Edgar Filing: IMPAX LABORATORIES INC

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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

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

For the transition period from ___________ to ___________

Commission file number 33-99310-NY

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

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

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

(510) 476-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act.
None

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

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

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

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

The aggregate market value of the Common Stock held by non-affiliates of
the Registrant (based on the closing price for the Common Stock on the Nasdaq
Stock Market on March 5, 2002) was approximately $264,200,000.(1) As of March 5,
2002, there were 46,759,408 shares of the Registrant's Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III is incorporated by reference to
specified portions of the Registrant's definitive Proxy Statement to be issued
in conjunction with the Registrant's 2002 Annual Meeting of Stockholders, which
is expected to be filed no later than 120 days after the Registrant's fiscal
year ended December 31, 2001.

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

(1) The aggregate market value of the voting stock set forth equals the number
of shares of the Company's common stock outstanding reduced by the amount
of common stock held by officers, directors and shareholders owning 10% or
more of the Company's common stock, multiplied by $10.30, the last reported
sale price for the Company's common stock on March 5, 2002. The information
provided shall in no way be construed as an admission that any officer,
director or 10% shareholder in the Company may be deemed an affiliate of
the Company or that he is the beneficial owner of the shares reported as
being held by him, and any such inference is hereby disclaimed. The
information provided herein is included solely for record keeping purposes
of the Securities and Exchange Commission.

IMPAX LABORATORIES, INC.

INDEX TO FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2001

Page
----

PART I

ITEM 1. Business.......................................................................................... 4
ITEM 2. Properties........................................................................................ 17
ITEM 3. Legal Proceedings................................................................................. 18
ITEM 4. Submission of Matters to a Vote of Security Holders............................................... 20

PART II

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters............................. 20
ITEM 6. Selected Financial Data........................................................................... 21
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 22
ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk........................................ 38
ITEM 8. Financial Statements and Supplementary Data....................................................... 38
ITEM 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.............. 38

PART III

ITEM 10. Directors and Executive Officers of the Registrant................................................ 38
ITEM 11. Executive Compensation............................................................................ 38
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.................................... 38
ITEM 13. Certain Relationships and Related Transactions.................................................... 39

PART IV

ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................. 39

PART I

When used in this discussion, the words "believes," "anticipates," "expects,"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected.

The Company's business and results of operations are affected by a wide variety
of factors that could materially and adversely affect the Company and its actual
results, including, but not limited to, the ability to obtain governmental
approvals on additional products (including, to the extent appropriate
governmental approvals are not obtained, the inability to manufacture and sell
products), the impact of competitive products and pricing, product demand and
market acceptance, new product development, reliance on key strategic alliances,
uncertainty of patent litigation filed against the Company, availability of raw
materials, and the regulatory environment. As a result of these and other
factors, the Company may experience material fluctuations in future operating
results on a quarterly or annual basis which could materially and adversely
affect its business, financial condition, operating results, and stock price. An
investment in the company involves various risks, including those referred to
above, and those which are detailed from time-to-time in the Company's filings
with the Securities and Exchange Commission.

These forward-looking statements speak only as of the date hereof. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements or to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.

ITEM 1. BUSINESS

Introduction

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

IMPAX markets its generic products through its Global Pharmaceuticals division
and intends to market its branded products through the Impax Pharmaceuticals
division. Prior to December 14, 1999, the Company was known as Global
Pharmaceutical Corporation ("Global"). On December 14, 1999, Impax
Pharmaceuticals, Inc., a privately held drug delivery company, was merged into
the Company and the Company changed its name to Impax Laboratories, Inc. For
accounting purposes, however, the acquisition has been treated as the
recapitalization of Impax Pharmaceuticals, Inc., with Impax Pharmaceuticals,
Inc. deemed the acquirer of Global in a reverse acquisition.

IMPAX, a Delaware Corporation, maintains its headquarters in Hayward,
California, in a 35,125 square foot facility which also serves as the primary
development center of the Company. A second facility of 50,400 square feet,
located in Hayward, California, is currently under construction to serve as the
primary manufacturing center. A third facility, located in Philadelphia,
Pennsylvania, serves as the primary commercial center, with sales, packaging,
and distribution occurring in this 113,000 square foot facility.

We have developed seven different proprietary controlled-release delivery
technologies that can be utilized with a variety of oral dosage forms and drug
release rates. We believe that these technologies are flexible and can be
applied to a variety of pharmaceutical products, both generic and branded.

Overview

As of December 31, 2001, we had 15 ANDAs pending at the FDA for generic versions
of brand name pharmaceuticals. The 2001 U.S. sales for the brand name
pharmaceuticals were approximately $8.0 billion. We have approximately 17 other
products in various stages of development for which ANDAs have not yet been
filed. These products are for generic versions of brand name pharmaceuticals
that had 2001 U.S. sales that were approximately $4.0 billion.

The following table sets forth information about nine ANDAs that are pending
with the FDA, all of which have been filed under Paragraph IV of the
Hatch-Waxman Amendments. In addition, we filed ANDAs for one other
controlled-release and five other generic products, with total U.S. sales for
2001 of $320 million.

-----------------------------------------------------------------------------------------------------------------------------
2001 U.S. Brand
Projects Brand Innovator Sales (in millions)
-----------------------------------------------------------------------------------------------------------------------------

Controlled-release
-----------------------------------------------------------------------------------------------------------------------------
- Omeprazole Prilosec AstraZeneca PLC $4,611
-----------------------------------------------------------------------------------------------------------------------------
- Bupropion Wellbutrin SR GlaxoSmithKline PLC $1,143
-----------------------------------------------------------------------------------------------------------------------------
- Bupropion Zyban GlaxoSmithKline PLC $94
-----------------------------------------------------------------------------------------------------------------------------
- Loratadine/PSE Claritin D 24 hour Schering-Plough Corporation $528
-----------------------------------------------------------------------------------------------------------------------------
- Loratadine/PSE Claritin D 12 hour Schering-Plough Corporation $396
-----------------------------------------------------------------------------------------------------------------------------
- Fexofenadine/PSE Allegra D Aventis Pharmaceuticals $357
-----------------------------------------------------------------------------------------------------------------------------
- Oxycodone HCL Oxycontin Purdue Pharmaceuticals L.P. $415
-----------------------------------------------------------------------------------------------------------------------------
Other generic
-----------------------------------------------------------------------------------------------------------------------------
- Fenofibrate* Tricor Abbott Laboratories $238
-----------------------------------------------------------------------------------------------------------------------------
- Loratadine ODT Claritin Reditabs Schering-Plough Corporation $332
-----------------------------------------------------------------------------------------------------------------------------

*Tentative approval from FDA received on February 20, 2002.

We have three brand name projects under development. These projects are for
improved versions of brand name pharmaceuticals that had 2001 U.S. sales of
approximately $1.5 billion. We expect to file our first product application with
the FDA from these projects in the first half of 2002. We are currently
evaluating three additional brand name projects.

We currently market 20 generic pharmaceuticals, which represent dosage
variations of seven different pharmaceutical compounds. Our existing customer
base includes large pharmaceutical wholesalers, warehousing chain drug stores,
mass merchandisers and mail-order pharmacies. We do not currently market any
brand name pharmaceuticals.

On December 17, 2001, we entered into an agreement granting to Novartis Consumer
Health ("Novartis") exclusive rights to market an over-the-counter (OTC) generic
Claritin (loratadine) which we will supply to Novartis. We are also continuing
discussions with potential OTC partners for two additional generic formulations
of Claritin (loratadine).

Background

Controlled-Release Technology

According to IMS Health Incorporated ("IMS"), product sales for the oral
controlled-release segment of the U.S. prescription drug market were
approximately $13.5 billion for the year ended December 31, 2001. The FDA has
approved approximately 80 oral controlled-release brand name products for sale
in the United States. Controlled-release pharmaceuticals are designed to reduce
the frequency of drug administration, improve the effectiveness of the drug
treatment, ensure greater patient compliance with the treatment regimen, and
reduce side effects by releasing drug dosages at specific times and in specific
locations in the body.

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

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

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

Generic Drug Companies

In the last five years, generic pharmaceutical companies have enjoyed
significant growth, due largely to a number of macroeconomic and legislative
trends. Factors impacting growth in the generic pharmaceuticals market include:

>> ANDA Approvals - ANDA approvals have increased significantly in the
last seven years. Since 1994, the FDA has approved approximately 215
ANDAs per year. During this period, the median approval time for ANDAs
has dropped from over 27 months to less than 19 months.

>> Payor Support for Generic Drugs - Managed care organizations and
government-sponsored health care programs are increasingly encouraging
the use of generic drugs as a means to control health care costs. As a
result, the market share of generic drugs as a percent of total U.S.
prescription units dispensed has been increasing steadily since the
passage of the Hatch-Waxman Amendments. In 2000, between 42% and 47% of
the prescriptions in the United States were filled with generics. This
fill rate has increased significantly since 1991, when approximately
32% of the prescriptions in the United States were filled with
generics.

>> Significant Patent Expirations on Brand Name Products - A significant
number of brand name products with annual sales over $100 million are
expected to come off patent in the next few years. This represents
significant opportunity for generic drug companies. The Office of
Generic Drugs estimates that by 2004, $30 billion of brand name drugs
will lose patent protection, and by 2010, $48 billion will lose this
protection.

STRATEGY

We expect our future growth to come from the following:

>> Aggressively File ANDAs - We intend to continue to develop our
portfolio of generic pharmaceuticals through the filing of ANDAs. Our
product development strategy is based on a combination of speed to
filing and a legal strategy primarily predicated upon non-infringement
of established brand name pharmaceuticals. In selecting our product
candidates, we focus on pharmaceuticals that we believe will have
potential for high sales volume or limited competition, are technically
challenging, and for which marketing exclusivity or patent rights have
expired or are near expiration.

>> Strategically Expand the Sales and Distribution of our Products - We
recently entered into a strategic alliance with a subsidiary of Teva
covering 12 of our controlled-release generic pharmaceutical products.
We also entered into an agreement to grant Novartis exclusive rights to
market an OTC generic Claritin (loratadine). We will depend on our
strategic alliances with Teva and Novartis to achieve market
penetration and product revenues for those products covered by the
alliances. We intend to seek additional strategic alliances with either
Teva, Novartis, or other partners for the expanded marketing and
distribution of our products. We believe our partnering strategy will
enable us to reduce the investment required to develop an internal
sales force and distribution network.

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

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

PRODUCTS AND PRODUCT DEVELOPMENT

Controlled-release generic pharmaceuticals

We apply our controlled-release drug delivery technologies and formulation
skills to develop bioequivalent versions of selected brand name pharmaceuticals.
We employ our proprietary processes and formulation expertise to develop
products that will reproduce the brand name product's physiological
characteristics but not infringe upon the patents relating to the brand name
product. In applying our expertise to controlled-release products, we focus our
efforts on generic versions of brand name pharmaceuticals that have technically
challenging drug delivery mechanisms. We currently have two ANDAs approved and
eight ANDAs under review by the FDA for controlled-release generic
pharmaceuticals. Seven of our pending ANDA filings for controlled-release
generic pharmaceuticals were made under Paragraph IV of the Hatch-Waxman
Amendments. Under Paragraph IV, we are required to certify to the FDA that our
product will not infringe the innovator's patents or that such patents are
invalid or unenforceable. This certification is known as a "Paragraph IV
Certification."

If our ANDA is accepted by the FDA, we must send a Paragraph IV Certification to
the patent and NDA holder. The patent holder may then initiate a legal challenge
to our Paragraph IV Certification within 45 days after receipt of the Paragraph
IV Certification. If a legal challenge is initiated, the FDA is automatically
prevented from approving the ANDA until the earlier of 30 months after the date
the Paragraph IV Certification is given to the patent and NDA holder, expiration
of the patent or patents involved in the certification, or when the infringement
case is decided in our favor. Filings made under the Hatch-Waxman Amendments
often result in the initiation of litigation by the patent holder and NDA
holder.

We have submitted ANDAs for generic versions of the brand name
controlled-release products listed below. We will not be able to market any of
these products prior to the earlier of the expiration of the 30-month waiting
period or our obtaining a favorable resolution of the patent litigation or the
expiration of any generic marketing exclusivity period and, in any case, FDA
approval of our ANDA.

Prilosec In March 2000, the FDA accepted our ANDA submission for a
bioequivalent version of Prilosec, which is used for the
treatment of ulcers and gastroesophageal reflux disease,
and is currently being marketed by AstraZeneca PLC.
AstraZeneca has commenced patent litigation against us
with respect to this product. Total U.S. brand sales for
Prilosec were approximately $4.6 billion in 2001.

Wellbutrin SR In June 2000, the FDA accepted our ANDA submission for a
bioequivalent version of Wellbutrin SR, which is used to
treat depression, and is currently being marketed by
GlaxoSmithKline PLC. Glaxo has commenced patent
infringement litigation against us with respect to this
product. Total U.S. brand sales for Wellbutrin SR were
approximately $1.1 billion in 2001.

Zyban In June 2000, the FDA accepted our ANDA submission for a
bioequivalent version of Zyban, which is prescribed for
the cessation of smoking, and is currently being marketed
by Glaxo. Glaxo has commenced patent infringement
litigation against us with respect to this product. Total
U.S. brand sales for Zyban were approximately $94 million
in 2001.

Claritin D-24 In September 2000, the FDA accepted our ANDA submission
for a bioequivalent version of Claritin D-24, which is a
once-a-day antihistamine for the treatment of allergies,
and is currently being marketed by Schering-Plough
Corporation. Schering-Plough has commenced patent
infringement litigation against us with respect to this
product. Total U.S. brand sales of Claritin D-24 were
approximately $527 million in 2001.

Claritin D-12 In December 2000, the FDA accepted our ANDA submission for
the bioequivalent version of Claritin D-12, which is an
antihistamine for the treatment of allergies, and is
currently being marketed by Schering-Plough.
Schering-Plough has commenced litigation against us with
respect to this product. Total U.S. brand sales of
Claritin D-12 were approximately $396 million in 2001.

Allegra D In February 2002, the FDA accepted our ANDA submission
for a bioequivalent version of Allegra-D, which is used
for the relief of symptoms associated with seasonal
rhinitis in adults and children 12 years of age and older,
and is currently marketed by Aventis Pharmaceuticals. We
expect Aventis to commence patent litigation against us
with respect to this product. Total U.S. brand sales for
Allegra-D were approximately $357 million in 2001.

Oxycontin In February 2002, the FDA accepted our ANDA submission for
a bioequivalent version of the 80mg strength of Oxycontin,
which is used for the management of moderate to severe
pain and is currently marketed by Purdue Pharmaceuticals
L.P. We expect Purdue to commence patent litigation
against us with respect to this product. Total U.S. brand
sales for Oxycontin 80mg were approximately $415 million
in 2001.

We have also submitted an ANDA related to an additional product, the details of
which have not been publicly disclosed.

Based on our monitoring of publicly available information on ANDA filings, we
believe that we were first to have filed with the FDA an ANDA for the
bioequivalent version of Claritin D-12. The developer of a bioequivalent product
who is the first to have its ANDA containing a Paragraph IV Certification for
any bioequivalent drug accepted for filing by the FDA is awarded a 180 day
period of marketing exclusivity against other companies that subsequently file
Paragraph IV Certifications. If our ANDA is approved by the FDA, our
bioequivalent version of Claritin D-12 may be entitled to the 180-day period of
marketing exclusivity. This exclusivity period would run from the earlier of a
favorable court decision or the commencement of marketing. We do not believe we
were the first to file with respect to our other pending ANDAs with Paragraph IV
Certifications.

