                                                              |        |
|                                                                                                                                              |   | $      |    37,102                                                                             |   | $      | 28,479                                                                                       |   |
|                                                                                                                                                   |        |        |                                                                                                      |        |        |                                                                                              |        |

The Company, as 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.

As of June 30, 2004, the Company’s total inventory of $37,102,000 included $5,343,000 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   |   | $      |   5,343             |   |
| Work in process |   |   | —                        |   |
| Finished goods  |   |   | —                        |   |
|                 |        |        |                               |        |
| Total           |   | $      |     5,343 |   |
|                 |        |        |                               |        |

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**Note 6.**  Intangibles consist of the following:

|                                                                                                          |   |   | **Estimateduseful life**                        |   |   | **June 30,       2004       ** |   |   | **December 31,       2003       ** |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------|-------------------------------------------------|--------|--------|------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------------------------------|--------|
| (in $000s)                                                                                                    |   |   | **   (years)   ** |   |        |                                                                                                      |   |        |                                                                                                          |   |
|                                                                                                               |        |        |                                                 |        |   |                                                                                                 |        |   |                                                                                                     |        |
| Product rights and licenses ..................................... |   |   | 3 – 8                                      |   | $      | 2,691                                                                                                |   | $      |    2,691                                                                                       |   |
|                                                                                                          |   |   |                                            |   |   |                                                                                                 |   |   |                                                                                                     |   |
| Less:  Accumulated amortization ...............................           |   |   |                                            |   |   |     (2,504                                                                       | )      |   |       (2,312                                                               | )      |
|                                                                                                               |        |        |                                                 |        |        |                                                                                                      |        |        |                                                                                                          |        |
|                                                                                                          |   |   |                                            |   | $      | 187                                                                                                  |   | $      |         379                                                      |   |
|                                                                                                               |        |        |                                                 |        |        |                                                                                                      |        |        |                                                                                                          |        |

Amortization expense was $192,000 for the six months ended June 30, 2004.  Expected amortization expense for 2004 will be approximately $379,000.

**Note 7.  Accrued Expenses and Deferred Revenue**

| (in $000’s)                                |   |   | **June 30,2004**                                    |   |   | **December 31,2003**                                                     |   |
|--------------------------------------------------|--------|--------|-----------------------------------------------------|--------|--------|--------------------------------------------------------------------------|--------|
|                                                  |        |        |                                                     |        |        |                                                                          |        |
|                                             |   |   |                                                |   |   |                                                                     |   |
| Sales returns                                    |   | $      |     5,187                       |   | $      |  4,121                                                              |   |
| Deferred revenues                                |   |   | 1,905                                               |   |   | 1,751                                                                    |   |
| Accrued salaries and payroll expenses            |   |   | 2,037                                               |   |   | 1,649                                                                    |   |
| Legal and professional fees                      |   |   | 1,314                                               |   |   | 1,478                                                                    |   |
| Accrued Medicaid rebates                         |   |   | 550                                                 |   |   | 613                                                                      |   |
| Accrued royalty and gross profit sharing expense |   |   | 462                                                 |   |   | 559                                                                      |   |
| Accrued shelf stock protection                   |   |   | 281                                                 |   |   | 232                                                                      |   |
| Accrued interest                                 |   |   | 310                                                 |   |   | —                                                                   |   |
| Accrued taxes                                    |   |   |         524 |   |   |            — |   |
| Other accruals                                   |   |   |         149 |   |   |          469                |   |
|                                                  |        |        |                                                     |        |        |                                                                          |        |
|                                             |   | $      |  12,719                                        |   | $      | 10,872                                                                   |   |
|                                                  |        |        |                                                     |        |        |                                                                          |        |

**Note 8.  Returns Accrual**

| **RETURNS ACCRUAL**                                     |   |
|---------------------------------------------------------|--------|
|                                                    |   |
|                                                    |   |   | **Six Months Ended** |   |   | **Year Ended** |   |
|                                                         |        |  |  |  |  |  |  |
| (in $000s)                                              |   |   | **June 30,       2004       ** |   |   | **June 30,      2003      ** |   |   | **December 31,     2003     ** |   |
|                                                         |        |  |  |  |  |  |  |  |  |  |
| Beginning Balance                                       |   | $ |  4,121 |   | $ |    3,100 |   | $ | 3,100 |   |
| Add:  Provision related to sales made in current period |   |   | 2,802 |   |   | 320 |   |   | 2,276  |   |
| Less:  Credits issued during the current period         |   |   |      (1,736 | ) |   |     (320 | ) |   |   (1,255 | ) |
|                                                         |        |  |  |  |  |  |  |  |  |  |
| Ending Balance                                          |   | $ | 5,187 |   | $ |    3,100 |   | $ | 4,121 |   |
|                                                         |        |  |  |  |  |  |  |  |  |  |

**Note 9.  Commitments and Contingencies**

*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 maychallenge 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, aswell 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.  

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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 million of patent infringement liability insurance from American International Specialty Line Company (“AISLIC”), an affiliate of AIG International.  This litigation insurance covered 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.  Both policies have reached their limit of liability.  While Teva has agreed to pay 45% to 50% of the attorneys’ fees and costs (in excess of the $7 million covered by our insurance policies) related to the twelve products covered by our strategic alliance agreement with Teva, we will beresponsible 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 on acceptable terms for our 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.

*FIN  45*

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.  As of June 30, 2004, all indemnifications included in agreements as of that date are excluded from the scope of FIN No. 45 as they relate primarily to our own futureperformance and do not require any contingent payments.

As of June 30, 2004, our total contractual commitments on loans, operating leases, and royalty agreements have not materially changed since December 31, 2003, as disclosed in our Report Form 10-K.

**Note 10.  Loan Agreements with PIDA and DRPA**

In April 2004, the Company terminated the loan agreements with Pennsylvania Industrial Development Authority (PIDA) and Delaware River Port Authority (DRPA) and repaid the remaining balances totaling approximately $992,000.

**Note 11.  Loan and Security Agreement with Wachovia Bank N.A.**

In June 2004, the $25 million Loan and Security Agreement with Wachovia Bank N.A. was amended, as follows:

|  | • | The cash collateral requirement of $10,000,000 was removed. |
|--|--------|-------------------------------------------------------------|

|  | • | The Adjusted Excess Availability Covenant was removed. |
|--|--------|--------------------------------------------------------|

|  | • | IMPAX will maintain at Wachovia Bank cash and investments in an amount not less than $25,000,000. |
|--|--------|---------------------------------------------------------------------------------------------------|

|  | • | If the amount of cash and investments decline below $25,000,000, then the Cash Collateral requirement of $10,000,000 and Adjusted Excess Availability Covenant will be re-established. |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | • | If the Company reports negative free cash flow in any quarter, then reserves in the amount of the negative free cash flow will be reported on the Borrowing Base. |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | • | The maximum aggregate Capital Expenditures during any fiscal year in the amount of $8,000,000 was amended to permit a maximum cumulative aggregated amount of $45,000,000 for fiscal years 2004 and 2005. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Note 12.  Income Taxes**

For the six months ended June 30, 2004, the Company provided for income taxes of $506,000 or 5% of income before taxes, as compared to $0 for the 2003 period. The effective tax rate in 2004 reflects the partial reversal of the deferred income tax asset valuation allowance recognized. The valuation allowance was reduced to reflect the utilization of federal and state loss carryforwards that offset the current tax component of the income tax provision. We evaluate the realizability of deferred tax assets on an annual and quarterly basis or if there is a significant change in circumstance that may cause a change in our judgment about the realizability of our deferred tax assets. Any valuation allowance that may be released as a result of the evaluation process could have a material effect on our future results of operations. At December 31, 2003, the Company had a net operating loss-carryforward totaling approximately $94,600,000, which expires from 2009 through 2023.