On March 8, 2002, Schering-Plough announced that it had filed with the FDA an
application to switch all of the Claritin formulations from prescription to OTC.
If Schering-Plough's application is approved by the FDA before we receive final
approval from the FDA, we may not be able to market our generic version of the
Claritin formulations as prescription drugs. On December 17, 2001, we entered
into an agreement granting to Novartis Consumer Health ("Novartis") exclusive
rights to market an over-the-counter (OTC) generic Claritin (loratadine) which
we will supply to Novartis. We are also continuing discussions with potential
OTC partners for two additional generic formulations of Claritin (loratadine).

In addition to the products for which we have submitted ANDAs, we have seven
other controlled-release ANDA products in various stages of development. Total
U.S. sales for the brand name versions of these products were approximately $3.5
billion in 2001. We are continually evaluating these and other potential product
candidates. In selecting our target product candidates, we focus on
pharmaceuticals which we believe will have potential for high sales volume, are
technically challenging and may be suitable for filing under Paragraph IV
Certification.

Other generic pharmaceuticals

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

As of December 31, 2001, we had seven ANDAs pending at the FDA for other generic
pharmaceuticals. These ANDAs are for products which are generic versions of
brand name pharmaceuticals whose U.S. sales were approximately $655 million in
2001. We have an additional 10 other products under development relating to
brand name products that had approximately $555 million in U.S. sales in 2001.

We have submitted ANDAs for generic versions of the following brand name
products, both of which were made under Paragraph IV of the Hatch-Waxman
Amendments:

Claritin Reditabs In October 2000, the FDA accepted our ANDA submission for
a bioequivalent version of Claritin Reditabs, which is
used for the relief of seasonal allergic rhinitis, and is
currently marketed by Schering-Plough. Schering-Plough has
commenced patent infringement litigation against us with
respect to this product. Total U.S. brand sales for
Claritin Reditabs were approximately $332 million in 2001.

Tricor Capsules In May 2000, the FDA accepted our ANDA submission for a
bioequivalent version of Tricor Capsules, which is used
for the treatment of very high serum triglyceride levels,
and was formerly marketed by Abbott Laboratories. Abbott
has commenced patent infringement litigation against us
with respect to this product. We received tentative FDA
approval of this ANDA in February 2002. Total U.S. brand
sales for Tricor Capsules were approximately $238 million
in 2001.

We have also submitted ANDAs relating to five additional products, the details
of which have not been publicly disclosed. In addition, we currently market 20
generic pharmaceuticals which represent seven different pharmaceutical
compounds, two of which are marketed in multiple strengths. Our revenues from
these products were approximately $6.6 million in the year ended December 31,
2001.

Brand name pharmaceuticals

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

According to IMS Health Incorporated, CNS is the second largest therapeutic
category worldwide, and accounted for approximately $41.6 billion, or 16.6%, of
the $250 billion global retail pharmacy drug sales for the 12 months ended
September 30, 2001. In North America, CNS drug sales represented the fastest
growing therapeutic category for this period, up 21% over the 12 months ended
September 30, 2000, according to IMS Health. Due to the industry-wide pipeline
of CNS drugs, we expect this growth to continue.

CNS disorders include ailments such as Alzheimer's disease, attention deficit
hyperactivity, depression, epilepsy, migraines, multiple sclerosis, Parkinson's
disease, and schizophrenia. In the United States, approximately 4,500
neurologists write approximately 75% of all prescriptions for CNS related
disorders.

We have three CNS projects under development. These projects are for improved
versions of brand name pharmaceuticals whose U.S. sales were more than $1.5
billion in 2001. We are currently evaluating three additional brand name
projects.

These potential products may require us to file Investigational New Drug
applications, or INDs, with the FDA before commencing clinical trials, and New
Drug Applications, or NDAs, in order to obtain FDA approval. We believe that
developing NDAs for this type of brand name product provides us with strategic
advantages, including a significant reduction in the cost and time to develop
these products. We believe that the development risks for these products are
reduced because the FDA has previously approved the core chemical entities of
these products. We also believe we may also be eligible for FDA marketing
exclusivity rights for certain products which we develop in our brand name drug
development programs and that are ultimately approved by the FDA.

TECHNOLOGY

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

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

>> desired release rate for the drug;

>> physicochemical properties of the drug;

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

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

>> in-vivo/in-vitro correlation.

The following summarizes our drug delivery technologies:

Drug Delivery Technology Description
------------------------ -----------

Concentric Multiple-Particulate Delivery System Many of today's controlled-release technologies are designed for the
(CMDS) release of only one active ingredient with one rate of release. This
release profile may not be adequate for drugs in certain therapeutic
categories. Our CMDS technology is designed to control the release rate
of multiple active ingredients in a multi-particulate dosage form. This
technology allows us to overcome one of the technical challenges in the
development of multi-particulate dosage forms - achieving acceptable
uniformity and reproducibility of a product with a variety of active
ingredients. Our CMDS technology is designed to allow for the release of
each of the active ingredients through an encapsulated form at
predetermined time intervals and desired levels on a consistent basis.
The United States Patent and Trademark Office, or USPTO, has granted us
a patent for CMDS.

Timed Multiple-Action Delivery System (TMDS) Similar to CMDS, this system controls release rates for multiple
ingredients within a single tablet in a programmed manner. Our TMDS
technology allows for the release of more than one active ingredient in
a single tablet formulation to be released in multiple profiles over
time. We have filed a patent application for TMDS with the USPTO, which
has been allowed.

Dividable Multiple-Action Delivery System (DMDS) Our proprietary DMDS system is an extension of our CMDS and TMDS
technologies. It is designed to provide greater dosing flexibility which
improves product efficacy and reduces side effects. Traditional
controlled-release tablets often lose their "controlled" mechanism of
delivery once broken. Our DMDS technology allows the tablet to be broken
in half so that each respective portion of the tablet will achieve
exactly the same release profile as the whole tablet. This technology
allows the patient and physician to adjust the dosing regimen according
to the clinical needs without compromising efficacy. We have filed a
patent application for DMDS with the USPTO.

For situations that have further unique requirements, we have developed four other proprietary technologies:

Sustained Release Liquid Delivery System (SLDS) The technical barriers to formulating a liquid ingredient into a
sustained-release oral dosage form have precluded the development of
controlled-release dosage forms for most liquid drugs. Our proprietary
SLDS system uses a combination of special inert ingredients together
with proprietary processes to convert a liquid active ingredient into a
solid form with controlled-release properties. SLDS allows us to use
liquid active ingredients in the formulation of solid oral dosage forms.
We expect to file a patent application for SLDS with the USPTO.

Particle Dispersion Systems (PDS) One of the challenges in the formulation of an insoluble drug is to
achieve satisfactory bioavailability in humans. Our proprietary PDS
system provides a drug delivery system for the oral administration of
water insoluble inactive ingredients. We have filed a patent application
for PDS with the USPTO.

Pharmaceutical Stabilization System (PSS) Our PSS system is designed to create an acidic micro-environment for
drugs which require an acidic environment to achieve optimal stability.
We achieve this environment through the addition of an organic acid
using several salts which retard the degradation of, and therefore
stabilize, certain active ingredients. The USPTO has granted us a patent
for PSS.

Drug Delivery Technology Description
------------------------ -----------

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

SALES AND MARKETING

Controlled-release and other generics

On December 17, 2001, we entered into an agreement granting Novartis exclusive
rights to market an OTC generic Claritin (loratadine), which we will continue to
supply to Novartis. We are also continuing discussions with potential OTC
partners for two additional generic formulations of Claritin (loratadine).

Our current products are marketed through our Global Pharmaceuticals division.
We also intend to market future generic products through the Global
Pharmaceuticals division and to market our brand name products through the Impax
Pharmaceuticals division.

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

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

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

Brand name products

We anticipate that brand name products will be marketed through our Impax
Pharmaceuticals division. Our brand name sales strategy consists of targeting
the high-volume prescribing physicians, first on a selective regional basis, and
then expanding the sales force nationally, as required. According to IMS,
approximately 4,500 prescribing neurologists write approximately 75% of the
prescriptions written by neurologists in the CNS market. We believe this
concentration will allow us to maintain a relatively small sales and marketing
group for CNS products.

STRATEGIC ALLIANCE WITH TEVA

On June 27, 2001, we entered into a strategic alliance agreement with a
subsidiary of Teva Pharmaceuticals Industries Ltd. for 12 controlled-release
generic pharmaceutical products. Teva Pharmaceuticals Industries Ltd. (Nasdaq:
Teva), headquartered in Israel, is among the top 40 pharmaceutical companies and
among the largest generic pharmaceutical companies in the world. Over 80% of
Teva's sales are in North America and Europe. Teva develops, manufactures, and
markets generic and brand name pharmaceuticals and active pharmaceutical
ingredients.

The agreement grants Teva exclusive U.S. marketing rights for five of our
products pending approval at the FDA and six products under development. The
agreement also grants Teva an option to acquire exclusive marketing rights to
one other product pending approval at the FDA at the time of the agreement. Of
the six products under development, two have been filed with the FDA. Teva
elected to commercialize a competing product to one of the two products filed
since June 2001, which it developed internally. Pursuant to the agreement, we
have elected to participate in the development and commercialization of Teva's
competing product and share in the gross margins of such product. Teva also has
an option to acquire exclusive marketing rights in the rest of North America,
South America, the European Union, and Israel for these products. We will be
responsible for supplying Teva with all of its requirements for these products
and will share with Teva in the gross margins from its sale of the products. We
will depend on our strategic alliance with Teva to achieve market penetration
for our products and to generate product revenues for us. Teva's exclusive
marketing right for each product will run for a period of ten years in each
country from the date of Teva's first sale of that product. Unless either party
provides appropriate notice, this ten year period will automatically be extended
for two additional years.

As part of the strategic alliance agreement, Teva will share some of our costs
relating to the 12 products. For five products pending approval at the FDA and,
if Teva exercises its option, the optional product, Teva will pay 50% of the
attorneys' fees and costs of obtaining FDA approval, including the fees and
costs for the patent infringement litigation instituted by brand name
pharmaceutical manufacturers in excess of the $7.0 million to be paid by our
patent litigation insurer. For three other products, two of which were filed
with the FDA, Teva will pay 50% of all fees, costs, expenses, damages or awards,
including attorneys' fees, related to patent infringement claims with respect to
these products. For the remaining three products, Teva will pay 45% of these
fees, costs, expenses, damages or awards.

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

In addition, in consideration for the potential transfer of the marketing
rights, we received $22.0 million from Teva which will assist in the
construction and improvement of our Hayward, California facilities and the
development of the 12 products specified in our alliance agreement. The $22
million is reflected on the balance sheet as a refundable deposit. The
refundable deposit was provided in the form of a loan. Teva will forgive
portions of this loan as we achieve milestones relating to the development and
launch dates of the products described in our alliance agreement. If we fail to
achieve the milestones, we will have to repay Teva some or all of the $22.0
million loan on January 15, 2004. If we miss a milestone, Teva has the option of
making us repay 100% or 50% of the portion of the loan associated with that
milestone. If Teva requires us to repay 100% of the portion of the loan related
to the missed milestone, Teva's right to market that product will no longer be
exclusive. However, if Teva requires us to repay only 50% of the portion of the
loan related to the missed milestone, Teva will continue to have an exclusive
marketing right for that product. Additionally, if Teva does not exercise its
option to acquire exclusive marketing rights to the twelfth product, we will
have to repay Teva at least $5.0 million of the loan. At our option, we may
repay Teva any amounts we owe them as part of the loan in cash or in shares of
our common stock. The price of the common stock for purposes of repaying any
amounts owed under the loan will be the average closing sale price of our common
stock measured over a ten trading day period ending two days prior to January
15, 2004. However, if any of the shares we issue to Teva as repayment of the
loan will cause Teva to own in excess of 19.9% of our outstanding common stock,
we will have to repay that portion of the loan in cash.

MANUFACTURING

Our manufacturing strategy is to manufacture our products at our two Hayward,
California facilities and then package, warehouse and distribute the products
from our Philadelphia facility. This strategy allows us to use the lower
operating cost and larger Philadelphia facility for packaging and warehousing,
which requires significant space, while focusing the higher operating cost
Hayward facilities on tablet and capsule manufacturing, which requires less
space. Our research and development activities are also situated in Hayward,
California. We believe this will allow a more efficient transfer and scale-up of
products from research and development to manufacturing.

Currently, our Hayward facility that serves as our research and development
center has a pilot plant that can accommodate our current development work and
our current manufacturing of four drug compounds: Orphenadrine Citrate Extended
Release Tablets, Sotalol HCl Tablets, Methitest(TM) (methyltestosterone)
Tablets, and Terbutaline Sulfate Tablets. We are in the process of scaling-up
our manufacturing operations in our recently purchased 50,400 square foot
facility on San Antonio Street in Hayward so that we can begin full scale
manufacturing in the facility by the middle of 2002. This facility will also
provide space for the expansion of our operations in future years.

In August 2000, we ceased manufacturing operations at our Philadelphia facility
and consolidated all manufacturing in Hayward. The action was taken to utilize
our resources in an economical way and to resolve long-standing regulatory
issues with our Philadelphia facility. We will continue to use our Philadelphia
facility as our center for sales, packaging, warehousing and distribution.

Currently, our Philadelphia facility packages and distributes the 11 pancreatic
enzyme products that comprise our Lipram family of products, in addition to the
products manufactured in Hayward and by others. The Lipram family of products
are manufactured by a third party for whom we distribute these products under an
exclusive license/distribution agreement.

RAW MATERIALS

The raw materials that are essential to our business are bulk pharmaceutical
chemicals which are generally available and purchased from numerous sources. We
purchase bulk pharmaceutical chemicals pursuant to multi-shipment contracts,
typically of one year's duration, when we believe advance-ordered bulk purchases
are advantageous to assure availability at a specified price. Some materials are
available from only one, or a limited number of, suppliers. We believe that
alternative sources could be found, or new sources would arise, should any of
our sole or limited source raw materials become unavailable from current
suppliers.

Following a general trend in the pharmaceutical industry, an increasing portion
of our raw material supplies may come from foreign sources. Export and import
policies of the United States and foreign countries, therefore, could also
materially affect the availability and cost to us of certain raw materials at
any time or from time to time.

COMPETITION

The pharmaceutical industry is highly competitive and is affected by new
technologies, new developments, government regulations, health care legislation,
availability of financing, and other factors. Many of our competitors have
longer operating histories and greater financial, research and development,
marketing, and other resources than us. We are in competition with numerous
other entities that currently operate, or intend to operate, in the
pharmaceutical industry, including companies that are engaged in the development
of controlled-release drug delivery technologies and products and other
manufacturers that may decide to undertake in-house development of these
products. Due to our focus on relatively hard-to-replicate controlled-release
compounds, competition is often limited to those competitors who possess the
appropriate drug delivery technology.

The principal competitive factors in the generic pharmaceutical market include:

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

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

QUALITY CONTROL

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

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

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

REGULATION

All pharmaceutical manufacturers are extensively regulated by the federal
government, including the FDA, the DEA and various state agencies. The Federal
Food, Drug, and Cosmetic Act (FDCA), the Prescription Drug Marketing Act of 1987
(PDMA), the Controlled Substances Act, the Generic Drug Enforcement Act of 1992,
and other federal statutes and regulations govern or influence the manufacture,
labeling, testing, storage, record-keeping, approval, advertising and promotion
of our products. Noncompliance with applicable requirements can result in
recalls, seizure of products, suspension of production, refusal of the
government to enter into supply contracts or to approve drug applications, civil
and criminal fines, or criminal prosecution.

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

All facilities engaged in the manufacture of drug products must be registered
with the FDA and are subject to FDA inspection to ensure that drug products are
manufactured in accordance with current Good Manufacturing Practices. For fiscal
year 2002, annual establishment fees for facilities that produce products
subject to NDAs are approximately $140,000 and product listing fees are
approximately $22,000 per product.

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

New Drug Application (NDA) - For drug products with an active ingredient or
ingredients or indications not previously approved by the FDA, a prospective
manufacturer must submit a complete application containing the results of a
clinical study or studies supporting the drug's safety and efficacy. These
studies may take anywhere from two to five years, or more. An NDA may also be
submitted through Section 505(b)(2) for a drug with a previously approved active
ingredient if the drug will be used to treat an indication for which the drug
was not previously approved, if the method of delivery is changed, or if the
abbreviated procedure discussed below is not available. Currently, FDA approval
of an NDA, on average, is estimated to take approximately 12 to 15 months
following submission to the FDA. During fiscal year 2002, user fees to file an
NDA are approximately $313,000.

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

Patent certification requirements for generic drugs could also result in
significant delays in obtaining FDA approvals. First, where patents covering a
listed drug are alleged to be invalid, unenforceable, or not infringed, patent
infringement litigation may be instituted by the holder or holders of the brand
name drug patents. Second, the first company to file an ANDA for a given drug
and which certifies that an unexpired patent covering the reference brand name
drug is invalid, unenforceable, or will not be infringed by its product, can be
awarded 180 days of market exclusivity during which the FDA may not approve any
other ANDAs for that drug product.

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

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

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

PDMA, which amends various sections of the FDCA, requires, among other things,
state licensing of wholesale distributors of prescription drugs under federal
guidelines that include minimum standards for storage, handling and
recordkeeping. It also sets forth civil and criminal penalties for violations of
these and other provisions. Various sections of the PDMA are still being
implemented by the states. Nevertheless, failure to comply with the wholesale
distribution provisions and other requirements of the PDMA could have a
materially adverse effect on Impax.

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

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

We are subject to the Maximum Allowable Cost Regulations or MAC Regulations,
which limit reimbursements for certain generic prescription drugs under
Medicare, Medicaid and other programs to the lowest price at which these drugs
are generally available. In many instances, only generic prescription drugs fall
within the MAC Regulations' limits. Generally, the methods of reimbursement and
fixing of reimbursement levels are under active review by federal, state and
local governmental entities as well as by private third-party reimbursers. At
present, the Justice Department and U.S. Attorneys Offices and State Attorneys
General have initiated investigations, reviews and litigation into
pharmaceutical pricing and promotional practices. We cannot predict the results
of those reviews, investigations, and litigation or their impact on our
business.

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

ENVIRONMENTAL LAWS

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

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

EMPLOYEES

As of March 1, 2002, we employed approximately 150 full-time employees. Of those
employees, approximately 66 are in research and development, 37 are in
operations, 8 work in the quality area, 30 are in administration, and 9 work in
sales and marketing. We believe that our future success will depend in part on
our continued ability to attract, hire and retain qualified personnel. None of
our employees is subject to collective bargaining agreements with labor unions,
and we believe our employee relations are good.

EXECUTIVE OFFICERS OF THE REGISTRANT

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

Charles Hsiao 58 Chairman, Co-Chief Executive Officer and Director
Barry R. Edwards 45 Co-Chief Executive Officer and Director
Larry Hsu 53 President, Chief Operating Officer and Director
Cornel C. Spiegler 57 Chief Financial Officer
May Chu 52 Vice President, Quality Affairs
David S. Doll 43 Senior Vice President, Sales and Marketing
Joseph A. Storella 60 Vice President, Operations

Charles Hsiao, Ph.D. has been Chairman, Co-Chief Executive Officer and Director
since December 14, 1999. Dr. Hsiao co-founded Impax Pharmaceuticals, Inc. in
1994, and has served as Chairman, Chief Executive Officer and a Director since
its inception. Dr. Hsiao co-founded IVAX Corporation in 1986 with two partners.
By October 1994, when he left the Vice-Chairman position at IVAX, this company
had become the world's largest generic pharmaceutical company with approximately
7,000 employees and $1 billion in worldwide sales. Dr. Hsiao's technical
expertise is in the area of formulation and development of oral
controlled-release dosage form. Dr. Hsiao obtained his Ph.D. in pharmaceutics
from University of Illinois.

Barry R. Edwards has been Co-Chief Executive Officer since December 14, 1999,
and a Director since January 1999. Previously, Mr. Edwards has served as
President since August 1998 and Chief Executive Officer since January 1999. From
1996 to 1998, Mr. Edwards was Vice President, Marketing and Business Development
for Teva Pharmaceuticals USA, a manufacturer of generic drugs. From 1991 to
1996, Mr. Edwards served as Executive Director of Gate Pharmaceuticals, a brand
marketing division of Teva Pharmaceuticals USA. Prior to 1991, Mr. Edwards held
a number of management functions in strategic planning, corporate development,
business development, and marketing at Teva Pharmaceuticals USA.

Larry Hsu, Ph.D. has been President, Chief Operating Officer and Director since
December 14, 1999. Dr. Hsu co-founded Impax Pharmaceuticals, Inc. in 1994 and
served as its President, Chief Operating Officer and a member of the Board of
Directors since its inception. From 1980 to 1995, Dr. Hsu worked at Abbott
Laboratories. During the last four years at Abbott, Dr. Hsu was the Director of
Product Development in charge of formulation development, process engineering,
clinical lot manufacturing, and production technical support of all dosage
forms, managing a staff of approximately 250 people. Dr. Hsu obtained his Ph.D.
in pharmaceutics from University of Michigan.

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

May Chu, M.S., has been Vice President, Quality Affairs since December 14, 1999.
Ms. Chu joined Impax Pharmaceuticals, Inc. in 1996 as Vice President, Analytical
and Quality Assurance. From 1985 to 1996, Ms. Chu was employed at Watson
Laboratories in the areas of Analytical and QA. Prior to joining Watson, she
worked at Rachelle Laboratories for five years as a research chemist.

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

Joseph A. Storella has been Vice President, Operations since May 1996. From 1986
to 1996, Mr. Storella served as General Manager of Chelsea Laboratories,
formerly a division of Rugby-Darby Group Companies which, in 1993, was purchased
by Marion Merrell Dow and subsequently purchased by The Hoechst Company. From
1977 to 1986, Mr. Storella served as Vice President, Operations of Analytab
Products, Inc., a division of Ayerst Laboratories (which itself is a division of
American Home Products). From 1966 to 1977, Mr. Storella held a number of
operational management positions for Ayerst Laboratories.

ITEM 2. PROPERTIES

We have three facilities, as follows:

30831 Huntwood Avenue - Hayward, CA
-----------------------------------

This 35,125 square foot building is our primary research and development center,
as well as a manufacturing facility. Of the total 35,125 square feet,
approximately 4,500 square feet are used for the Research and Development
Laboratory and Pilot Plant, 4,500 square feet are used for the Analytical
Laboratories, 2,500 square feet are used for the Administrative Functions, and
23,625 square feet are used for Warehousing. We purchased this previously leased
property in June 2001 for $3,800,000. The land and building serve as partial
collateral for a Cathay Bank loan.

31153 San Antonio Street - Hayward, CA
--------------------------------------

We own this 50,400 square foot building which is currently under construction.
The facility includes a 25,000 square foot Manufacturing Area, a 9,000 square
foot Analytical Laboratory, a 7,400 square foot Office and Administration area,
and a 9,000 square foot Warehouse. This facility also includes a 2 1/2 acre
unimproved lot for future expansion. We purchased this previously leased
property in November 2001 for $4,900,000. The land and building serve as partial
collateral for a Cathay Bank loan and Teva Pharmaceutical, Inc.'s refundable
deposit.

3735 Castor Avenue - Philadelphia, PA
-------------------------------------

This 113,000 square foot facility is our primary commercial center for sales,
packaging, and distribution of the company products.

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

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

We maintain an extensive equipment base, much of it new or recently
reconditioned and automated, including manufacturing equipment for the
production of tablets, coated tablets, and capsules; packaging equipment,
including fillers, cottoners, cappers, and labelers; and two well-equipped,
modern laboratories. The manufacturing equipment includes mixers and blenders
for capsules and tablets, automated capsule fillers, tablet presses, particle
reduction, sifting equipment, and tablet coaters. The Company also maintains a
broad variety or material handling and cleaning, maintenance, and support
equipment. The Company owns substantially all of its manufacturing equipment and
believes that its equipment is well maintained and suitable for its
requirements.

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

ITEM 3. LEGAL PROCEEDINGS

PATENT LITIGATION

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

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

Prilosec (Omeprazole) Litigation

In May 2000, AstraZeneca AB and four of its related companies filed suit against
us in the United States District Court in Delaware, claiming our submission of
an ANDA for Omeprazole Delayed Release Capsules, 10mg and 20mg, constitutes
infringement of six U.S. patents relating to the AstraZeneca Prilosec product.
In February 2001, AstraZeneca filed a second action against us in the same court
making the same claim against our Omeprazole Delayed Release Capsules, 40mg.
These actions seek an order enjoining us from marketing Omeprazole Delayed
Release Capsules, 10mg, 20mg and 40mg, until February 4, 2014, and awarding
costs and attorney fees. There is no claim for damages. AstraZeneca has filed
essentially the same lawsuit against nine other generic pharmaceutical companies
(Andrx, Genpharm, Cheminor, Kremers, LEK, Eon, Mylan, Apotex and Zenith).

Due to the number of these cases, a multi-district litigation proceeding, In re
Omeprazole MDL-1291, has been established to coordinate pretrial proceedings. We
were added to the multi-district proceeding in September 2000. In the
multi-district litigation, the district court ruled that one of the six
patents-in-suit is not infringed by the sale of a generic Omeprazole product and
another patent-in-suit is invalid. These rulings effectively eliminate two of
the six patents from the litigation. In March, 2000, AstraZeneca advised all of
the defendants in the multidistrict litigation that AstraZeneca added four new
patents to the FDA's Orange Book as Omeprazole patents. We filed Paragraph IV
Certifications asserting that our Omeprazole Delayed Release Capsules will not
infringe valid claims of the four newly listed patents. The forty-five (45) day
period for AstraZeneca to file suit against Impax under the four newly listed
patents expired on August 6, 2001. AstraZeneca did not file suit on these
patents against us or any other generic pharmaceutical company that filed
Paragraph IV Certifications for these patents.

Presently, we and five of the other generic company defendants are awaiting the
outcome of the trial involving AstraZeneca and the first four generic company
defendants who were sued a year earlier than us and the other generic company
defendants. The trial began in December 2001 and is expected to lead to a
decision by the court in the second quarter of this year. Once this first trial
is concluded, discovery and other pretrial matters will proceed with respect to
us and the other remaining defendants.

We believe we have defenses to the claims made by AstraZeneca in the lawsuit
based upon non-infringement and invalidity of the patents-in-suit.

Tricor (Fenofibrate) Litigation

In 2000, Abbott Laboratories, Fournier Industrie et Sante, and a related company
filed two actions against us in the United States District Court in Chicago,
Illinois, claiming that our submission of an ANDA for Fenofibrate (Micronized)
Capsules, 67mg and 134mg constitutes infringement of a U.S. patent owned by
Fournier and exclusively licensed to Abbott, relating to Abbott's Tricor
product. In December 2000, Abbott and Fournier filed a third action against us
in the same court making the same claims against our 200mg Fenofibrate
(Micronized) Capsules. These actions seek an injunction preventing us from
marketing our fenofibrate products until January 19, 2009, and an award of
damages for any commercial manufacture, use or sale of our fenofibrate products,
together with costs and attorney fees. Abbott and Fournier previously filed
essentially the same lawsuit against Novopharm and Teva, also in the United
States District Court in Chicago.

We filed an answer to Abbott's complaint in April 2001. Our answer asserts that
Abbott's patent is invalid and not enforceable against us. The parties in this
matter have conducted discovery but the court has not set a trial date. We
believe we have defenses based upon non-infringement, invalidity and
unenforceability.

Wellbutrin SR and Zyban (Bupropion) Litigation

In October 2000, Glaxo Wellcome Inc. filed a lawsuit against us in the United
States District Court, Northern District of California, claiming that our
submission of two ANDAs for Bupropion Hydrochloride constitutes infringement of
several patents owned by Glaxo relating to Glaxo's Wellbutrin SR and Zyban
products. The action seeks to enjoin us from receiving approval of our
application prior to the expiration date of Glaxo's patent, award Glaxo
preliminary and final injunctions enjoining us from continued infringement of
its patent, and award further relief as the Court may deem proper. Glaxo has
filed suit against Andrx, Watson and EON (only with regard to Wellbutrin SR) for
similar ANDA filings. We filed our answer and counterclaim to Glaxo's complaint
in November 2000. We filed a motion for Summary Judgment, which the court heard
in November 2001. To date, the Court has not ruled on our motion for Summary
Judgment nor entered a final date for the end of discovery. We believe that we
have strong defenses to the claims made by Glaxo in the lawsuit based on
non-infringement, invalidly and unenforceability. In related litigation
concerning the same patents, a federal judge in Florida has ruled that Andrx
Pharmaceuticals does not infringe the Glaxo-Wellcome patents covering Bupropion.
Also, Glaxo has decided to settle its Bupropion litigation with Watson
Pharmaceuticals on terms that are confidential.

Claritin (Loratadine) Litigation

In January 2001, Schering-Plough Corporation ("Schering") sued us in the United
States District Court for the District of New Jersey, alleging that our proposed
loratadine and pseudoephedrine sulfate 24-hour extended release tablets,
containing 10mgs of loratadine and 240mgs of pseudoephedrine sulfate, infringe
their U.S. Patent Nos. 4,659,716 and 5,314,697. Schering has sought to enjoin us
from obtaining FDA approval to market 24-hour extended release tablets until the
5,314,697 patent expires in 2012. Schering has also sought monetary damages
should we use, sell, or offer to sell our loratadine product prior to the
expiration of this patent.

We filed our answer to the complaint denying that we infringe any valid and/or
enforceable claim of their patents. Based in part on statements made by Schering
during the prosecution of its application for the 5,314,697 patent, we assert
that Schering should not succeed on its claims that our 24-hour product
infringes this patent. Additionally, we do not believe that Schering's claims
related to its 4,659,716 patent, which relate to an active metabolite of
loratadine produced in the body upon ingestion of loratadine, cover the generic
loratadine products.

In January 2001, Schering sued us in the United States District Court for the
District of New Jersey, alleging that our proposed orally-disintegrating
loratadine tablets, or reditabs, infringe claims of the 4,659,716 patent.
Schering has sought to enjoin us from obtaining approval to market our reditab
products until this patent expires in 2004. Schering has also sought monetary
damages should we use, sell, or offer to sell our loratadine product prior to
the expiration of their patent. We filed the answer to the complaint denying
that we infringe any valid and/or enforceable claim of their patent.