**Note 13.  Subsequent Events**

On July 12, 2004, the Company announced that it has signed a series of agreements with Leiner Health Products, LLC for the supply and distribution of the Company's Loratadine Orally Disintegrating Tablets (ODT) and Loratadine and Pseudoephedrine Sulfate Extended Release Tablets 24 hour products. Both of these products are indicated for the relief of symptoms of seasonal allergic rhinitis (hay fever). These products will be manufactured by IMPAX and marketed by Leiner as over the counter (OTC) store brand equivalents to both Claritin® Reditabs® and Claritin-D® 24-hour respectively.

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|  **ITEM 2.** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------------|-------------------------------------------------------------------------------------------------|

*This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements include statements about our business strategies, our expected financial position and operating results, the projected size of our markets and our financing plans and similar matters.  The words “believe,” “expect,” “intend,” “anticipate,” “plan,” “may,” “will,” “could,” “should,” “estimate,” “potential,” “opportunity,” “future,” “project,”“forecast,” and similar expressions, as they relate to us, our management and our industry are intended to identify forward-looking statements.  We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business.  These forward-looking statements involve known and unknown risks and uncertainties.  Our actual results could differ materially from the results discussed in the forward-looking statements.  You should not place undue reliance on our forward-looking statements.  Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statements for any reason,whether as a result of new information, future developments or otherwise.*

*Many factors could cause or contribute to a material change from the results discussed in the forward-looking statements.  Such factors include, in no particular order:*

|  | • | *our ability to successfully develop and commercialize additional products;* |
|--|--------|------------------------------------------------------------------------------|

|  | • | *changes in the degree of competition for our products;* |
|--|--------|----------------------------------------------------------|

|  | • | *the difficulty of predicting U.S. Food and Drug Administration (FDA) and other regulatory authority approvals;* |
|--|--------|------------------------------------------------------------------------------------------------------------------|

|  | • | *our reliance on strategic alliances and the success of such strategic alliances;* |
|--|--------|------------------------------------------------------------------------------------|

|  | • | *the inability to acquire sufficient supplies of raw materials;* |
|--|--------|------------------------------------------------------------------|

|  | • | *litigation and/or threats of litigation;* |
|--|--------|--------------------------------------------|

|  | • | *changes in our growth rates or the growth rates of our competitors;* |
|--|--------|-----------------------------------------------------------------------|

|  | • | *legislative and FDA actions with respect to the government regulation of pharmaceutical products;* |
|--|--------|-----------------------------------------------------------------------------------------------------|

|  | • | *public concern as to the safety of our products;* |
|--|--------|----------------------------------------------------|

|  | • | *changes in health care policy in the United States;* |
|--|--------|-------------------------------------------------------|

|  | • | *conditions in the financial markets in general or in general economic conditions;* |
|--|--------|-------------------------------------------------------------------------------------|

|  | • | *our inability to raise additional capital when needed;* |
|--|--------|----------------------------------------------------------|

|  | • | *the impact of competition from brand-name companies that sell their own generic products or successfully extend the exclusivity period of their branded products;* |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | • | *the difficulty in predicting the timing and outcome of legal proceedings, including patent-related matters such as patent infringement cases and patent challenge settlements;* |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | • | *court and FDA decisions on exclusivity periods under the Hatch-Waxman Amendments;* |
|--|--------|-------------------------------------------------------------------------------------|

|  | • | *our dependence on revenues from significant customers;* |
|--|--------|----------------------------------------------------------|

|  | • | *our dependence on revenues from significant products; and* |
|--|--------|-------------------------------------------------------------|

|  | • | *the increasing cost of insurance and the availability of product liability insurance coverage.* |
|--|--------|--------------------------------------------------------------------------------------------------|

**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 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, ourhistorical 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, the surviving company 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 June 30, 2004, the Company is marketing thirty-three generic pharmaceuticals, which represent dosage variations of fourteen different pharmaceutical compounds, and has fourteen applications under review with the Food and Drug Administration (FDA), including five tentatively approved, addressing approximately $5.2 billion in U.S. product sales in the twelve months ended April 30, 2004, according to NDCHealth.  Eleven of these pending filings were filed under Paragraph IV of theHatch-Waxman Amendments.  The Company has approximately twenty-four other products in various stages of development for which applications have not yet been filed.  These other products are generic versions of pharmaceutical products that had U.S. sales of approximately $14.6 billion in the twelve months ended April 30, 2004, according to NDCHealth.

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**Critical Accounting Policies**

Revenue Recognition

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 SAB 104 was issued by the SEC.  This bulletin clarifies portions of Topic 13 of the Staff Accounting Bulletin to be consistent with current accounting and auditing guidance and SEC rules and regulations and revises accounting guidance contained in SAB101 related to multiple element revenue arrangements of EmergingIssues Task Force (EITF) No. 00-21 superseded as a result of the issuance.

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 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 SAB104 AND EITF No. 00-21 for multiple element arrangements.  Upfront and milestone payments from these strategic alliances are deferred and recognized over the life of the agreements as the Company fulfills its contractual obligation to manufacture and supplies products during this period.  In addition, in some agreements, the Company receives and records royalty revenue based on a percentage of the strategic partner’s total sales to their customers of the products supplied by IMPAX.

In June 2001, the Company entered into a Strategic Alliance Agreement with a subsidiary of Teva for twelve controlled-release generic pharmaceutical products.  The agreement granted Teva exclusive U.S. prescription marketing rights for these products for a period of ten years from the date of Teva’s first sale of the products. 

Returns Reserve

The Company estimates future product    returns at the time of sale. Product returns by wholesalers principally relate    to the return of expired products. For product return reserves, we consider    volume and mix of product in the marketplace, historical return rates, and    the competitive environment, all of which require us to use estimates and    assumptions. IMPAX introduces a number of new products each year. As a result,    the Company has been able to monitor historical return rates for new products.    Based on our historical data, since we are in one business segment, we have    found that generic pharmaceutical product returns are alike and that new    product returns have similar characteristics to existing products. Usually,     new products are AB rated (products that demonstrated bioequivalence with    innovator products), have 24 month expiration dating, and are marketed to    the same customers, i.e., wholesalers, warehousing chains, distributors,    etc. The AB rated products are substitutable by the pharmacist for the innovator    products. The non-AB rated products, such as the LIPRAM product family, generally,    maynot be substituted by the pharmacist as they are therapeutic alternatives, not    generic substitutes. Any change to a patient’s prescription to an alternative    product requires    the patient’sphysician approval for the substitution. We are monitoring returns by productand, whereapplicable, we establish specific product return reserves and/or adjust our estimatesof the future return rates based on various business and competitive assumptions.

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.

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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 22-month calculation to estimate our product return rate.

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

Generally, sales rebates are calculated at the point of sale, based on pre-existing written customer agreements by product and accrued on a monthly basis.  However, we do estimate additional rebates for specific purposes, i.e., new pharmacy store openings.

The vast majority of chargebacks are also calculated at the point of sale as the difference between list price and contract price by product (with the wholesalers) and accrued on a monthly basis.  There are additional chargebacks that 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 and buying groups.

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.