In February 2001, Schering sued us in the United States District Court for the
District of New Jersey, alleging that our proposed loratadine and
pseudoephedrine sulfate 12-hour extended release tablets, containing 5mgs of
loratadine and 120mgs of pseudoephedrine sulfate, infringes claims of the
4,659,716 patent. Schering has sought to enjoin us from obtaining approval to
market our 12-hour extended release tablets until this patent expires in 2004.
Schering has also sought monetary damages should we use, sell, or offer to sell
our loratadine product prior to the expiration of their patent. We filed the
answer to the complaint denying that we infringe any valid and/or enforceable
claim of their 4,659,716 patent.

These three cases have been consolidated for the purposes of discovery with
seven other cases in the District of New Jersey, in which Schering sued other
companies who sought FDA approval to market generic loratadine products. The
parties have concluded discovery related to the 4,659,716 patent and the court
heard oral arguments related to initial dispositive motions in February 2002.
The parties continue discovery related to the 5,314,697 patent and the court has
not yet entered a schedule for completion of this discovery.

On March 8, 2002, Schering announced that it had filed with the FDA an
application to switch all of the Claritin formulations from prescription to OTC.
If Schering's application is approved by the FDA, we may not be able to market
our generic versions of the Claritin formulation as prescription drugs. On
December 17, 2001, we entered into an agreement granting to Novartis exclusive
rights to market an over-the-counter (OTC) generic Claritin (loratadine) which
we will supply to Novartis. We are also continuing discussions with potential
OTC partners for two additional generic formulations of Claritin (loratadine).

Other than the patent litigations described above, we are not aware of any other
material pending or threatened legal actions, private or governmental, against
us.

INSURANCE

As part of our patent litigation strategy, we have obtained up to $7 million of
patent infringement liability insurance from American International Specialty
Line Company (an affiliate of AIG International). This litigation insurance
covers us against the costs associated with patent infringement claims made
against us relating to seven of the ANDAs we filed under Paragraph IV of the
Hatch-Waxman Amendments. At present, we believe this insurance coverage is
sufficient for our legal defense costs related to these seven ANDAs. However, 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.

Product liability claims by customers constitute a risk to all pharmaceutical
manufacturers. We carry $10 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.

Our operations in Philadelphia are subject to an order ("the Richlyn Order"),
issued on May 25, 1993, by the United States District Court for the Eastern
District of Pennsylvania. The Richlyn Order, among other things, permanently
enjoined Richlyn, a company unrelated to IMPAX or Global, from introducing into
commerce any drug manufactured, processed, packed or labeled at Richlyn's
manufacturing facility unless Richlyn met certain stipulated conditions,
including successful compliance with a validation and re-certification program.
Having acquired certain assets of Richlyn, we are obligated by the terms of the
Richlyn Order. We no longer engage in manufacturing at our Philadelphia
facility. The Richlyn Order is not applicable to our other facilities.
Accordingly, we do not believe the Richlyn Order will have a material adverse
effect on us.

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

No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 2001.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the NASDAQ National Market under the symbol
"IPXL." The following table sets forth the quarterly share price information for
the periods indicated below:

Price Range Per Share
------------------------
High Low
------ -------

Year Ended December 31, 2001
----------------------------
Quarter ended March 31, 2001 $10.31 $5.88
Quarter ended June 30, 2001 $12.60 $6.25
Quarter ended September 30, 2001 $17.10 $10.60
Quarter ended December 31, 2001 $14.28 $8.21

Year Ended December 31, 2000
----------------------------
Quarter ended March 31, 2000 $5.50 $3.50
Quarter ended June 30, 2000 $6.63 $4.00
Quarter ended September 30, 2000 $8.38 $5.19
Quarter ended December 31, 2000 $8.56 $4.87

As of February 15, 2002, there were approximately 101 holders of record of
common stock and approximately 3,286 beneficial owners of common stock.

We have never paid cash dividends on our common stock and have no present plans
to do so in the foreseeable future. Our current policy is to retain all
earnings, if any, for use in the operation of our business. The payment of
future cash dividends, if any, will be at the discretion of the Board of
Directors and will be dependent upon our earnings, financial condition, capital
requirements and other factors as the Board of Directors may deem relevant.

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data as of and for each of the
five years ended December 31, 2001, are derived from the audited financial
statements of Impax. The data should be read together with Impax's financial
statements and related notes, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which are included elsewhere in
this report.

For The Year Ended December 31,
-------------------------------------------------------------
Statement of Operations Data 1997 1998 1999(1) 2000 2001
------ ------ --------- ------ ------
(in thousands, except per share data)

Net revenues(2)............................. $ -- $ -- $ 1,240 $ 10,170 $ 6,591
Research and development.................... 3,255 5,127 7,858(3) 11,096 10,972
Total operating expenses.................... 3,696 5,267 9,648 25,546 22,252
Operating loss.............................. (3,696) (5,267) (9,333) (25,092) (25,330)
Net loss.................................... (3,608) (5,222) (8,949) (24,961) (25,111)
Net loss per share (basic and diluted)...... $ (0.51) $ (0.73) $ (1.12) $ (0.91) $ (0.60)

At December 31,
-------------------------------------------------------------
Balance Sheet Data 1997 1998 1999 2000 2001
------ ------ ------ ------ ------

Cash, cash equivalents
and short-term investments............... $ 3,248 $ 370 $ 7,413 $ 19,228 $ 35,466
Working capital............................. 2,929 (795) 6,247 17,802 36,180
Total assets................................ 5,196 3,408 61,705 67,128 97,612
Mandatorily redeemable
convertible preferred stock.............. 10,052* 12,206* 22,000 28,303 7,500
Accumulated deficit......................... (4,076) (11,281) (20,230) (45,191) (70,302)
Total stockholders' equity.................. 4,467 1,682 30,278 30,754 52,448

*The convertible preferred stock was not mandatorily redeemable in 1997 and
1998.

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

Pro forma
Year Ended
December 31, 1999*
------------------

Operating revenue................................. $ 9,446
Research and development.......................... 8,030
Operating loss.................................... (15,608)
Net loss.......................................... (15,224)
Net loss per share (basic and diluted)............ $ (0.71)

------------------------------
*Excludes non-recurring charges related to acquisition of $1,420 or $(0.06)
per share.

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

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

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

The information in 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. Such statements are
based upon current expectations that involve risks and uncertainties. Any
statements contained herein that are not statements of historical facts may be
deemed to be forward-looking statements. For example, words such as "may,"
"will," "should," "estimates," "predicts" "potential," "continue," "strategy,"
"believes," "anticipates," "plans," "expects," "intends," and similar
expressions are intended to identify forward-looking statements. Our actual
results and the timing of certain events may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause or
contribute to such a discrepancy include, but are not limited to, those
discussed elsewhere in this report in the section entitled "Risk Factors" and
the risks discussed in our other Securities and Exchange Commission ("SEC")
filings.

Critical Accounting Policies

We believe the following critical accounting policies affect the most
significant judgments and estimates used in the preparation of our financial
statements. These items should be read in conjunction with Note 2, Summary of
Significant Accounting Policies, to the Financial Statements under Part II, Item
8, "Financial Statements and Supplementary Data."

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

>> During the year 2000, we adopted Staff Accounting Bulletin ("SAB") 101
issued by the SEC in December 1999. Under this policy, we recognize
revenue from the sale of products when the shipment of products is
received and accepted by the customer.

>> The sales return reserve is calculated using historical lag time data
of active and discontinued products and the historical return rates,
adjusted by estimates of the future return rates based on various
assumptions which may include internal policies and procedures,
competitive position of each product, and the introduction date of new
products. Our returned goods policy requires prior authorization for
the return, and the products must be within six months of expiration
date.

>> The sales rebate reserve is calculated based on customer agreements and
accrued on a monthly basis.

>> The chargebacks reserve is estimated based on the estimated amount of
product at the wholesalers that will be subsequently sold to a
distributor or retailer at a lower price.

Although we believe our estimates are reasonable, we participate in a highly
competitive industry that is characterized by aggressive pricing practices,
frequent introduction of new products, and changing customer demand patterns.
Therefore, estimated reserves calculated by us may be materially different from
actual amounts. These differences could result in material adverse effects on
the Company's quarterly or annual results of operations.

Our critical accounting policy related to inventory is as follows:

Inventory is adjusted for short-dated unmarketable inventory equal to
the difference between the cost of inventory and the estimated value
based upon assumptions about future demand and market conditions. If
actual market conditions are less favorable than those projected by
management, additional inventory write-downs may be required.

Our critical accounting policy related to assets impairment is as follows:

Long-lived assets are reviewed for impairment when events and
circumstances indicate that the book value of an asset may be
impaired. Impairment loss estimates are based upon the difference
between the book value and the fair value of the asset. The fair
value is based upon management estimates of how much the assets could
be bought or sold for in a current transaction between willing
parties. Should circumstances change that affect these estimates,
additional impairment charges may be required and would be recorded
through income in the period the change was determined.

General

Impax Laboratories, Inc. (referred to herein as "we") 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, our historical
operating results prior to the merger are those of Impax Pharmaceuticals, Inc.
and only include the operating results of Global after the merger. In connection
with the merger, Global changed its name to Impax Laboratories, Inc.

We are a technology-based, specialty pharmaceutical company applying formulation
and development expertise, as well as our drug delivery technology, to the
development of controlled-release and niche generics, in addition to the
development of branded products. We currently market twenty generic products and
have fifteen Abbreviated New Drug Application ("ANDA") filings pending at the
U.S. Food and Drug Administration ("FDA") that address more than $8.0 billion in
U.S. branded product sales in 2001. Nine of these filings were made under
Paragraph IV of the Hatch-Waxman Amendments.

The major highlights of 2001 operational activity included the following:

In June 2001, we entered into a strategic alliance agreement for twelve
controlled-release pharmaceutical products with a subsidiary of Teva
Pharmaceutical Industries Ltd. ("Teva"). This agreement grants Teva exclusive
U.S. marketing rights and an option to acquire exclusive marketing rights in the
rest of North America, South America, the European Union, and Israel for the
following:

>> five of our products pending approval at the FDA; and
>> six products under development.

In addition, Teva has the option to acquire exclusive marketing rights to one
other IMPAX product currently pending approval at the FDA. Of the six products
under development, two have been filed with the FDA. Teva has elected to
commercialize a competing product to one of the two products filed since June
2001, which it has developed internally. Pursuant to the agreement, we have
elected to participate in the development and commercialization of Teva's
competing product and share in the gross margin of such product.

As part of the transaction, in consideration for the potential transfer of
marketing rights, we received $22 million from Teva, which will assist in the
construction and improvement of our Hayward California facilities and the
development of the 12 products specified in our alliance agreement. The
repayment of all or a portion of the $22 million loan may be forgiven upon
IMPAX's attainment of certain milestones. The $22 million is reflected on the
Balance Sheet as a refundable deposit. In addition, Teva was required to invest
$15 million in the common stock of IMPAX, according to a fixed schedule, through
June 2002. These equity purchases will be priced based on the average closing
sale price of our common stock measured over a ten trading day period ending two
days prior to the date when Teva acquires the common stock. The first two
purchases for an aggregate of 579,015 shares of common stock were completed in
2001 for aggregate proceeds of $7,500,000.

IMPAX and Teva have also agreed to share equally in the outside development and
legal costs on six of the products covered by the agreement. IMPAX has agreed to
manufacture and supply Teva's requirements for all the products subject to this
agreement. In addition, IMPAX and Teva generally will share the margins
generated on sales of the licensed products.

Teva, headquartered in Israel, is among the top 40 pharmaceutical companies and
among the largest generic pharmaceutical companies in the world. Over 85% of
Teva's sales are outside Israel, mainly in North America and Europe. Teva
develops, manufactures and markets generic and branded pharmaceuticals and
active pharmaceutical ingredients.

During 2001, we filed a total of eight ANDAs with the FDA, two of which were
made under Paragraph IV of the Hatch-Waxman Amendments.

In June 2001, the FDA approved our ANDA to market Terbutaline Sulfate (2.5mg and
5mg) tablets, a generic version of Brethine(R). Brethine(R), which is marketed
by Neosan, a division of aai Pharma, Inc., for the prevention and reversal of
bronchospasm, had sales of approximately $21 million in the U.S. during 2001.

In June 2001, we acquired a previously leased 35,125 square foot building in
Hayward, California, housing our corporate headquarters and primary research and
development center for $3,800,000.

In July 2001, our shares were added to the Russell 2000(R) Index. The average
market capitalization of stocks in the Russell 2000(R) Index was approximately
$580 million.

In August 2001, we reintroduced two products which were previously discontinued:
Methitest(TM) (methyltestosterone), a generic alternative to Android/Testred,
and Aminobenzoate Potassium, a generic alternative to Potaba.

In November 2001, we acquired a second leased property on San Antonio Street in
Hayward, California, for $4,900,000. This facility is being currently converted
into a manufacturing facility for the production of oral dosage pharmaceutical
products.

In December 2001, we entered into an agreement granting to Novartis exclusive
rights to market an OTC generic Claritin (loratadine), which we will supply to
Novartis.

Results of Operations

We were considered a development stage company, as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, until the fourth quarter of 1999,
when we began operations as Impax Laboratories. We have incurred net losses in
each year since our inception. We had an accumulated deficit of $70,302,000 at
December 31, 2001.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Overview

The net loss for the year ended December 31, 2001 was $25,111,000, as compared
to $24,961,000 for the year ended December 31, 2000. The increase in the net
loss was primarily due to lower sales and higher infrastructure costs related to
the new manufacturing facility in Hayward, California and expansion of our sales
and marketing capabilities.

Revenues

The net sales for the year ended December 31, 2001 were $6,591,000 as compared
to $10,170,000 for the same period in 2000. The lower sales were primarily due
to discontinued products and sales returns, partially offset by introduction of
new products. In August 2000, following a review of all manufactured products
undertaken to rationalize the product line consistent with our new business
strategy, a number of these products were discontinued. The impact of sales
returns on the 2001 revenues was twofold: first, during the year 2001, the
returns of products charged against sales were approximately $2,841,000, from
which $1,166,000 were from discontinued products, as compared to $707,000 in the
prior year; and second, the reserve for sales returns was increased by
$1,684,000 from $216,000 at December 31, 2000 to $1,900,000 at December 31,
2001.

Cost of Sales

The cost of sales for the year ended December 31, 2001 was $9,669,000 as
compared to $9,716,000 for the same period in 2000. Included in the cost of
sales are startup costs of the new manufacturing facility in Hayward,
California, and fixed, unabsorbed costs of the excess plant capacity in
Philadelphia, Pennsylvania.

Gross Margin

Due primarily to lower net sales and to the increase in the infrastructure costs
related to the new manufacturing facility in Hayward, California, we incurred a
negative gross margin of $3,078,000 for the year ended December 31, 2001 as
compared to a gross margin of $454,000 for the same period in 2000.

Research and Development Expenses

The research and development expenses for the year ended December 31, 2001 were
$11,890,000, less reimbursement of $918,000 by Teva under the strategic alliance
agreement signed in June 2001, as compared to $11,096,000 for the same period in
2000. The increase of approximately 7% over 2000 was primarily due to higher
personnel costs.

Selling Expenses

The selling expenses for the year ended December 31, 2001 were $2,186,000 as
compared to $1,346,000 for the same period in 2000. The increase in selling
expenses as compared to 2000 was primarily due to additional personnel,
advertising, market research, and sales agreement costs.

General and Administrative Expenses

The general and administrative expenses for the year ended December 31, 2001
were $9,258,000 as compared to $9,764,000 for the same period in 2000. The
decrease in 2001 general and administrative expenses as compared to 2000 was
primarily due to lower intangibles amortization caused by the impairment
write-off in the third quarter of 2000, and lower patent infringement litigation
insurance and related costs, partially offset by higher personnel expenses and
professional fees. The amortization of intangibles and goodwill for the year
ended December 31, 2001 was $3,888,000 as compared to $4,604,000 for the same
period in 2000.