Inventory

Our inventories are valued at the lower of cost or market.  Costs are determined using a standard cost method, first-in, first-out (FIFO) flow of goods.  Costs include materials, labor, quality control and production overhead.  We review and adjust inventory for short-dated product and inventory commitments under supply agreements based on projections of future sales and market conditions.  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.  If our inventory is greater thanestimated shipments to our customers, there may be an inventory write-down.  Therefore, the Company’s management must make significant estimates relating to inventory.

Impaired Assets

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 aredetermined 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.  

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. 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. 

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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.

**Results of Operations**

Except for the six months ended June 30, 2004, we have incurred net losses in each quarter since our inception.  We had an accumulated deficit of $94,929,000 at June 30, 2004.

**Three Months Ended June 30, 2004, Compared to Three Months Ended June 30, 2003**

**Overview**

The net income for the three months ended June 30, 2004, was $572,000 as compared to a net loss of $2,284,000 for the three months ended June 30, 2003.

**Revenues**

Revenues for the second quarter of 2004 were $30,845,000, up more than 119% compared with revenues of $14,067,000 in the prior year’s second quarter.  The year-over-year increase for the quarter was primarily due to shipments of our generic versions of Wellbutrin® SR (Bupropion Hydrochloride) 100 mg  and 150 mg Controlled Release Tablets, and Declomycin® (Demeclocycline Hydrochloride) 150 mg and 300 mg Tablets, which commenced during the first quarter of 2004; Zyban® (Bupropion Hydrochloride) and Sinemet® CR (Carbidopa/Levodopa) Extended Release Tablets, which commenced during the second quarter of 2004; and higher over-the-counter (OTC) product revenues.  The sequential quarter decline was due to timing of product shipmentsand pipeline filling, particularly as related to the launch of Bupropion Hydrochloride in the first quarter.  During the 2004 second quarter, IMPAX’s revenues from sales of Bupropion Hydrochloride products, through our strategic alliance agreements with Teva and Andrx, were approximately $8,089,000, compared with $23,870,000 in the first quarter.  In addition, in the first quarter the Company recognized revenue of $2.5 million from Teva related to the refundable deposit under its strategic alliance agreement.

The balance of $541,000 of other revenue represents revenues recognized pursuant to strategic agreements with Schering-Plough, Wyeth, and Novartis.  These amounts represent the amortization of the milestone payments received by the Company over the life of the agreements.  The following table summarizes the activity in net revenues for the three months ended June 30, 2004 and 2003:

|                      |   |   | **2004**                                                                             |   |   | **2003**                                                        |   |
|---------------------------|--------|--------|--------------------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------|--------|
|                           |        |        |                                                                                      |        |        |                                                                 |        |
| (in 000’s)          |   |   |                                                                                 |   |   |                                                            |   |
| Product sales             |   | $      |    38,364                                                             |   | $      |    17,932                                        |   |
| Less:                     |   |   |                                                                                 |   |   |                                                            |   |
| Rebates                   |   |   | (2,207                                                                               | )      |   | (1,741                                                          | )      |
| Chargebacks               |   |   | (3,814                                                                               | )      |   | (2,040                                                          | )      |
| Product    return reserve |   |   |              (1,021 | )      |   | (   188                                                         | )      |
| Other    credits          |   |   |      (1,018                                                 | )      |   |      (503                              | )      |
|                           |        |        |                                                                                      |        |        |                                                                 |        |
| Net    sales              |   |   | 30,304                                                                               |   |   | 13,460                                                          |   |
| Other Revenues            |   |   |          541                            |   |   |           607 |   |
|                           |        |        |                                                                                      |        |        |                                                                 |        |
| Total    Revenues         |   | $      |    30,845                                                             |   | $      |    14,067                                   |   |
|                           |        |        |                                                                                      |        |        |                                                                 |        |

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The rebates, chargebacks, returns and other credits decreased for the three months ended June 30, 2004 to approximately 21% of product sales as compared to approximately 25% for the comparable period in 2003.  This decrease was mainly due to Bupropion Hydrochloride 100 mg and 150 mg Controlled Release Tablets, Loratadine and Pseudoephedrine Sulfate (5mg/120mg) 12-hour Extended Release Tablets which are exempt from rebates, chargebacks and other credits as per the agreements with Teva, Schering-Plough, Wyeth, and Novartis.

Currently, the Company has one reportable operating segment: generic pharmaceutical business.  However, we currently market our products through three different channels, as follows:

|  | • | Direct sale of prescription (Rx) products, such as LIPRAM, Fludrocortisone, Terbutaline, Minocycline, Demeclocycline, Flavoxate, Carbidopa/Levodopa and others, through our Global Pharmaceuticals division, called “Global”; |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  |   |                                                                                                                                                                                                         |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | Sale of prescription (Rx) products, such as Bupropion Hydrochloride, exclusively, through marketing partners, pursuant to strategic alliance agreements, such as Teva, called “Rx Partners;” and |

|  |   |                                                                                                                                                                            |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | Sale of Loratadine OTC products through marketing partners, pursuant to strategic alliance agreements, such as Schering, Wyeth, Novartis, and Leiner, called “OTC.” |

The following table summarizes the net sales for the three months ended June 30, 2004 compared to the three months ended June 30, 2003 by marketing channel:

|              |   |   | **   2004   ** |   |   | **   2003   **          |   |
|-------------------|--------|--------|----------------------------------------------|--------|--------|-------------------------------------------------------|--------|
|                   |        |        |                                              |        |        |                                                       |        |
| (in 000’s)  |   |   |                                         |   |   |                                                  |   |
| Global            |   | $      |    16,649                     |   | $      |    9,709                               |   |
| Rx Partners       |   |   | 8,628                                        |   |   | —                                                |   |
| OTC               |   |   |       5,027    |   |   |         3,751 |   |
|                   |        |        |                                              |        |        |                                                       |        |
| Total    Revenues |   | $      |    30,304                     |   | $      |    13,460                         |   |
|                   |        |        |                                              |        |        |                                                       |        |

The quarter-to-quarter increase of approximately $6.9 million in Global products were primarily due to new products introduced in 2004 and late 2003, such as Demeclocycline of approximately $3.6 million, Carbidopa/Levodopa of approximately $0.8 million, and Flavoxate of approximately $0.9 million, as well as higher LIPRAM products of approximately $1.2 million.

Rollforward analyses for each significant revenue dilution item are listed on Note 4.

***Cost of Sales***

The cost of sales for the three months ended June 30, 2004, was $18,537,000 as compared to $9,321,000 for the same period in 2003.  The overall increase in cost of sales was primarily due to the increase in cost of materials as a result of increased product sales.

***Gross Margin***

Gross margin for the three months ended June 30, 2004 was $12,308,000, or approximately 39.9% of total revenues, compared with gross margin of $4,746,000, or approximately 33.7% of total revenues, in the prior year’s second quarter, and down sequentially from $20,303,000, or approximately 52.3%, of total revenues in the first quarter of 2004.  The year-over-year increase in the gross margin percentage was primarily due to the introduction of new products since last year with higher margins, such as Bupropion Hydrochloride, Demeclocycline Hydrochloride, Flavoxate, and Carbidopa/Levodopa.  The decrease in the gross margin percentage from the first quarter of 2004 to the second quarter of 2004 was primarily due to changes in product mix:higher OTC product revenues that have lower margins and lower Bupropion Hydrochloride product sales that have higher margins in the second quarter, and the $2,500,000 first quarter revenue from Teva related to the refundable deposit.

***Research and Development Expenses***

The research and development expenses for the three months ended June 30, 2004 were $5,104,000 less reimbursements of $78,000 by a subsidiary of Teva Pharmaceutical Industries, Ltd. under the Strategic Alliance Agreement signed in June 2001, as compared to $3,558,000 less reimbursements of $22,000 for the same period in 2003.  The research and development expenditures in 2004 as compared to 2003 were attributable to higher personnel costs, biostudies, clinical studies, and new product introduction costs (technical transfer, scale-up and validation).

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***Patent and Patent Litigation Costs***

The patent and patent litigation    expenses for the three months ended June 30, 2004, were $2,563,000 as compared    to $789,000 for the same period in 2003. The year-to-year increase for the    three months was primarily due to the ongoing Paragraph IV litigation related    toour Omeprazole Capsules and Fenofibrate Tablets ANDAs.

***Selling Expenses***

The selling expenses for the three months ended June 30, 2004 were $711,000 as compared to $438,000 for the same period in 2003.  The increase in selling expenses as compared to 2003 was primarily due to higher personnel costs.

***General and Administrative Expenses***

The general and administrative expenses for the three months ended June 30, 2004 were $3,117,000 as compared to $2,083,000 for the same period in 2003.  The increase in general and administrative expenses as compared to 2003 was primarily due to higher professional fees, insurance premiums, and personnel costs.

***Interest Income***

Interest income for the three months ended June 30, 2004 was $271,000 as compared to $70,000 for the same period in 2003, primarily due to higher average cash equivalents and short-term investments generated from the net proceeds of the Company’s $95 million convertible senior subordinated debentures.

***Interest Expense***

Interest expense for the three months ended June 30, 2004 was $564,000 as compared to $264,000 for the same period in 2003.  The increase in the interest expense for 2004 was primarily due to the 1.25% interest accrued on the Company’s $95 million convertible senior subordinated debentures.

***Income Taxes***

In the second quarter 2004, the Company provided for income taxes of $30,000 or 5% of income before taxes, as compared to $0 for the 2003 period.  The effective tax rate in 2004 reflects the partial reversal of the deferred income tax asset valuation allowance recognized.  The valuation allowance was reduced to reflect the utilization of federal and state loss carryforwards that offset the current tax component of the income tax provision.  We evaluate the realizability of deferred tax assets on an annual and quarterly basis or if there is a significant change in circumstance that may cause a change in our judgment about the realizability of our deferred tax assets.  Any valuation allowance that may be released as a result of the evaluationprocess could have a material effect on our future results of operations.  At December 31, 2003, the Company had a net operating loss-carryforward totaling approximately $94,600,000, which expires from 2009 through 2023.

***Net Income***

The net income for the three months ended June 30, 2004, was $572,000 as compared to a net loss of $2,284,000 for the same period in 2003, primarily due to higher sales, partially offset by higher research and development, selling, and general administrative expenses.

**Six Months Ended June 30, 2004, Compared to Six Months Ended June 30, 2003**

**Overview**

The net income for the six months ended June 30, 2004, was $9,620,000 as compared to a net loss of $5,497,000 for the six months ended June 30, 2003.

**Revenues**

Revenues for the six months ended June 30, 2004 were $69,698,000, up more than 173% compared with revenues of $25,492,000 in the comparable period of the previous year.  The year-over-year increase for the six months was primarily due to shipments of our generic versions of Wellbutrin® SR (Bupropion Hydrochloride) 100 mg  and 150 mg Controlled Release Tablets, and Declomycin® (Demeclocycline Hydrochloride) 150 mg and 300 mg Tablets, which commenced during the first quarter of 2004, and Zyban® (Bupropion Hydrochloride) and Sinemet® CR (Carbidopa/Levodopa) Extended Release Tablets, which commenced during the second quarter of 2004.

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The Company generated $3,572,000 of other revenues in the 2004 period compared to $966,000 in the 2003 period.  Other revenue for the 2004 period included $2,500,000 from Teva, which represented the reversal of a portion of the refundable deposit for its exercise of the exclusivity option for certain products.

The balance of $1,072,000 of other revenue represents revenues recognized pursuant to strategic agreements with Schering-Plough, Wyeth, and Novartis.  These amounts represent the amortization of the milestone payments received by the Company, over the life of the agreement.  The following table summarizes the activity in net revenues for the six months ended June 30, 2004 and 2003:

|                                                  |   |   | **2004**                                                                             |   |   | **2003**                                                        |   |
|-------------------------------------------------------|--------|--------|--------------------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------------|--------|
|                                                       |        |        |                                                                                      |        |        |                                                                 |        |
| Product sales                                         |   | $      |    79,916                                                             |   | $      |    32,085                                        |   |
| Less:                                                 |   |   |                                                                                 |   |   |                                                            |   |
| Rebates                                               |   |   | (3,326                                                                               | )      |   | (2,803                                                          | )      |
| Chargebacks                                           |   |   | (5,962                                                                               | )      |   | (3,354                                                          | )      |
| Product    return reserve                             |   |   |              (2,802 | )      |   | (   320                                                         | )      |
| Other    credits                                      |   |   |       (1,700                                           | )      |   |      (1,082                            | )      |
|                                                       |        |        |                                                                                      |        |        |                                                                 |        |
| Net    sales                                          |   |   | 66,126                                                                               |   |   | 24,526                                                          |   |
| Revenue from reversal of refundable deposit from Teva |   |   | 2,500                                                                                |   |   | —                                                          |   |
| Other Revenues                                        |   |   |        1,072                                      |   |   |           966 |   |
|                                                       |        |        |                                                                                      |        |        |                                                                 |        |
| Total Revenues                                        |   | $      |    69,698                                                             |   | $      |    25,492                                   |   |
|                                                       |        |        |                                                                                      |        |        |                                                                 |        |

The rebates, chargebacks, returns and other credits decreased for the six months ended June 30, 2004 to approximately 17% of product sales as compared to approximately 24% for the comparable period in 2003.  This decrease was mainly due to Bupropion Hydrochloride 100 mg and 150 mg Controlled Release Tablets, Loratadine and Pseudoephedrine Sulfate (5mg/120mg) 12-hour Extended Release Tablets, which are exempt from rebates, chargebacks and other credits as per the agreements with Teva, Schering-Plough, Wyeth, and Novartis.  The following table summarizes the net sales for the six months ended June 30, 2004 as compared to the six months ended June 30, 2003 by marketing channel:

|             |   |   | **2004**                                  |   |   | **2003**                                              |   |
|------------------|--------|--------|-------------------------------------------|--------|--------|-------------------------------------------------------|--------|
|                  |        |        |                                           |        |        |                                                       |        |
| (in 000’s) |   |   |                                      |   |   |                                                  |   |
| Global           |   | $      |    25,835                  |   | $      |    16,865                                        |   |
| Rx Partners      |   |   | 32,501                                    |   |   | —                                                |   |
| OTC              |   |   |       7,790 |   |   |         7,661 |   |
|                  |        |        |                                           |        |        |                                                       |        |
| Total Revenues   |   | $      |    66,126                  |   | $      |    24,526                         |   |
|                  |        |        |                                           |        |        |                                                       |        |

The increase in Global products of approximately $9 million in the first six months of 2004 as compared to the same period in 2003 was primarily due to new products introduced in 2004 and late 2003, such as Demeclocycline of approximately $4.9 million, Flavoxate of approximately $1.4 million, Carbidopa/Levodopa of approximately $0.8 million, and higher sales of previously introduced products, such as Orphenadrine, of approximately $0.8 million, and LIPRAM products of approximately $0.8 million.