Other Operating Income

The other operating income was $164,000 for the year ended December 31, 2001 as
compared to $306,000 for the same period in 2000, primarily due to lower license
fees earned in 2001.

Restructuring Charges and Non-Recurring Items

We had no restructuring charges and non-recurring items for the year ended
December 31, 2001. For the year ended December 31, 2000 we incurred charges of
$3,646,000 representing a one-time write-off for impairment of $2,037,000 of
intangibles, $957,000 of inventory, and $652,000 of equipment due to ceasing
manufacturing in the Philadelphia facility and rationalizing the product lines.

Interest Income

Interest income for the year ended December 31, 2001 was $1,148,000 as compared
to $758,000 for the same period in 2000, primarily due to increases in cash
equivalents and short-term investments due to Teva's refundable deposit and
equity investments, and June 2001 private placement of equity, partially offset
by lower interest rates.

Interest Expense

Interest expense for the year ended December 31, 2001 was $929,000 as compared
to $339,000 for the same period in 2000, primarily due to the $876,000 interest
accrued on the refundable deposit from Teva. The 2001 interest expense excludes
$200,000 in capitalized interest related to the renovation of the San Antonio
Street - Hayward, California building.

Net Loss

The net loss for the year ended December 31, 2001 was $25,111,000 as compared to
$24,961,000 for the same period in 2000. The increase in net loss was primarily
due to lower net sales and higher infrastructure costs related to the new
manufacturing facility in Hayward, California, and the expansion of our sales
and marketing capabilities. Our 2001 net loss was favorably impacted by the
absence of restructuring charges and non-recurring items, and lower intangibles
amortization expenses in 2001.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Revenues

Net sales for the year ended December 31, 2000 were $10,170,000 as compared to
$1,240,000 for the same period in 1999. On a pro forma basis, if our merger with
Impax Pharmaceuticals, Inc. had taken place January 1, 1999 the net sales for
the year ended December 31, 1999 would have been $9,446,000.

In the fourth quarter of 2000, we modified our revenue recognition policy to
conform with the guidance set forth under the SAB 101. The application of the
SAB 101 guidance to our previous revenue recognition policy required us to defer
revenue recognition from the sale of product until the shipment of product is
received and accepted by the customer, rather than recognizing revenue only upon
shipment. The change in accounting policy resulted in a cumulative effect
adjustment at January 1, 2000 of $288,000 and also resulted in an increase in
revenue and gross margin of $667,000 and $288,000, respectively, for the twelve
month period ended December 31, 2000.

Cost of Sales

The cost of sales for the year ended December 31, 2000 was $9,716,000 as
compared to $925,000 for the year ended December 31, 1999. Included in the 2000
cost of sales are fixed, unabsorbed costs of the excess plant capacity in our
Philadelphia facility, primarily due to the transfer of the manufacturing
operations from Philadelphia to Hayward, and the discontinuation of the
manufacture and sale of certain of our products, and the outsourcing of the
manufacture of certain other products. The 1999 cost of sales represents the
costs related to the sales for the period December 14, 1999 (the merger date)
through December 31, 1999.

Gross Margin

The gross margin for the year ended December 31, 2000 was $454,000 as compared
to $315,000 for the year ended December 31, 1999 primarily due to higher net
sales. The 1999 gross margin represents the gross margin related to the sales
for the period December 14, 1999 (the merger date) through December 31, 1999.

Research and Development Expenses

The research and development expenses for the year ended December 31, 2000 were
$11,096,000 as compared to $6,479,000 for the same period in 1999. The increase
was primarily due to additional personnel, higher bio-study costs and the
associated testing expenses. In 1999, we wrote-off $1,379,000 of acquired
in-process research and development in connection with the merger. The 1999
expenses include Impax Pharmaceuticals, Inc.'s costs for the period January 1,
1999 through December 14, 1999 (the merger date) and Impax Laboratories, Inc.'s
costs for the period December 14, 1999 through December 31, 1999.

Selling Expenses

The selling expenses for the year ended December 31, 2000 were $1,346,000 as
compared to $327,000 for the same period in 1999, primarily due to additional
personnel and related costs, higher advertising and trade show costs. The 1999
expenses include Impax Pharmaceuticals, Inc.'s costs for the period January 1,
1999 through December 14, 1999 (the merger date) and Impax Laboratories, Inc.'s
costs for the period December 14, 1999 through December 31, 1999.

General and Administrative Expenses

The general and administrative expenses for the year ended December 31, 2000
were $9,764,000 as compared to $1,506,000 for the same period in 1999. The
increase was primarily due to the amortization of intangibles and goodwill of
$4,604,000, patent infringement insurance premiums and legal expenses related to
the Paragraph IV litigations, higher professional fees, and additional
personnel. The 1999 expenses include Impax Pharmaceuticals, Inc.'s costs for the
period January 1, 1999 through December 14, 1999 (the merger date) and Impax
Laboratories, Inc.'s costs for the period December 14, 1999 through December 31,
1999.

Other Operating Income

Other operating income for the year ended December 31, 2000 was $306,000 as
compared to $43,000 for the same period in 1999. The increase was primarily due
to additional license fees income received in 2000 and the sale of two non-ANDA
product formulations.

Restructuring Charges and Non-Recurring Items

We incurred restructuring charges and non-recurring items for the year ended
December 31, 2000 of $3,646,000. These charges were one-time charges related to
the ceasing of manufacturing operations in our Philadelphia facility and
rationalizing of the product line and included the following write-offs:
intangibles of $2,037,000, inventory of $957,000, and equipment impairment of
$652,000.

Interest Income

The interest income for the year ended December 31, 2000 was $758,000 as
compared to $393,000 for the same period in 1999, primarily due to the increase
in cash equivalents and short-term investments generated from the proceeds of
private placements of equity during 2000.

Interest Expense

The interest expense for the year ended December 31, 2000 was $339,000 as
compared to $9,000 for the same period in 1999, primarily due to the borrowings
under the revolving credit facility with GE Capital. The 1999 interest expense
includes Impax Pharmaceuticals, Inc.'s costs for the period January 1, 1999
through December 14, 1999 (the merger date) and Impax Laboratories, Inc.'s costs
for the period December 14, 1999 through December 31, 1999.

Net Loss

The net loss for the year ended December 31, 2000 was $24,961,000, as compared
to $8,949,000 for the year ended December 31, 1999. The increase in net loss was
primarily due to increased research and development expenses, and increased
selling, general and administration expenses, which included amortization of
intangibles and goodwill of $4,604,000, and the one-time restructuring charge
and non-recurring items of $3,646,000. On a pro forma basis, if our merger with
Impax Pharmaceuticals took place on January 1, 1999 our net loss would have been
approximately $15,224,000 for the year ended December 31, 1999.

Liquidity and Capital Resources

As of December 31, 2001 we had $15,044,000 in cash and cash equivalents and
$20,422,000 in short-term investments. The short-term investments mature within
a year and we believe that the market risk arising from holding these
investments is not material.

During the year ended December 31, 2001 we received $24,831,000 in proceeds from
sale of common stock (net of expenses) as follows:

>> June 2001 sale of 2,187,500 shares of common stock in a private
placement to accredited investors for aggregate gross proceeds of
$17,500,000; and

>> September 2001 and December 2001 sale of 579,015 shares of common stock
to Teva, pursuant to our strategic alliance agreement, for aggregate
proceeds of $7,500,000.

In consideration for the potential transfer of marketing rights, we received $22
million from Teva which will assist in the construction and renovation of the
Hayward, California facilities and the development of the 12 products specified
in the agreement. The $22 million is reflected on the balance sheet as a
refundable deposit. The refundable deposit was provided by Teva in the form of a
loan, the repayment of which will be forgiven upon IMPAX's attainment of certain
milestones. We are accruing interest at the annual rate of 8%.

The refundable deposit and related interest obligation is due and payable on
January 15, 2004, in cash or equity at our discretion, unless partially or
totally forgiven based on our attainment of certain milestones.

During the year ended December 31, 2001 we obtained two loans from Cathay Bank,
partially financing the properties acquired by us, as follows:

>> a $2,470,000 mortgage with a maturity of seven years and a 25 year
amortization at a fixed interest rate of 8.17% for the previously
leased Huntwood Avenue - Hayward, California, property, which is
housing the corporate headquarters and the primary research and
development center. This property was purchased for $3,800,000; and

>> a $3,300,000 mortgage with a maturity of seven years and a 25 year
amortization at a fixed interest rate of 7.50% for the previously
leased San Antonio Street - Hayward, California, property which, when
renovated, will house our primary manufacturing center. This property
was purchased for $4,900,000.

We had a revolving credit facility with GE Capital, providing financing to us of
up to $5 million based on levels of accounts receivable and inventory. This
credit facility expired at the end of July 2001. During 2001, we repaid
approximately $2,425,000 to GE Capital.

The net cash provided by financing activities for the year ended December 31,
2001 was approximately $51,566,000, which was partially used to fund operating
activities of approximately $18,753,000 and the purchases of property and
equipment of approximately $16,575,000.

In addition to the two Hayward, California, property acquisitions of $3,800,000
and $4,900,000 respectively, we spent approximately $7,300,000 for the
conversion of the San Antonio Street - Hayward, California, building into a
manufacturing facility for the production of oral dosage form pharmaceutical
products.

Our capital expenditures planned for 2002 include the completion of the
manufacturing facility on San Antonio Street - Hayward, California, for which we
estimate an additional $5 million in spending, and approximately $2.5 million in
upgrading the Huntwood Avenue - Hayward, California, facility to accommodate the
increased research and development capacity.

We have no interest rate or derivative hedging contracts and material foreign
exchange or commodity price 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 and sales and marketing expenses, for the foreseeable future in
order to execute our business plan. We, therefore, anticipate that such
operating expenses, as well as planned capital expenditures, will constitute a
material use of our cash resources.

We anticipate obtaining, during 2002, a revolving line of credit to partially
fund our working capital requirements. However, we may be unable to obtain a new
revolving line of credit on terms acceptable to us, or at all.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivatives and Hedging Activities." This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities, SFAS No. 133 was effective for the year beginning January 1,
2001. The adoption of SFAS No. 133 did not have an effect on our results of
operations, financial position, or cash flows. Our policy is not to enter into
any transactions involving derivative instruments.

In June 2001, the FASB issued SFAS No. 141, "Business Combinations." This
Statement addresses financial accounting and reporting for business combinations
and is effective for all business combinations initiated after June 30, 2001 and
for all business combinations accounted for by the purchase method for which the
date of acquisition is after June 30, 2001. The adoption of the SFAS No. 141 did
not have an effect on our results of operations, financial position, or cash
flows.

Also, during June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This Statement addresses financial accounting and reporting
for intangible assets acquired individually or with a group of other assets at
acquisition. This Statement also addresses financial accounting and reporting
for goodwill and other intangible assets subsequent to their acquisition. The
provisions of SFAS 142 are effective for fiscal years beginning after December
15, 2001. We will adopt the provisions of SFAS 142 in our first quarter ended
March 31, 2002. We are in the process of preparing for the adoption of SFAS 142
and expect that we will no longer amortize our existing goodwill. We will also
expect to test, at that time and on an ongoing basis, the goodwill for
impairment. The amortization expense associated with goodwill for the year 2001
was $3,504,000.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." This Statement addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement is effective for financial
statements issued for fiscal years beginning after June 15, 2002. We are
currently assessing the effect (if any) the adoption of SFAS No. 143 will have
on our results of operations, financial position, or cash flows.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This Statement applies to all long-lived assets (including
discontinued operations) and consequently amends Accounting Principles Board
Opinion No. 30 (APB 30), "Reporting Results of Operations Reporting the Effects
of Disposal of a Segment of a Business." The provisions of SFAS No. 144 will be
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and, generally, its provisions are to be applied
prospectively. We are currently assessing the effect (if any) the adoption of
SFAS No. 144 will have on our results of operations, financial position, or cash
flows.

Risk Factors

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

We do not know whether or when our business will ever be profitable or generate
positive cash flow, and our ability to become profitable or obtain positive cash
flow is uncertain. We have generated minimal revenues to date and have
experienced operating losses and negative cash flow from operations since our
inception. As of December 31, 2001 our accumulated deficit was $70,302,000 and
we had outstanding indebtedness in an aggregate principal amount of $29,100,000.
To remain operational, we must, among other things:

>> continue to obtain sufficient capital to fund our operations;
>> obtain from the FDA approval 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 may never become profitable or generate positive cash flow from operations.

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

We currently market 20 generic pharmaceuticals which represent dosage variations
of seven different pharmaceutical compounds. Our revenues from these products in
the year ended December 31, 2001 were approximately $6.6 million. We do not
anticipate further revenue growth from these products; rather, we anticipate
that revenues from these products will decline over time. As a result, our
future prospects are dependent on our ability to successfully introduce new
products. The FDA and the regulatory authorities may not approve our products
submitted to them or our other products under development. Additionally, we may
not successfully complete our development efforts. Even if the FDA approves our
products, we may not be able to market our products if we do not prevail in the
patent infringement litigation in which we are involved. Our future results of
operations will depend significantly upon our ability to develop, receive FDA
approval for, and market new pharmaceutical products.

Our products are subject to a costly and time-consuming regulatory approval
process prior to commercialization.

We are required to obtain FDA approval before marketing new drug products. The
FDA approval requirements are costly and time consuming. Our bioequivalence or
clinical studies and other data may not result in FDA approval to market our new
drug products. While we believe that the FDA's abbreviated new drug application
procedures will apply to our bioequivalent versions of controlled-release drugs,
these drugs may not be suitable for, or approved as part of, these abbreviated
applications. Moreover, after the FDA approves one of our products, we may have
to withdraw it from the market if our manufacturing is not in accordance with
FDA standards or our own internal standards.

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

In order to market a new drug that does not qualify for the FDA's abbreviated
application procedures, we may have to conduct extensive clinical trials to
demonstrate product safety and efficacy and submit a New Drug Application
("NDA"). The process of completing clinical trials and preparing an NDA may take
several years and requires substantial resources. We have never submitted an
NDA. Our studies and filings may not result in FDA approval to market our new
drug products and, if the FDA grants approval, we cannot predict the timing of
any approval.

Patent certification requirements for bioequivalent controlled-release drugs and
for some new drugs could also result in significant delays in obtaining FDA
approval if patent infringement litigation is initiated by the holder or holders
of the brand name patents. Most of our pending ANDAs have been filed pursuant to
Paragraph IV of the Hatch-Waxman Amendments. We have certified to the FDA that
the products for which we have filed these ANDAs do not infringe any valid or
enforceable patents. Patent litigation has been instituted against us with
respect to seven of our pending ANDAs relating to our generic controlled-release
product candidates. The FDA will not be able to finally approve any of these
ANDAs until the earlier of 30 months from the date the Paragraph IV
certification is given to the patent holder, expiration of the patents involved
in the certification, or when the patent litigation is resolved in our favor.
Delays in obtaining FDA approval of abbreviated applications and some new drug
applications can also result from a marketing exclusivity period and/or an
extension of patent terms.