***Cost of Sales***

The cost of sales for the six months ended June 30, 2004, was $37,087,000 as compared to $17,468,000 for the same period in 2003.  The overall increase in cost of sales was primarily due to the increase in cost of materials as a result of increased product sales.

***Gross Margin***

Gross margin for the six months ended June 30, 2004 was $32,611,000, or approximately 46.8% of total revenues, as compared to $8,024,000, or approximately 31.5% of total revenues, for the same period in 2003.  The year-over-year increase in the gross margin percentage was primarily due to the introduction of new products since last year with higher margins, such as Bupropion Hydrochloride, Demeclocycline Hydrochloride, Flavoxate, and Carbidopa/Levodopa, and the $2,500,000 revenue from Teva related to the refundable deposit.  

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***Research and Development Expenses***

The research and development expenses for the six months ended June 30, 2004 were $9,810,000 less reimbursements of $89,000 by a subsidiary of Teva Pharmaceutical Industries, Ltd. under the Strategic Alliance Agreement signed in June 2001, as compared to $7,006,000 less reimbursements of $154,000 for the same period in 2003.  The higher research and development expenditures in 2004 as compared to 2003 were attributable to higher personnel costs, biostudies, clinical studies, and new product introduction costs.

***Patent and Patent Litigation Expenses***

The patent and patent litigation    expenses for the six months ended June 30, 2004 were $4,361,000 as compared    to $1,096,000 for the same period in 2003. The year-to-year increase for    the six months was primarily due to the ongoing Paragraph IV litigation relatedto our Omeprazole Capsules and Fenofibrate Tablets ANDAs.

***Selling Expenses***

The selling expenses for the six months ended June 30, 2004 were $1,437,000 as compared to $1,006,000 for the same period in 2003.  The increase in selling expenses as compared to 2003 was primarily due to higher personnel costs.

***General and Administrative Expenses***

The general and administrative expenses for the six months ended June 30, 2004 were $6,468,000 as compared to $4,205,000 for the same period in 2003.  The increase in general and administrative expenses as compared to 2003 was primarily due to higher professional fees, insurance premiums, and personnel costs.

***Interest Income***

Interest income for the six months ended June 30, 2004 was $327,000 as compared to $112,000 for the same period in 2003, primarily due to higher average cash equivalents and short-term investments generated from the net proceeds of the Company’s $95 million convertible senior subordinated debentures.

***Interest Expense***

Interest expense for the six months ended June 30, 2004 was $836,000 as compared to $495,000 for the same period in 2003.  The increase in interest expense for 2004 was primarily due to the 1.25% interest accrued on the Company’s $95 million convertible senior subordinated debentures.

***Income Taxes***

For the six months ended June 30, 2004, the Company provided for income taxes of $506,000 or 5% of income before taxes, as compared to $0 for the 2003 period.  The effective tax rate in 2004 reflects the partial reversal of the deferred income tax asset valuation allowance recognized.  The valuation allowance was reduced to reflect the utilization of federal and state loss carryforwards that offset the current tax component of the income tax provision.  We evaluate the realizability of deferred tax assets on an annual and quarterly basis or if there is a significant change in circumstance that may cause a change in our judgment about the realizability of our deferred tax assets.  Any valuation allowance that may be released as a result of theevaluation process could have a material effect on our future results of operations.  At December 31, 2003, the Company had a net operating loss-carryforward totaling approximately $94,600,000, which expires from 2009 through 2023.

***Net Income***

The net income for the six months ended June 30, 2004, was $9,620,000 as compared to a net loss of $5,497,000 for the same period in 2003, primarily due to higher sales, partially offset by higher research and development, selling, and general administrative expenses.

***Liquidity and Capital Resources***

As of June 30, 2004, we had $98,556,000 in cash, cash equivalents and short-term investments.  Only $200,000 of the account balances are insured by the Federal Depository Insurance Company (FDIC).  The balance of the Company’s cash equivalents and the short-term investments are held in U.S. Treasury securities and high-grade commercial paper, which are not insured by the FDIC.

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The net cash provided by financing activities for the six months ended June 30, 2004, was approximately $101,016,000, consisting primarily of the $95,000,000 proceeds, less capitalized costs of $3,612,000, from the Company’s convertible senior subordinated debentures offering completed in April 2004, and proceeds of $3,771,000 from issuance of common stock upon the exercise of options and warrants.

In April 2004, the Company terminated the loan agreements with PIDA and DRPA and repaid the remaining balances totaling approximately $992,000.

For the six months ended June 30, 2004, significant uses of cash from operating activities included, primarily, the increase in accounts receivable balance of $13,455,000 and  inventory buildup of $8,623,000, partially offset by favorable cash flow from operations, (excluding depreciation and amortization) of $11,702,000.  During the three months ended June 30, 2004, we repaid our partners, Teva and Andrx, approximately $11.8 million for their portion of funding the inventory buildup for the Bupropion Hydrochloride products.

Our capital expenditures for the six months ended June 30, 2004 were $6,269,000 as compared to $1,125,000 for the same period in 2003.  The net cash used in investing activities included $45,244,000 for the purchase of the short term investments in U.S. Treasury securities and high-grade commercial paper.

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 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 June 30, 2004, we borrowed    approximately $5,000,000 against the revolving credit line and $2,880,000    against the term loan. In April 2004, the $25 million loan and security agreement    was amended, as follows: (1) the cash collateral requirement of $10 million    was removed; (2) the adjusted excess availability covenant was removed;    (3) the maximum permitted capital expenditure amount was aggregated to $45,000,000    for the years 2004 and 2005, and (4) as a condition of items (1) and (2)    above, IMPAX is required to maintain a minimum cash balance at Wachovia of    $25,000,000.

We have no interest rate or derivative financial instruments nor material foreign exchange risks.  We are also not party to any off-balance-sheet arrangements, other than operating leases.

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 for the next twelve months ranging from $18 to $22 million, primarily in plant capacity expansion, will constitute a material use of our cash resources. 

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

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

**Recent Accounting Pronouncements**

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 firstfiscal 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.

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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.  During the six months ended June 30, 2004 and 2003, theemployer 401-K match was $218,000 and $150,000, respectively.

In February 2004, the FASB issued revised FSP pertaining to FIN 46(R).  The revised FSPs replace certain previously issued FIN 46 FSP for entities to which FIN 46(R) is applicable.  This revision to FIN 46 did not have a material impact on the Company’s financial condition or results of operation.

In February 2004, the FASB revised SFAS 133, Accounting for Derivative Instruments and Hedging Activities for Implementation issue E2L, A1J, and C6. The revisions to SFAS 133 did not have a material impact on the Company’s financial condition or results of operation.

In June 2004, the FASB discussed    EITF 04-08, The Effect of Contingently Convertible Debt on Diluted Earnings    Per Share. The EITF task force has proposed that companies count the shares    that could be issued upon conversion of securities like the Company’s    debentures when calculating fully diluted per share earnings. This EITF is    not yet effective. However, we disclosed in Note 2 the potential effect of    this EITF on the Company’s fully diluted EPS calculation.

**Major Operational Highlights for the Six Months Ended June 30, 2004**

| • | On January 28, 2004, IMPAX announced that the U.S. Food and Drug Administration (FDA) granted final approval to the Company's Abbreviated New Drug Application (ANDA) for its generic version of Wellbutrin® SR (Bupropion Hydrochloride) 100 mg Controlled Release Tablets and granted tentative approval to the Company's generic version of Wellbutrin SR 150 mg Controlled Release Tablets. GlaxoSmithKline markets Wellbutrin SR for the treatment of depression.  According to NDCHealth, U.S. sales of these dosage forms of Wellbutrin SR Tablets were approximately $1.2 billion in the twelve months ended June 30, 2004. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | On January 29, 2004, IMPAX announced that the Court of Appeals for the Federal Circuit in Washington, D.C. upheld a lower court decision that ruled against certain claims by GlaxoSmithKline in regards to the Company's ANDA for Wellbutrin SR (Bupropion Hydrochloride) 100 mg and 150 mg and for Zyban® (Bupropion Hydrochloride) 150 mg. GlaxoSmithKline markets Wellbutrin SR for the treatment of depression and Zyban for smoking cessation. |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | On February 27, 2004, IMPAX announced that the FDA granted tentative approval to the Company's ANDA for its generic version of Allegra®-D (Fexofenadine Hydrochloride and Pseudoephedrine Hydrochloride 60mg/120mg) Extended Release Tablets. Aventis Pharmaceuticals markets Allegra-D for the treatment of the symptoms associated with seasonal allergic rhinitis. According to NDCHealth, U.S. sales of Allegra-D were approximately $438 million in the twelve months ended June 30, 2004. |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | On March 5, 2004, IMPAX announced that the FDA granted final approval to the Company's ANDA for a generic version of Claritin®-D 24-Hour (Loratadine and Pseudoephedrine Sulfate, 10mg/240mg) Extended Release Tablets. Schering-Plough Corporation markets Claritin-D 24-Hour as an over-the-counter (OTC) drug for the relief of symptoms of seasonal allergic rhinitis (hay fever). According to NDCHealth, U.S. sales of Claritin-D 24-Hour were $7 million for the twelve months ended June 30, 2004. |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • | On March 8, 2004, IMPAX announced that the FDA granted tentative approval to the Company's ANDA for its generic version of Tricor® (Fenofibrate) Tablets. Tricor Tablets are marketed by Abbott Laboratories, Inc. to assist patients in managing their cholesterol levels. The drug is indicated for use in reducing elevated LDL cholesterol, total cholesterol, triglycerides and Apo B and increasing HDL cholesterol in patients with primary hypercholesterolemia or mixed lipidemia. The drug has also been approved as adjunctive therapy for the treatment of hypertriglyceridemia, a disorder characterized by elevated levels of very low density lipoprotein (VLDL) in the plasma. According to NDCHealth, U.S. sales of Tricor Tablets were approximately $684 million for thetwelve months ended June 30, 2004. |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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| • | On March 22, 2004, IMPAX announced that the FDA granted final marketing approval to the Company's ANDA for its generic version of Wellbutrin SR (Bupropion Hydrochloride) 150 mg Controlled Release Tablets. The FDA had previously granted final approval for the Company's application for the 100 mg strength. GlaxoSmithKline markets Wellbutrin SR for the treatment of depression. Both products were shipped to our marketing partner, Teva. |

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| • | On March 23, 2004, IMPAX announced that the FDA granted final marketing approval to the Company's ANDA for its generic version of Declomycin® (Demeclocycline Hydrochloride) 150 and 300 mg. Tablets. ESP Pharma markets Declomycin for the treatment of various infections. According to NDCHealth, U.S. sales of Declomycin were approximately $30 million for the twelve months ended June 30, 2004. |
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| • | On May 17, 2004, IMPAX announced that the FDA granted final approval to the Company's ANDA for Carbidopa/Levodopa Extended Release Tablets, its generic version of Sinemet® CR tablets.  Bristol-Myers Squibb markets Merck & Co.'s Sinemet CR exclusively in the U.S. for the treatment of Parkinsonism.  According to NDCHealth, U.S. prescription sales of Sinemet CR and the one currently marketed generic equivalent were $123 million in the twelve months ended June 30, 2004. |

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| • | On May 27, 2004, IMPAX announced that the FDA granted final marketing approval to the Company's ANDA for its generic version of Zyban, Bupropion Hydrochloride 150 mg Controlled Release Tablets.  GlaxoSmithKline markets Zyban for smoking cessation.  According to NDCHealth, U.S. sales of Zyban were approximately $59 million in the twelve months ended June 30, 2004. |

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| • | On May 28, 2004, IMPAX announced that the FDA granted final marketing approval to the Company's ANDA for its generic version of Proamatine®, Midodrine Hydrochloride 2.5 and 5 mg Tablets.  Shire Pharmaceuticals Group plc markets Proamatine for treatment of symptomatic orthostatic hypotension.  According to NDCHealth, U.S. market sales of Proamatine 2.5 mg and 5 mg and the two other marketed generic versions were approximately $48 million in the twelve months ended June 30, 2004. |

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| • | On June 18, 2004, IMPAX announced that the FDA granted IMPAX a second tier 180-day exclusivity related to its pending ANDA for a generic version of Glucophage XR®, Metformin HCl Extended Release Tablets, 500mg.  IMPAX has selectively waived its rights to this exclusivity to Teva Pharmaceuticals USA Inc. and will be sharing in the profits of Teva's Metformin HCl Extended Release Tablets as provided for in the Strategic Alliance Agreement between IMPAX and Teva signed in June 2001.  On August 2, 2004, the FDA granted final marketing approval to the Company’s ANDA for its generic version of Glucophage XR, Metformin HCl Extended Release Tablets, 500 mg.  Bristol-Myers Squibb markets Glucophage XR for the improvement of glycemic control in patients withtype 2 diabetes.  According to NDCHealth, U.S. market sales of Glucophage XR 500 mg and other marketed generic versions were approximately $376 million in the twelve months ended June 30, 2004. |

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| **ITEM 3.** | **QUANTITATIVE AND QUALITATIVE    DISCLOSURES ABOUT MARKET RISK** |

The Company’s cash and cash equivalents includes U.S. government and short-term high-grade commercial paper stated at cost which approximates market value.  The primary objective of the Company’s investment activities is to preserve principal and maximize 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, and short-term high-grade commercial paper.  One hundred percent of the Company’s portfolio matures in less than one year.  The carrying value of the portfolio approximates the market value at June 30, 2004.  The Company’s debt instruments at June 30, 2004, aresubject to fixed and variable interest rates and principal payments.  We believe that the fair value of our fixed and variable rate long-term debt approximates their carrying value of approximately $108 million at June 30, 2004.  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.

We have no interest rate or derivative financial instruments nor material foreign exchange risks.  We are also not party to any off-balance-sheet arrangements, other than operating leases.

| **ITEM 4.** | **CONTROLS AND PROCEDURES** |
|-------------|-----------------------------|

The Company, under the supervision    and with the participation of our management, including our principal executive    officer and our principal financial officer, evaluated the effectiveness    of our disclosure controls and procedures (as defined in Exchange Act Rule    13a-15[e]), as of the end of the period covered by this report. Based on    this evaluation, our principal executive officer and our principal financial    officer    concluded that our disclosure controls and procedures are effective in reaching    a reasonable level of assurance that information required to be disclosed    by us in the reports that we file or submit under the Securities Exchange    Act of 1934, as amended, is recorded, processed, summarized, and reported    within the time period specifiedin the Securities and Exchange Commission’s rules and forms.  The principalexecutive officer and principal financial officer also conducted an evaluationof internal control over financial reporting (“Internal Control”)to determine whether any changes in Internal Controls occurred during the quarterthat have materially affected, or which are reasonably likely to materially affect,Internal Controls.

Based on this 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.  The Company conducts periodic evaluations of its internal controls to enhance, where necessary, itsprocedures and controls.  Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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**PART II  – OTHER INFORMATION****ITEM      1.     LEGALPROCEEDINGS**

**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 maychallenge 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, aswell 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.