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

We have and continue to face substantial patent infringement litigation with
respect to our proposed products. To date, patent litigation has been filed
against us in connection with seven of the ANDAs we have filed containing
certifications relating to infringement, validity, or enforceability of patents.
In these ANDAs, we have certified that we believe an unexpired patent which is
listed with the FDA and covers the brand name product will not be infringed
and/or is invalid or unenforceable. Patent litigation is both costly and time
consuming. If we are unable to prevail in these litigations or obtain any
required licenses, we may be prevented from commercializing our products.

We anticipate that additional legal actions may be filed against us as we file
additional ANDAs. Patent litigation may also be brought against us in connection
with NDA products that we may pursue. The outcome of patent litigation is
difficult to predict. Prior to filing an ANDA or NDA, we evaluate the
probability of patent infringement litigation on a case-by-case basis. Our
business and financial results could be materially harmed by the delays in
marketing our products as a result of litigation, an unfavorable outcome in any
litigation, or the expense of litigation, whether or not it is successful.

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

On June 27, 2001, we entered into a strategic alliance agreement with a
subsidiary of Teva Pharmaceuticals Industries, Ltd. for 12 controlled-release
generic pharmaceutical products. The agreement grants Teva exclusive U.S.
marketing rights, and an option to acquire exclusive marketing rights in the
rest of North America, South America, the European Union, and Israel, for five
of our products pending approval at the FDA and six products under development.
In addition, we granted Teva an option to acquire exclusive marketing rights to
one other product currently pending approval at the FDA. Of the six products
under development, two have been filed with the FDA. Teva has elected to
commercialize a competing product to one of the two products filed since June
2001, which it has developed internally. Pursuant to the agreement, we have
elected to participate in the development and commercialization of Teva's
competing product and share in the gross margin of such product. Teva, at its
option, can acquire exclusive marketing rights for these products in the rest of
North America, South America, the European Union and Israel. We will be
responsible for supplying Teva with all of its requirements for the products and
will generally share with Teva in the gross margins from its sale of the
products. We will depend on our strategic alliance with Teva to achieve market
penetration for the products covered by the agreement and to generate product
revenues for us. We entered into the agreement with Teva on the basis of certain
expectations of the level of sales of the products which Teva will achieve. If
we fail to maintain our strategic alliance with Teva, or if our strategic
alliance with Teva fails to benefit us as expected, our revenues will not meet
our expectations and our business will be harmed.

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

We may enter into strategic alliances or licensing arrangements with other
companies. These arrangements may require us to relinquish rights to certain of
our technologies or product candidates, or to grant licenses on terms that are
not favorable to us, either of which could reduce the market value of our common
stock.

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

The pharmaceutical industry is highly competitive and many of our competitors
have longer operating histories and substantially greater financial, research
and development, marketing, and other resources than us. We are subject to
competition from numerous other entities that currently operate in the
pharmaceutical industry, including companies that are engaged in the development
of controlled-release drug delivery technologies and products, and other
manufacturers that may decide to undertake in-house development of these
products. Our generic products may be subject to competition from, among other
products, competing generic products marketed by the patent holder. Some of our
competitors have greater experience than we do in obtaining FDA and other
regulatory approvals. Our competitors may succeed in developing products that
are more effective or cheaper to use than products we may develop. These
developments may render our products uncompetitive. We may be unable to continue
to compete successfully with these companies.

In order to obtain market share for our generic products, our products will need
to be successfully marketed to pharmaceutical wholesalers, chain drug stores
which warehouse products, mass merchandisers, mail-order pharmacies and others.
These entities often purchase generic products from a limited number of
suppliers, which they then sell to end-users. Among the factors considered by
these entities in purchasing a generic product are price, on-time delivery, a
good record with the FDA and relationship. In order to obtain market share for
our brand name products, we will be dependent on physicians prescribing our
products to their patients. Among the factors considered by physicians in
prescribing a brand name product is the quality and effectiveness of the
product. We have only limited experience in marketing our generic products and
have no experience in marketing brand name products. We or our strategic partner
may not be able to successfully market our products.

We face risks related to goodwill and intangibles.

During fiscal 2000, we wrote-off $2.0 million of intangibles recorded in
connection with product rights and licenses as a result of ceasing manufacturing
in our Philadelphia facility, discontinuing the manufacturing and sale of
certain of our products, and outsourcing the manufacture of certain of our
products. At December 31, 2001, our goodwill and intangibles were approximately
$28.7 million, or approximately 29% of our total assets. We may never realize
the value of our goodwill and intangibles. We will continue to evaluate on a
regular basis whether events or circumstances have occurred that indicate all,
or a portion, of the carrying amount of goodwill may no longer be recoverable,
in which case a charge to earnings would become necessary. Although at December
31, 2001 we do not consider the net unamortized balance of goodwill to be
impaired under accounting principles generally accepted in the United States of
America, any such future determination requiring the write-off of a significant
portion of unamortized goodwill could have a material adverse effect on our
financial condition or results of operations.

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

Our cash used in operations has exceeded cash generated from operations in each
period since our inception. We anticipate continuing to incur expenses
substantially in excess of our product revenues for the foreseeable future. As
of December 31, 2001 we had outstanding indebtedness of approximately
$29,100,000, bearing interest at rates ranging from 2% to 8.17% annually.
Additionally, as of December 31, 2001 we had an accumulated stockholders'
deficit of approximately $70,302,000. We may not be able to maintain adequate
capital at any given time or from time to time in the future.

As of December 31, 2001 we had approximately $35.5 million of cash, cash
equivalents, and short-term investments, all of which are unrestricted. Although
we estimate that these funds will be sufficient for at least the next 12 months
of operations at our planned expenditure levels, these funds may not be
sufficient. The exact amount and timing of future capital requirements will
depend upon many factors, including continued progress with our research and
development programs, expansion of these programs, the approval and launch of
new products, as well as the amount of revenues generated by our existing
products. We may not be successful in obtaining additional capital in amounts
sufficient to fund our operations. Additional financing also may not be
available to us on terms favorable to us or our stockholders, or at all. In the
event that adequate funds are not available, our business operations and plans
may need to be modified. The lack of additional capital could result in less
money being spent on research and development programs, fewer products being
developed and at a slower pace, and fewer drug applications being filed with the
FDA.

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

In August 1999, the FDA proposed to amend its regulations relating to 180-day
marketing exclusivity for which certain bioequivalent drugs may qualify. In its
proposal, the FDA explained that to qualify for exclusivity, a pharmaceutical
company must be the first generic applicant to file an ANDA with the FDA in a
substantially complete form, rather than the first company to successfully
challenge a patent. We believe we were first to file with the FDA on only one
ANDA. We cannot predict whether or what changes the FDA may make to its
regulations. In March 2000, the FDA issued new guidelines regarding the timing
of approval of ANDAs following a court decision in patent infringement actions
and the start of the 180-day marketing exclusivity period provided for in the
Drug Price Competition and Patent Term Restoration Act of 1984, known as the
Hatch-Waxman Amendments, applicable to generic pharmaceuticals. These guidelines
could result in us not being able to utilize all or any portion of the 180-day
marketing exclusivity period on ANDA products we were first to file on,
depending on the timing and outcome of court decisions in patent litigation. We
are unable to predict what impact, if any, the FDA's new guidelines may have on
our business or financial condition. The first generic drug manufacturers
receiving FDA approval for generic equivalents of related brand name products
have often captured greater market share from the brand name product than later
arriving manufacturers. The development of a new generic drug product, including
its formulation, testing and FDA approval, generally takes approximately three
or more years. Consequently, we may select drugs for development several years
in advance of their anticipated entry to market, and cannot know what the market
or level of competition will be for that particular product if and when we begin
selling the product. In addition, by introducing generic versions of their own
brand name products prior to the expiration of the patents for those drugs,
brand name drug companies have attempted to prevent generic drug manufacturers
from producing or capturing market share for certain products. Brand name
companies have also attempted to prevent competing generic drug products from
being treated as equivalent to their brand name products. We expect efforts of
this type to continue.

We face uncertainties related to clinical trials which could result in delays in
product development and commercialization.

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

Our assumptions may not bear out as we expect.

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

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

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

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

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

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

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

Restrictive FDA regulations govern the manufacturing and distribution of our
products.

In addition to requiring FDA approval prior to marketing any of our products, we
are subject to FDA regulations regarding the development, manufacture,
distribution, labeling and promotion of prescription drugs. In addition, the FDA
requires that certain records be kept and reports be made, mandates registration
of drug manufacturers and listing of their products, and has the authority to
inspect manufacturing facilities for compliance with their current Good
Manufacturing Practices. Our business and financial results could be materially
harmed by any failure to comply with manufacturing and other requirements.

Other requirements exist for controlled drugs, such as narcotics, which are
regulated by the U.S. Drug Enforcement Administration ("DEA"). Further, the FDA
has the authority to withdraw approvals of previously approved drugs for cause,
to request recalls of products, to bar companies and individuals from future
drug application submissions and, through action in court, to seize products,
institute criminal prosecution, or close manufacturing plants in response to
violations. The DEA has similar authority and may also pursue monetary
penalties. Our business and financial results could be materially harmed by
these requirements or FDA or DEA actions.

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

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

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

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

We are subject to an outstanding court order governing manufacture of our
products that may adversely affect our product introduction plans and results of
operations.

On May 25, 1993 the United States District Court for the Eastern District of
Pennsylvania issued an order against Richlyn Laboratories, Inc. that, among
other things, permanently enjoined Richlyn from selling any drug manufactured,
processed, packed or labeled at its Philadelphia facility unless it met certain
stipulated conditions. When we acquired the facilities and drug applications of
Richlyn, we became subject to the conditions in that court order. The order
requires, in part, that the FDA find that products manufactured, processed and
packed at the former Richlyn facility (our Philadelphia facility) conform with
FDA regulations concerning current Good Manufacturing Practices before the
products can be marketed. If we are unable to maintain compliance with current
Good Manufacturing Practices, the packaging operations we conduct at our
Philadelphia facility could be severely restricted.

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

We believe that patent and trade secret protection is important to our business
and that our future success will depend, in part, on our ability to obtain
patents, maintain trade secret protection, and operate without infringing on the
rights of others. We have been issued two U.S. patents and have filed additional
U.S. and various foreign patent applications relating to our drug delivery
technologies. We expect to apply for additional U.S. and foreign patents in the
future. The issuance of a patent is not conclusive as to its validity or as to
the enforceable scope of the claims of the patent. In addition, the issuance of
a patent to us does not mean that our products do not infringe on the patents of
others. We cannot assure you that:

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

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

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

We have exposure to patent infringement litigation as a result of our product
development efforts, which could adversely affect our product introduction
efforts and be costly.

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

As of December 31, 2001 we have $7 million of patent infringement liability
insurance covering us against the costs associated with patent infringement
claims made against us relating to seven ANDAs we filed under Paragraph IV of
the Hatch-Waxman Amendments. This insurance coverage may not be sufficient to
cover any liability resulting from alleged or proven patent infringement.
Additionally, 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.

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

The design, development and manufacture of our products involve an inherent risk
of product liability claims and associated adverse publicity. Product liability
insurance coverage is expensive, difficult to obtain, may not be available in
the future on acceptable terms, or at all. Any claims brought against us,
whether fully covered by insurance or not, could have a material adverse effect
upon us.

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

The FDA requires identification of raw material suppliers in applications for
approval of drug products. If raw materials were unavailable from a specified
supplier, FDA approval of a new supplier could delay the manufacture of the drug
involved. In addition, some materials used in our products are currently
available from only one, or a limited number of suppliers. Further, a
significant portion of our raw materials may be available only from foreign
sources. Foreign sources can be subject to the special risks of doing business
abroad, including:

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

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

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

As a small company with, as of December 31, 2001 approximately 132 employees,
the success of our present and future operations will depend to a great extent
on the collective experience, abilities, and continued service of Charles Hsiao,
our Chairman and Co-Chief Executive Officer, Barry R. Edwards, our Co-Chief
Executive Officer, Larry Hsu, our President and Chief Operating Officer, and
certain of our other executive officers. We do not have any employment
agreements with any of our executive officers, other than Dr. Hsiao, Mr.
Edwards, and Dr. Hsu. We do not maintain key man life insurance on the lives of
any of our executives. If we lose the services of any of these executive
officers, it could have a material adverse effect on us. Because of the
specialized scientific nature of our business, we are also highly dependent upon
our ability to continue to attract and retain qualified scientific and technical
personnel. Loss of the services of, or failure to recruit, key scientific and
technical personnel would be significantly detrimental to our product
development programs. Our small size and limited financial and other resources
may make it more difficult for us to attract and retain qualified officers and
qualified scientific and technical personnel.

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

We currently have three facilities: the Hayward (Huntwood Avenue), California,
35,125 square foot facility which serves as our corporate headquarters and our
primary development center; the Hayward (San Antonio Street), California, 50,400
square foot facility which is currently under construction to serve as our
primary manufacturing center; and the Philadelphia, Pennsylvania, 113,000 square
foot facility which serves as our center for sales, packaging and distribution.

In addition to obtaining the appropriate licenses and permits to build the new
facility currently under construction, the new manufacturing facility, once
completed, will need to be in compliance with current Good Manufacturing
Practices and inspected. We cannot assure you that such permits, licenses and
approvals will be obtained or, if obtained, obtained in time to manufacture
additional products as they are approved. Our facilities are subject to periodic
inspections by the FDA and we cannot assure you that the facilities will
continue to be in compliance with or, in the case of the new manufacturing
facility currently under construction, that this facility will be in compliance
with current Good Manufacturing Practices or other regulatory requirements.
Failure to comply with such requirements could result in significant delays in
the development, approval and distribution of our planned products, and may
require us to incur significant additional expense to comply with current Good
Manufacturing Practices or other regulatory requirements.

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

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

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

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

We have experienced rapid growth of our operations. This growth has required us
to expand, upgrade and improve our administrative, operational and management
systems, controls and resources. We anticipate additional growth in connection
with the expansion of our manufacturing operations, development of our brand
name products, our marketing and sales efforts for the products we develop, and
the development and manufacturing efforts for our products. Although we cannot
assure you that we will, in fact, grow as we expect, if we fail to manage growth
effectively or to develop a successful marketing approach, our business and
financial results will be materially harmed.

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

We may need to raise additional capital in the future to fund our operations and
planned expansion. To the extent we raise additional capital by issuing equity
securities or securities convertible into or exchangeable for equity securities,
ownership dilution to our stockholders, including holders of shares purchased in
this offering, will result. At December 31, 2001 we had 75,000 shares
outstanding of our Series 2 Preferred Stock. At December 31, 2001 these shares
were convertible, at any time at the option of their holders, into an aggregate
of 1,500,000 shares of our common stock. The shares of preferred stock also have
anti-dilution protections if we were to issue stock for a price below stated
levels ($5.00 per share for the Series 2 Preferred Stock), which could make them
convertible into additional shares of common stock. In addition, the Series 2
Preferred Stock is subject to redemption, mandatorily on March 31, 2005, or at
the option of the holder upon the occurrence of certain events. In either case,
we can elect to pay the redemption price of $100 per share of Series 2 Preferred
Stock by issuing shares of common stock at a discount of 10% from the then
current market price of the common stock. In addition, we borrowed $22 million
from Teva. This refundable deposit will be forgiven if we achieve certain
milestones relating to the development of certain products. If we fail to
achieve the milestones, the refundable deposit will become payable on January
15, 2004, in cash or, at our option, by the issuance of our common stock at a
price equal to the average closing sale price for the common stock measured over
the ten trading days ending two days prior to the date on which the common stock
is acquired by Teva. We also agreed to sell to Teva at various times through
June 15, 2002 at the then market price, such number of shares of our common
stock as can be purchased for $15 million. The first two purchases for aggregate
proceeds of $7.5 million were completed in 2001.