**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 reimbursement for costs and attorney fees associated with this litigation.

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 inseveral 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.

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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 were produced on July 12, 2004.  

Under the December 2003 scheduling order, Astra's reply reports would have been due on August 6, 2004, and expert depositions would have commenced shortly thereafter.  Following receipt of IMPAX's six expert reports on July 12, 2004, as well as 17 other reports produced by four other defendants, Astra requested a further modification of the scheduling order.  Astra's request for a three-month extension of the time for its reply reports was denied, but the Court granted Astra an additional five-week period to respond to the defendants' rebuttal reports on non-infringement.  The schedule for expert depositions must be re-established.  Nevertheless, expert depositions will be conducted between September 14, 2004, when reply reports are now due, andthe end of 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. 

Under the December 2003 schedule, Motions for Summary Judgment may not be filed, as of right, until October 19, 2004. IMPAX has recently requested permission to file an earlier motion for summary judgment on one aspect of the case.  Other defendants have also requested permission to file early motions for summary judgment on other aspects of the litigation.  

IMPAX may file additional Motions for Summary Judgment, including other Motions for Summary Judgment of Non-Infringement, following the close of all discovery or after October 19, 2004, whichever comes first.  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.  IMPAX believes, however, that any trial that might be scheduled in the case will commence in the first half of 2005.

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.

**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 seeksan 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. 

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Fact discovery in this action is scheduled to close on October 29, 2004.  IMPAX believes that it has defenses to the claims made by Aventis based on noninfringement and invalidity.  A tentative trial date has been scheduled for October 2005.

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 March 25, 2004, Aventis and AMR filed a complaint and first amended complaint against IMPAX and Ranbaxy, alleging infringement of two additional patents relating to the process for making the active pharmaceutical ingredient, fexofenadine hydrochloride.  These patents, United States Patent Nos. 5,581,011 and 5,750,703, are owned by AMR and exclusively licensed to Aventis.

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.  On June 29, 2004, the court granted theCompany’s Motions for Summary Judgment of Non-infringement of the ‘912 and ‘942 patents and denied the Company’s Motion for Summary Judgment of Non-infringement of the ‘974 patent.  At the same time, the court ordered that a ruling on the Company’s motion for Summary Judgment for the Non-infringement of the ‘872 patent is reserved pending a Markman hearing to be held on September 9, 2004 to assist the court in construing the patent’s product-by-process claims.

**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. 5,508,042, 5,549,912 and 5,656,295; 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.

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 when IMPAX’s case goes 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.  Purdue has appealed that ruling to the Court of Appeals for the Federal Circuit.

**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.

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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 United States Patent and Trademark Office (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.  The court has not issued its trial rulings and did not rule on the third pre-trial Motion for Summary Judgment based on invalidity of the patent-in-suit.

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 to 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.

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 mg 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.  Fact and expert discovery in the consolidated cases closes in November 2004 and the trial is currentlyset 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.  

**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 sought to dismiss each count ofSolvay’s complaint.  On January 9, 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.  On January 26, 2004, IMPAX filed its Answer to the Complaint and Counterclaim alleging that Solvay wrongfully interfered with IMPAX’s business relationships.  On February 17, 2004, Solvay filed its Reply to IMPAX’s  Counterclaim.  On February 24, 2004, the Rule 16 Scheduling Conference was held and, on February 25, 2004, the Court issued a Scheduling Order setting the deadline for discovery on January 14, 2005, and a trial date for July 1, 2005.  Fact discovery iscurrently ongoing in this case.  IMPAX believes it has defenses to Solvay’s allegations and intends to pursue these defenses vigorously.

**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.  Discovery is on-going and trial is currently set for November 2005.

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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 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.  On April 19, 2004, the Court denied Alza’s motion.  On May 18, 2004,the Court ordered the entry of a stipulation of dismissal based on a covenant not to sue issued by Alza to the Company with respect to the four Alza patents in the case.

**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 on January 20, 2004, denying infringement and contesting the validity of both patents.  All discovery is expected to be completed by March 2005.  A tentative court date has been scheduled for October 11, 2005.

**OTHER LITIGATION**

**State of California v. IMPAX**

On August 7, 2003, IMPAX received an Accusation from the Department of Justice, Bureau of Narcotic Enforcement, State of California (“BNE”), alleging that IMPAX failed to maintain adequate controls to safeguard precursors from theft or loss regarding our pseudoephedrine product in January 2003.  IMPAX contested the allegations in the Accusation and entered into discussions with the State of California, Department of Justice, 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 California Department of Justice, Bureau of Narcotic Enforcement.  In March 2004, following a theft ofpseudoephedrine from IMPAX’s facilities, the BNE filed an Amended Accusation, again alleging that IMPAX failed to maintain adequate controls to safeguard precursors from theft or loss regarding our pseudoephedrine product.  In May 2004, a Notice of Hearing was received from BNE, which set the hearing of this matter, should one be necessary, for October 18 and October 19, 2004.  IMPAX is continuing its discussions with the State of California, Department of Justice, and hopes to resolve this matter without the need for a formal hearing.

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 had 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 covered 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.  Both policies had reached their limits of liability.  While Teva has agreed to pay 45% to 50% of the attorneys’ fees and costs (in excess of the $7 million expected to be covered by our insurance policies for six products) related to the twelve products covered by our strategic allianceagreement 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. 

Product liability claims by customers constitute a risk to all pharmaceutical manufacturers.  We currently carry $80 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 2.     CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES**

On May 17, 2004, we filed an amendment to our Restated Certificate of Incorporation, as amended, with the Secretary of State of the State of Delaware, which amendment increased the number of our authorized shares of common stock from 75,000,000 to 90,000,000.  Our board will generally be able to issue additional shares of common stock without the approval of our stockholders.  These future issuances will dilute the ownership interests of our stockholders.

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**1.250% Convertible Senior Subordinated Debentures**

On April 5, 2004, the Company issued and sold $95.0 million in aggregate principal amount of its 1.250% convertible senior subordinated debentures due 2024.  The debentures were sold by the Company to Citigroup Global Markets Inc., Wachovia Capital Markets, LLC and First Albany Capital Inc., as initial purchasers, in a private placement exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”).  We have been advised by the initial purchasers that they have resold, and/or intend in the future to resell, the debentures to “qualified institutional buyers” (as defined in Rule 144A promulgated under the Securities Act) in transactions exempt from the registration requirements of the SecuritiesAct in reliance on Rule 144A.  

The issuance and sale of the debentures resulted in net proceeds to the Company of approximately $91,388,000.  These proceeds are being used for general corporate purposes, including working capital requirements, manufacturing of our products and research and development.  

The debentures bear interest at the rate of 1.250% per year.  Interest on the debentures is payable on April 1 and October 1 of each year, beginning on October 1, 2004.  The debentures are convertible by holders into shares of our common stock at a conversion price of $28.08 per share  (which is subject to adjustment upon certain events, but represented a 30% premium over our stock price at the time the debentures were issued).  The debentures are convertible by holders into shares of our common stock if (1) the price of our common stock reaches a specific threshold; (2) the trading price for the debentures falls below certain thresholds; (3) the debentures have been called for redemption; or (4) certain corporate transactions occur.

The debentures mature on April 1, 2024, unless earlier redeemed, repurchased or converted.  Before April 5, 2007, we may redeem some or all of the debentures if the price of our common stock reaches a specific threshold, at a redemption price that includes an additional payment on the redeemed debentures equal to $230.77 per $1,000 principal amount of debentures, less the amount of any interest actually paid or accrued and unpaid on the debentures.  On and after April 5, 2007, the Company may redeem some or all of the debentures at certain specified redemption prices.  

The debentures are the Company’s unsecured obligations and are subordinated in right of payment to all of the Company’s existing and future senior indebtedness.  On April 1, 2009, April 1, 2014, and April 1, 2019, and under certain circumstances, holders of the debentures will have the right to require us to repurchase all or any part of their debentures at a repurchase price equal to 100% of the principal amount of the debentures, plus accrued and unpaid interest and liquidated damages, if any, to, but excluding the repurchase date.

In connection with the offering of    the debentures, we filed a Form S-3 registration statement with the SEC in    June 2004. The registration statement has not yet been declared effective    by the SEC. If the registration statement on Form S-3 is not declared effective    by the SEC by October 4, 2004, then the interest rate payable on the debentures    will be subject to increase.

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

At the Company’s Annual Meeting of Stockholders held on May 17, 2004, the following actions were approved, by the votes indicated:

a)      Ten directors were elected:

| Leslie Z. Benet, Ph.D. | 43,846,077 |   | For | 732,889 |   | Withhold authority |   |
|------------------------|------------|--------|-----|---------|--------|--------------------|--------|
| Robert L. Burr         | 43,735,232 |   | For | 843,734 |   | Withhold authority |   |
| Barry R. Edwards       | 44,288,225 |   | For | 290,741 |   | Withhold authority |   |
| David J. Edwards       | 43,791,680 |   | For | 787,286 |   | Withhold authority |   |
| Nigel Fleming, Ph.D.   | 43,823,169 |   | For | 755,797 |   | Withhold authority |   |
| Charles Hsiao, Ph.D.   | 44,186,440 |   | For | 392,526 |   | Withhold authority |   |
| Larry Hsu, Ph.D.       | 44,287,092 |   | For | 291,874 |   | Withhold authority |   |
| Michael Markbreiter    | 44,204,397 |   | For | 374,569 |   | Withhold authority |   |
| Oh Kim Sun             | 44,405,446 |   | For | 173,520 |   | Withhold authority |   |
| Peter R. Terreri       | 44,402,145 |   | For | 176,821 |   | Withhold authority |   |

|   |                                                                                                                                       |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------|
| b)     | The proposed increase in the authorized shares of the Company’s common stock from 75,000,000 to 90,000,000, was approved as follows: |

| 43,025,827 |   |   | For |   |   | 1,510,097 |   |   | Against |   |   | 10,041 |   |   | Abstaining |   |
|------------|--------|--------|-----|--------|--------|-----------|--------|--------|---------|--------|--------|--------|--------|--------|------------|--------|

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| c)     | The appointment of Deloitte & Touche LLP as the Company’s independent accountants for the fiscal year ending December 31, 2004 was ratified, as follows: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                               |

| 44,013,036 |   |   | For |   |   | 556,763 |   |   | Against |   |   | 9,167 |   |   | Abstaining |   |
|------------|--------|--------|-----|--------|--------|---------|--------|--------|---------|--------|--------|-------|--------|--------|------------|--------|

**ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K**

| (a)    |   |   | Exhibits |   |   |   |                                                                                                                                                                                                                         |   |   |   |   |   |                                                                                                                                                         |   |
|--------|--------|--------|----------|--------|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |   |     |   |   |   |                                                                                                                                                                                                                         |   |   |   |   |   |                                                                                                                                                         |   |
|   |   |   |     |   | • |   | 3.18                                                                                                                                                                                                                         |   |   | — |   |   | Certificate of Amendment of Restated Certificate of Incorporation of Impax Laboratories, Inc. dated as of May 17, 2004.                                      |   |
|   |   |   |     |   |   |   |                                                                                                                                                                                                                         |   |   |   |   |   |                                                                                                                                                         |   |
|   |   |   |     |   | • |   | 10.65                                                                                                                                                                                                                        |   |   | — |   |   | Second Amendment to Loan and Security Agreement between Wachovia Bank and Impax Laboratories, Inc. dated June 23, 2004.                                      |   |
|   |   |   |     |   |   |   |                                                                                                                                                                                                                         |   |   |   |   |   |                                                                                                                                                         |   |
|   |   |   |     |   | • |   | 10.66                                                                                                                                                                                                                        |   |   | — |   |   | Amendment to the Development, License and Supply Agreement between Wyeth Consumer Healthcare Division and Impax Laboratories, Inc. dated as of July 9, 2004. |   |
|   |   |   |     |   |   |   |                                                                                                                                                                                                                         |   |   |   |   |   |                                                                                                                                                         |   |
|   |   |   |     |   | • |   | 31.1                                                                                                                                                                                                                         |   |   | — |   |   | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                          |   |
|   |   |   |     |   |   |   |                                                                                                                                                                                                                         |   |   |   |   |   |                                                                                                                                                         |   |
|   |   |   |     |   | • |   | 31.2                                                                                                                                                                                                                         |   |   | — |   |   | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                          |   |
|   |   |   |     |   |   |   |                                                                                                                                                                                                                         |   |   |   |   |   |                                                                                                                                                         |   |
|   |   |   |     |   | • |   | 32.1                                                                                                                                                                                                                         |   |   | — |   |   | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                    |   |
| (b)    |   |   | Reports  |   |   |   |                                                                                                                                                                                                                         |   |   |   |   |   |                                                                                                                                                         |   |
|   |   |   |     |   |   |   |                                                                                                                                                                                                                         |   |   |   |   |   |                                                                                                                                                         |   |
|   |   |   |     |   | • |   | On May 5, 2004, the Company furnished a report on Form 8-K (Items 9, 12) announcing earnings for the first quarter ended March 31, 2004.                                                                                     |   |
|   |   |   |     |   |   |   |                                                                                                                                                                                                                         |   |
|   |   |   |     |   | • |   | On May 17, 2004, the Company filed a report on Form 8-K (Item 9) announcing that the FDA had granted final approval to the Company's ANDA for Carbidopa/Levodopa Extended Release Tablets.                                   |   |
|   |   |   |     |   |   |   |                                                                                                                                                                                                                         |   |
|   |   |   |     |   | • |   | On May 27, 2004, the Company filed a report on Form 8-K (Item 9) announcing that the FDA had granted final marketing approval to the Company's ANDA for its generic version of Zyban® 150 mg Controlled Release Tablets. |   |
|   |   |   |     |   |   |   |                                                                                                                                                                                                                         |   |
|   |   |   |     |   | • |   | On May 28, 2004, the Company filed a report on Form 8-K (Item 9) announcing that the FDA had granted final marketing approval to the Company's ANDA for its generic version of Promatine 2.5 mg and 5 mg Tablets.            |   |
|   |   |   |     |   |   |   |                                                                                                                                                                                                                         |   |

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**SIGNATURES**

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

| IMPAX LABORATORIES, INC. |                                         |
|--------------------------|----------------------------------------------|
|                     |                                         |   |
|                     |                                         |   |
|                     |                                         |   |
| By:                      | /s/   BARRY R. EDWARDS        | August 9, 2004 |
|                          |                                              |  |
|                     | Chief Executive Officer                      |   |
|                     | (Principal Executive Officer)                |   |
|                     |                                         |   |
|                     |                                         |   |
|                     |                                         |   |
| By:                      | /s/   CORNEL C. SPIEGLER                     | August 9, 2004 |
|                          |                                              |  |
|                     | Chief Financial Officer                      |   |
|                     | (Principal Financial and Accounting Officer) |   |

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