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

Our stock price may be depressed by future sales of our shares or perception
that future sales may occur. We had 46,680,047 shares outstanding as of December
31, 2001 of which approximately 21.2 million shares were owned by our officers
and directors or their affiliates and are considered restricted shares.
Substantially all of these approximately 21.2 million shares have been
registered for sale under the Securities Act of 1933 and, subject to certain
limitations, may be sold at any time without restriction. The remaining shares
of our outstanding common stock are freely tradable. In addition, as of December
31, 2001 we had 75,000 shares of Series 2 Preferred Stock outstanding,
convertible into at least 1,500,000 shares of common stock, outstanding warrants
to purchase 2,798,266 shares of common stock, and outstanding stock options to
purchase 3,285,069 shares of common stock. The common stock into which the
outstanding 75,000 shares of Series 2 Preferred Stock are convertible has been
registered for sale under the Securities Act of 1933 and, subject to certain
limitations, may be sold at any time without restriction. None of the shares
underlying the warrants have yet been registered for sale under the Securities
Act of 1933, but substantially all of the warrants have registration rights
entitling the holders to register the underlying shares under the Securities Act
of 1933 in certain instances upon exercise of the warrants, which would allow

those shares of common stock to be sold without restriction. The shares
underlying the stock options have been registered under the Securities Act of
1933 and, subject to certain limitations, may be sold upon exercise of the stock
options without restriction. In addition, on December 31, 2001 we had 1,674,538
shares of common stock available for issuance under employee benefit plans in
addition to the 3,285,069 shares issuable upon exercise of the options referred
to above. We are unable to estimate the amount, timing, or nature of future
sales of common stock. Sales of substantial amounts of the common stock in the
public market, or the perception that these sales may occur, may lower the
common stock's market price.

Control of our company is concentrated among a limited number of stockholders
who can exercise significant influence over all matters requiring stockholder
approval.

As of December 31, 2001 our present directors, executive officers and their
respective affiliates and related entities beneficially owned approximately 45%
of our outstanding common stock and common stock equivalents. Certain of these
stockholders have the right to obtain additional shares of our equity securities
under certain circumstances. They are entitled to preemptive rights, meaning
that they are entitled to purchase additional shares of our equity securities
when we sell shares of our equity in order to maintain their percentage
ownership in our company, and are also entitled to anti-dilution protection,
meaning that they will receive additional shares of our common stock in the
event that we issue shares of our common or preferred stock at a lower purchase
price than the purchase price paid for shares issued to these stockholders. They
may also receive additional shares of our common stock if, pursuant to the
mandatory or optional redemption provisions of our preferred stock, we redeem
our preferred stock by electing to issue common stock in lieu of paying the cash
redemption price. These stockholders can exercise significant influence over all
matters requiring stockholder approval, including the election of directors and
the approval of significant corporate transactions. This concentration of
ownership may also potentially delay or prevent a change in control of our
company.

Our stock price is likely to remain volatile.

The stock market has, from time to time, experienced significant price and
volume fluctuations that may be unrelated to the operating performance of
particular companies. In addition, the market price of our common stock, like
the stock price of many publicly traded specialty pharmaceutical companies, has
been and will likely continue to be volatile. Prices of our common stock may be
influenced by many factors, including:

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

The anti-takeover provisions of our charter documents and Delaware law could
adversely affect stockholders.

Certain provisions of our amended and restated certificate of incorporation and
bylaws may have anti-takeover effects and may delay, defer, or prevent a
takeover attempt of our company. We are also subject to the anti-takeover
provisions of the Delaware General Corporation Law. Such provisions could also
limit the price that investors might be willing to pay in the future for shares
our common stock.

In addition, our Board of Directors has the authority to issue up to 2,000,000
shares of our preferred stock and to determine the price, rights, preferences,
and privileges of those shares without any further vote or action by the
stockholders (except that the rights, preferences, and privileges may not be
more favorable to the stockholder than the Series 2 Preferred Stock, without the
approval of holders of the Series 2 Preferred Stock). Preferred stockholders
could adversely affect the rights and interests of holders of common stock by:

>> exercising voting, redemption, and conversion rights to the detriment
of the holders of common stock;
>> receiving preferences over the holders of common stock regarding assets
or surplus funds in the event of our dissolution or liquidation;
>> delaying, deferring, or preventing a change in control of our company;

>> discouraging bids for our common stock at a premium over the market
price of the common stock; and
>> otherwise adversely affecting the market price of the common stock.

We are not likely to pay dividends.

We have not paid any cash dividends on our common stock and we do not plan to
pay any cash dividends in the foreseeable future. We plan to retain any earnings
for the operation and expansion of our business.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's investment portfolio consists of cash and cash equivalents and
marketable securities stated at cost which approximates market value. The
primary objective of the Company's investment activities is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, the Company maintains its portfolio
in a variety of high credit quality securities, including U.S. Government
securities, treasury bills, short-term commercial paper, and highly rated money
market funds. One hundred percent of the Company's portfolio matures in less
than one year. The carrying value of the investment portfolio approximates the
market value at December 31, 2001. The Company's debt instruments at December
31, 2001, are subject to fixed interest rates and principal payments. We believe
that the fair value of our fixed rate long-term and refundable deposit
approximates its carrying value of approximately $29 million at December 31,
2001. While changes in market interest rates may affect the fair value of our
fixed 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 do not use derivative financial instruments and have no material foreign
exchange or commodity price risks.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is included in the financial statements
set forth in Item 14(a) under the heading "Financial Statements" as a part of
this report.

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

There have been no changes in or disagreements with accountants on accounting
and financial disclosure matters.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

The information concerning directors of Impax Laboratories, Inc. required under
this Item is incorporated herein by reference from our definitive proxy
statement to be filed pursuant to Regulation 14A, related to the Registrant's
2002 Annual Meeting of Stockholders, to be held on May 6, 2002 (the "2002 Proxy
Statement").

Executive Officers

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

ITEM 11. EXECUTIVE COMPENSATION

The information required under this Item is incorporated herein by reference
from our 2002 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required under this Item is incorporated herein by reference
from our 2002 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required under this Item is incorporated herein by reference
from our 2002 Proxy Statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. FINANCIAL STATEMENTS

The following are included herein under Item 8:

Page Number
-----------

Reports of Independent Accountants............................................................ F-2

Balance Sheets as of December 31, 2001 and 2000............................................... F-3

Statements of Operations for each of the three years in the period
ended December 31, 2001.................................................................... F-4

Statements of Stockholders Equity for each of the three years in the period
ended December 31, 2001.................................................................... F-5 to F-6

Statements of Cash Flows for each of the three years in the period
ended December 31, 2001.................................................................... F-7

Notes to Financial Statements................................................................. F-8 to F-21

2. FINANCIAL STATEMENT SCHEDULES

The following financial statement schedule of Impax Laboratories, Inc.
for each of the years ended December 31, 2001, 2000 and 1999 should be
read in conjunction with the Financial Statements, and related notes
thereto, of Impax Laboratories, Inc.

Page Number
-----------

Schedule II - Valuation and Qualifying Accounts S-1

Schedules other than those listed above have been omitted since they are
either not required not applicable, or the information has otherwise been
included.

3. EXHIBITS

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

3.1 Restated Certificate of Incorporation of the Company. (1)

3.6 By-laws of the Company. (1)

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

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

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

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

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

3.16 Certificate of Designations of Series 2 Convertible Preferred Stock. (5)

10.6 The Company's 1995 Stock Incentive Plan. (1) (4)

10.10 Form of Amended Manufacturing Agreement between the Company and Genpharm, Inc., dated as of November, 1995. (1)

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

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

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

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

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

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

10.29 Consent, Subordination and Assumption Agreement by and among GPC Florida, PIDC Financing Corporation and PIDA,
dated April 18, 2994. (1)

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

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

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

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

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

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

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

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

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

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

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

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

23.1 Consent of PricewaterhouseCoopers LLP.(9)

99.1 Court Order issued May 25, 1993, by the United States District Court for the Eastern District of Pennsylvania
against Richlyn Laboratories, Inc. (1)

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

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the last quarter of the year
ended December 31, 2001.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

IMPAX LABORATORIES, INC.
(Registrant)

By s/s BARRY R. EDWARDS
------------------------------------
Co-CHIEF EXECUTIVE OFFICER

Date March 20, 2002
-------------------------------

By s/s CORNEL C. SPIEGLER
------------------------------------
CHIEF FINANCIAL OFFICER

Date March 20, 2002
-------------------------------

In accordance with the securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in
capacities and on the dated indicated.

s/s CHARLES HSIAO, Ph.D. Chairman, Co-Chief Executive Officer and Director
------------------------------------
(Charles Hsiao, Ph.D.)

s/s BARRY R. EDWARDS Co-Chief Executive Officer and Director
------------------------------------ (Principal Executive Officer)
(Barry R. Edwards)

s/s LARRY HSU, Ph.D. President, Co-Chief Operating Officer and Director
------------------------------------
(Larry Hsu, Ph.D.)

s/s CORNEL C. SPIEGLER Chief Financial Officer
------------------------------------ (Principal Financial and Accounting Officer)
(Cornel C. Spiegler)

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

s/s ROBERT L. BURR Director
------------------------------------
(Robert L. Burr)

s/s DAVID J. EDWARDS Director
------------------------------------
(David J. Edwards)

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

s/s MICHAEL MARKBREITER Director
------------------------------------
(Michael Markbreiter)

s/s OH KIM SUN Director
------------------------------------
(Oh Kim Sun)

s/s MICHAEL G. WOKASCH Director
------------------------------------
(Michael G. Wokasch)

IMPAX LABORATORIES, INC.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Accountants......................................................... F-2

Balance Sheets at December 31, 2001 and December 31, 2000................................. F-3

Statements of Operations for each of the three years in the period ended December 31, 2001 F-4

Statements of Changes in Stockholders' Equity for each of the three years in the period
ended December 31, 2001................................................................... F-5 to F-6

Statements of Cash Flows for each of the three years in the period ended December 31, 2001 F-7

Notes to Financial Statements............................................................. F-8 to F-21

Schedule II - Valuation and Qualifying Accounts........................................... S-1

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the financial statements listed in the index appearing under
Item 14(a) on page 39 present fairly, in all material respects, the financial
position of Impax Laboratories, Inc. at December 31, 2001 and 2000, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item
14(a)(2) on page 39 present fairly, in all material respects, the information
set forth therein when read in conjunction with the related financial
statements. These financial statements and the financial statement schedule are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP

February 12, 2002, except for Note 18, as to which the date is February 20, 2002
Philadelphia, Pennsylvania

F-2

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

December 31,
-------------------------
2001 2000
------ ------

ASSETS

Current assets:
Cash and cash equivalents $ 15,044 $ 11,448
Short-term investments 20,422 7,780
Accounts receivable, net 3,523 1,581
Inventory 3,488 2,949
Prepaid expenses and other assets 1,506 370
-------- --------
Total current assets 43,983 24,128
Property, plant and equipment, net 24,334 9,699
Investments and other assets 574 692
Goodwill, net 27,574 31,078
Intangibles, net 1,147 1,531
-------- --------
Total assets $ 97,612 $ 67,128
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt $ 232 $ 144
Accounts payable 3,996 2,276
Notes payable - 2,425
Accrued expenses and deferred revenues 3,575 1,481
------- -------
Total current liabilities 7,803 6,326
Refundable deposit 22,876 -
Long-term debt 6,868 1,345
Accrued compensation - 400
Deferred revenues 117 -
-------- --------
37,664 8,071
-------- --------

Commitments and contingencies (Note 12)
Mandatorily redeemable convertible Preferred Stock:

Series 1 mandatorily redeemable convertible Preferred Stock, $0.01 par
value 0 and 163,030 shares outstanding at December 31, 2001, and 2000,
redeemable at $100 per share, respectively - 16,303
Series 2 mandatorily redeemable convertible Preferred Stock, $0.01 par value
75,000 and 120,000 shares outstanding at December 31, 2001, and 2000,
redeemable at $100 per share 7,500 12,000
-------- --------
7,500 28,303
-------- --------
Stockholders' equity:

Redeemable convertible Preferred Stock - -
Common stock, $0.01 par value, 75,000,000 shares authorized and 46,680,047
and 32,294,532 shares issued and outstanding at December 31, 2001,
and 2000, respectively 466 323
Additional paid-in capital 122,957 76,740
Unearned compensation (673) (1,118)
Accumulated deficit (70,302) (45,191)
-------- --------
Total stockholders' equity 52,448 30,754
-------- --------
Total liabilities and stockholders' equity $ 97,612 $ 67,128
======== ========

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

F-3

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

Year Ended December 31,
-----------------------------------------------------
2001 2000 1999
----------- ----------- ----------

Net sales $ 6,591 $ 10,170 $ 1,240

Cost of sales 9,669 9,716 925
----------- ----------- ----

Gross margin (loss) (3,078) 454 315

Research and development 11,890 11,096 6,479

Less: Teva payments (918) - -
----------- ----------- ----------

Research and development, net 10,972 11,096 6,479

Acquired in-process research and development - - 1,379

Selling 2,186 1,346 327

General and administrative* 9,258 9,764 1,506

Other operating income, net 164 306 43

Restructuring charges and non-recurring items** - 3,646 -
----------- ----------- ----------

Net loss from operations (25,330) (25,092) (9,333)

Interest income 1,148 758 393

Interest expense*** (929) (339) (9)
----------- ----------- ----------

Net loss before cumulative effect of accounting change $ (25,111) $ (24,673) $ (8,949)
=========== =========== ==========

Cumulative effect of accounting change (SAB101) - (288) -
----------- ----------- ----------

Net loss $ (25,111) $ (24,961) $ (8,949)
=========== =========== ==========

Net loss per share before cumulative effect of accounting change $ (0.60) $ (0.90) $ (1.12)
=========== =========== ==========

Net loss per share (basic and diluted) $ (0.60) $ (0.91) $ (1.12)
=========== =========== ==========

Weighted average common shares outstanding 41,555,818 27,538,989 7,998,665
=========== =========== ==========

* Includes amortization of intangibles and goodwill of $3,888K, $4,604K, and
$205K for the twelve months ended December 31, 2001, 2000, and 1999,
respectively.

** Includes one time write-off for impairment of $2,037K of intangibles, $957K
of inventory and $652K of equipment due to ceasing manufacturing in the
Philadelphia facility and rationalizing the product lines in 2000.

*** The total interest expense of $1,129K for 2001, which was reduced by $200K
in capitalized interest, included interest of $876K on refundable deposit
from Teva.

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

F-4

IMPAX LABORATORIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH DECEMBER 31, 2001
(dollars and shares in thousands, except per share amounts)

Series D
Preferred
Stock
Series A Series B Series C Series D Subscription
Shares Amount Shares Amount Shares Amount Shares Amount Amount
------ ------ ------ ------- ------ ------ ------ ------ ------------

Balance at January 1, 1999.................. 1,580 $1,580 410 $2,050 520 $4,276 - $ - $4,300

Issuance of Series B Preferred Stock.. - - 19 93 - - - - -

Issuance of Series D Preferred Stock.. - - - - - - 3,400 17,000 (4,300)

Intrinsic value of options issued..... - - - - - - - - -

Amortization of unearned compensation....... - - - - - - - - -

Exercise of options......................... - - - - - - - - -

Conversion of Series A Preferred Stock...... (1,580) (1,580) - - - - - - -

Conversion of Series B Preferred Stock...... - - (429) (2,143) - - - - -

Conversion of Series C Preferred Stock...... - - - - (520) (4,276) - - -

Conversion of Series D Preferred Stock...... - - - - - - (3,400) (17,000) -

Acquisition of Global Pharmaceutical
Corporation .............................. - - - - - - - - -

Net loss.................................... - - - - - - - - -
------ ------ ------ ------ ----- ------ ------ ------ ------
Balance at December 31, 1999................ - $ - - $ - - $ - - $ - $ -

Sale of Common Stock........................ - - - - - - - - -

Conversion of Series 1B Preferred Stock..... - - - - - - - - -

Conversion of Series 2 Preferred Stock...... - - - - - - - - -

Exercise of warrants........................ - - - - - - - - -

Exercise of options......................... - - - - - - - - -

Expenses related to sale of stock........... - - - - - - - - -

Intrinsic value of stock options issued to
consultant ............................... - - - - - - - - -

Amortization of unearned compensation....... - - - - - - - - -

Net loss.................................... - - - - - - - - -
------ ------ ------ ------ ----- ------ ------ ------ ------
Balance at December 31, 2000................ - - - - - - - - -

[RESTUBBED TABLE]

Additional
Common Stock Paid In Unearned Accumulated
Shares Amount Capital Compensation Deficit Total
-------- ------- ---------- ------------- ----------- ---------

Balance at January 1, 1999.................. 7,162 $72 $685 - ($11,281) $1,682

Issuance of Series B Preferred Stock.. - - - - - 93

Issuance of Series D Preferred Stock.. - - - - - 12,700

Intrinsic value of options issued..... - - 1,805 (1,805) - -

Amortization of unearned compensation....... - - - 335 - 335

Exercise of options......................... 200 2 148 - - 150

Conversion of Series A Preferred Stock...... 5,272 53 1,527 - - -

Conversion of Series B Preferred Stock...... 1,430 14 2,129 - - -

Conversion of Series C Preferred Stock...... 3,039 30 4,246 - - -

Conversion of Series D Preferred Stock...... - - - - - (17,000)

Acquisition of Global Pharmaceutical
Corporation .............................. 7,704 77 41,190 - - 41,267

Net loss.................................... - - - - (8,949) (8,949)
------ ------ -------- -------- -------- -------
Balance at December 31, 1999................ 24,807 $ 248 $ 51,730 ($ 1,470) ($20,230) $30,278

Sale of Common Stock........................ 2,739 27 16,473 - - 16,500

Conversion of Series 1B Preferred Stock..... 3,801 38 5,659 - - 5,697

Conversion of Series 2 Preferred Stock...... 600 6 2,994 - - 3,000

Exercise of warrants........................ 168 2 198 - - 200

Exercise of options......................... 180 2 309 - - 311

Expenses related to sale of stock........... - - (728) - - (728)

Intrinsic value of stock options issued to
consultant ............................... - - 105 (105) -

Amortization of unearned compensation....... - - - 457 - 457

Net loss.................................... - - - - (24,961) (24,961)
------ ------ -------- -------- -------- -------
Balance at December 31, 2000................ 32,295 $323 $76,740 ($1,118) ($45,191) $30,754

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

F-5

IMPAX LABORATORIES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH DECEMBER 31, 2001
(dollars and shares in thousands, except per share amounts)

Sale of Common Stock........................ - - - - - - - - -

Conversion of Series 1 MRC* Preferred Stock. - - - - - - - - -

Conversion of Series 2 MRC* Preferred Stock. - - - - - - - - -

Exercise of warrants........................ - - - - - - - - -

Exercise of options......................... - - - - - - - - -

Expenses related to sale of stock........... - - - - - - - - -

Intrinsic value of stock options issued to
consultant - - - - - - - - -

Amortization of unearned compensation....... - - - - - - - - -

Net loss.................................... - - - - - - - - -

Balance at December 31, 2001................ - - - - - - - - -
=== === === === === === === === ===

[RESTUBBED TABLE]

Additional
Common Stock Paid In Unearned Accumulated
Shares Amount Capital Compensation Deficit Total
------- ------- --------- ------------ ----------- ------

Sale of Common Stock........................ 2,773 28 25,036 - - 25,064

Conversion of Series 1 MRC* Preferred Stock. 10,041 100 16,203 - - 16,303

Conversion of Series 2 MRC* Preferred Stock. 900 9 4,491 - - 4,500

Exercise of warrants........................ 307 3 102 - - 105

Exercise of options......................... 365 3 565 - - 568

Expenses related to sale of stock........... - - (233) - - (233)

Intrinsic value of stock options issued to
consultant - - 53 (27) - 26

Amortization of unearned compensation....... - - - 472 - 472

Net loss.................................... - - - - (25,111) (25,111)

Balance at December 31, 2001................ 46,681 $466 $122,957 ($673) ($70,302) $52,448
======= ==== ======== ====== ========= ========

* MRC is Mandatorily Redeemable Convertible

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

F-6

IMPAX LABORATORIES, INC.

STATEMENTS OF CASH FLOWS

(dollars in thousands)

Year ended December 31,
----------------------------------------
2001 2000 1999
------ ------ ------

Cash flows from operating activities:
Net loss $(25,111) $(24,961) $ (8,949)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 5,828 5,955 882
Non-cash compensation charge (warrants and options) 498 457 335
Non-cash asset impairments - 3,646 -
Write-off of in-process research and development - - 1,379
Other - (11) (64)
Change in assets and liabilities:
Accounts receivable (1,942) 2,211 (1,292)
Inventory (539) (1,884) 471
Prepaid expenses and other assets (1,018) (143) (135)
Accounts payable and other liabilities 4,407 (1,274) 636
-------- -------- --------

Net cash used in operating activities (17,877) (16,004) (6,737)
-------- -------- --------

Cash flows from investing activities:
Purchases of property and equipment (16,575) (3,563) (457)
Purchases of short-term investments (32,232) (18,569) (9,010)
Sale and maturities of short term investments 19,590 10,789 9,081
Cash acquired in purchase of Global Pharmaceutical Corporation - - 1,325
-------- -------- --------

Net cash provided by (used in) investing activities (29,217) (11,343) 939
-------- -------- --------

Cash flows from financing activities:
Notes payable borrowings (repayments) (2,425) 572 221
Additions to long-term debt 5,770 - -
Repayment of long-term debt (159) (473)
Proceeds from issuance of preferred stock (net of expense) - 14,902 12,700
Proceeds from sale of common stock (net of expense) 24,831 15,870 -
Proceeds from issuance of common stock (upon exercise of
stock options and warrants) 673 511 -
Refundable deposit 22,000 - -
Repayments of advances from stockholders - - (80)
-------- -------- --------
Net cash provided by financing activities 50,690 31,382 12,841
-------- -------- --------

Net increase in cash and cash equivalents 3,596 4,035 7,043
Cash and cash equivalents, beginning of the year 11,448 7,413 370
-------- -------- --------
Cash and cash equivalents, end of year 15,044 11,448 7,413
======== ======== ========

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

F-7

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999

NOTE 1. - THE COMPANY

Nature of Operations

Impax Laboratories, Inc. ("IMPAX", "we" or "the Company") is the result of a
business combination (see "Reverse Acquisition" below) on December 14, 1999, of
Impax Pharmaceuticals, Inc., a privately held drug delivery company, and Global
Pharmaceutical Corporation ("Global"), a specialty generic pharmaceutical
company.

The Company's main business is the development, manufacturing and marketing of
specialty prescription pharmaceutical products utilizing its own formulation
expertise and unique drug delivery technologies. The Company is currently
marketing twenty products, has fifteen applications under review with the Food
and Drug Administration (FDA), nine of these filings being made under Paragraph
IV of the Hatch-Waxman Amendments, and approximately seventeen additional
products under development.

Impax Pharmaceuticals, Inc. was originally organized on September 27, 1994, as a
California corporation. Global was formed in April 1993 to acquire the assets
and liabilities of Richlyn Laboratories, Inc. Global commenced operations and
began shipping products in September 1997.

The Company was considered a development stage company as defined in Statement
of Financial Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by
Development Stage Enterprises," until the fourth quarter of 1999 when it began
operations.

We have experienced, and expect to continue to experience, operating losses and
negative cash flow from operations and our future profitability is uncertain. We
do not know whether or when our business will ever be profitable or generate
positive cash flow, and our ability to become profitable or obtain positive cash
flow is uncertain. We have generated minimal revenues to date and have
experienced operating losses and negative cash flow from operations since our
inception. As of December 31, 2001 our accumulated deficit was $70,302,000 and
we had outstanding indebtedness in an aggregate principal amount of $29,100,000.
To remain operational, we must, among other things:

Although our existing cash, cash equivalents, and short-term investments are
expected to decline during 2002, we believe that our existing balances, together
with an anticipated $7,500,000 from equity purchases by Teva, will be sufficient
to meet our operational plan for at least the next 12 months. We may, however,
seek additional financing in order to accelerate our business plan in the brand
name pharmaceutical area. We anticipate obtaining, during 2002, a revolving line
of credit to partially fund our working capital requirements. However, we may be
unable to obtain a new revolving line of credit on terms acceptable to us at
all.

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

Reverse Acquisition

Pursuant to the terms of the Agreement and Plan of Merger (the "Merger
Agreement") by and between Global and Impax Pharmaceuticals, Inc. on December
14, 1999, Impax Pharmaceuticals, Inc. was merged with and into Global with Impax
Pharmaceuticals, Inc. stockholders receiving 3.3358 shares of Global common
stock for each share of Impax Pharmaceuticals, Inc. common stock. Upon
completion of the merger, Global changed its name to Impax Laboratories, Inc.
For accounting purposes, however, the acquisition has been treated as the
re-capitalization of Impax Pharmaceuticals, Inc., with Impax Pharmaceuticals,
Inc. deemed the acquirer of Global in a reverse acquisition. Therefore, the
historical equity of the company has been adjusted to reflect the conversion of
Impax Pharmaceuticals, Inc. common stock to that of Global.

The purchase price of $46,757,000 was determined based on the fair value of
Global's outstanding stock and equivalents.

F-8

The allocation of the purchase price was as follows:

$ 000's
-------

Current assets $ 7,983
Property, plant and equipment 5,449
Intangible assets 4,728
In-process research and development 1,379
Goodwill 34,727
Liabilities (7,509)
---------

$ 46,757
========

Included in the net assets acquired was in-process research and development
(IPR&D) which represents the value assigned to research and development projects
of Global that were in-process, but not yet completed at the date of
acquisition. Amounts assigned to purchased IPR&D were expensed at the date of
completion of the merger.

As a reverse acquisition, the historical operating results prior to the merger
are those of Impax Pharmaceuticals and only include Global's operating results
after the merger. The following unaudited pro forma information on results of
operations assumes the companies had combined on January 1, 1999.

Pro forma
Year Ended
December 31, 1999*
-----------------

Operating revenue............................................ $ 9,446
Research and development..................................... 8,030
Operating loss............................................... (15,608)
Net loss..................................................... (15,224)
Net loss per share (basic and diluted)....................... $ (0.71)

----------------------
*Excludes non-recurring charges related to acquisition of $1,420 or $(0.06) per
share

NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates - General

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

Significant Accounting Estimates

We believe the following critical accounting policies affect the most
significant judgments and estimates used in the preparation of our financial
statements.

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

a) During the year 2000, we adopted Staff Accounting Bulletin ("SAB")
101 issued by the SEC in December 1999. Under this policy, we
recognize revenue from the sale of products when the shipment of
products is received and accepted by the customer.

b) The sales return reserve is calculated using historical lag time data
of active and discontinued products and the historical return rates,
adjusted by estimates of the future return rates, based on various
assumptions which may include internal policies and procedures,
competitive position of each product, and the introduction of new
products. Our returned goods policy requires prior authorization for
the return, and the products must be within six months of expiration
date.

c) The sales rebate reserve is calculated based on customer agreements
and accrued on a monthly basis.

d) The chargebacks reserve is estimated based on the estimated amount of
product at the wholesalers that will be subsequently sold to a
distributor or retailer at a lower price.

F-9

Although we believe our estimates are reasonable, we participate in a highly
competitive industry that is characterized by aggressive pricing practices,
frequent introduction of new products, and changing customer demand patterns.
Therefore, it is at least reasonably possible that estimated reserves calculated
by us will be materially different from actual amounts. These differences could
result in material adverse effects on the Company's quarterly or annual results
of operations.

Our critical accounting policy related to inventory is as follows:

Our critical accounting policy related to assets impairment is as follows:

Cash and Cash Equivalents

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

Short-Term Investments

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

Concentration of Credit Risk

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

The Company has three major customers that account for approximately 55% of
total sales for the year ended December 31, 2001. At December 31, 2001, accounts
receivable from these three customers represent approximately 69% of total trade
receivables. Approximately 64% of the Company's net sales were attributable to
one product family, which is supplied by a vendor under an exclusive licensing
agreement that expires in 2007.

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

Inventory

Inventory is stated at the lower of cost or market. Cost is determined using a
standard cost method which assumes a first-in, first-out (FIFO) flow of goods.
Standard costs are revised annually, and significant variances between actual
costs and standard arising are apportioned to inventory and cost of goods sold
based upon inventory turnover. The Company considers product costs as inventory
once the Company receives FDA approval to market the related products. Costs
includes materials, labor and production overhead.

F-10

Property, Plant and Equipment

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

Investments

The Company's investments in other than cash equivalents are classified as
"held-to-maturity" based upon the nature of the investments, their ultimate
maturity date, the restrictions imposed by the PIDA and PIDC loan agreements
dated July 29, 1997 (See Note 10) and management's intention with respect to
holding these securities. At December 31, 2001, the cost of the Company's
investments approximate fair value.

Goodwill and Intangibles

Intangible assets, comprised of product rights and licenses, are amortized on a
straight line basis over the estimated useful life of 3 to 8 years. Goodwill is
being amortized on a straight line basis over 10 years.

The Company complies with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-lived Assets to Be Disposed Of." Accordingly, the
carrying value of long-lived assets and certain identifiable intangible assets
are evaluated whenever changes in circumstances indicate the carrying amount of
such assets may not be recoverable. In performing such review for
recoverability, the Company compares expected undiscounted future cash flows to
the carrying value of long-lived assets and identifiable intangibles. If the
expected undiscounted future cash flows are less than the carrying amount of
such assets, the Company recognizes an impairment loss for the difference
between the carrying amount of the assets and their estimated fair value.

Revenue Recognition

In the fourth quarter of 2000, the Company modified its revenue recognition
policy to conform to the guidance set forth under the SEC Staff Accounting
Bulletin (SAB) 101. The application of the SAB 101 guidance to the Company's
previous revenue recognition policy requires it to defer revenue recognition
from the sale of product until the shipment of product is received and accepted
by the customer, rather than recognizing revenue only upon shipment. The change
in accounting policy resulted in a cumulative effect adjustment at January 1,
2000, of $288,000 and also resulted in an increase in revenue and gross margin
of $667,000 and $288,000, respectively, for the twelve month period ended
December 31, 2000. Had this policy been adopted on January 1, 1999, the revenue
for the year ended December 31, 1999, would have been $573,000.

Other Operating Income

The Company has one contract in which it performs research and development on
behalf of third parties. Under the terms of this contract, any milestone
payments are spread over the term of the agreement and recognized as other
operating income. In addition, the Company received royalty income from sales of
Ranitidine from Genpharm, Inc. ("Genpharm"). See also Note 3.

Income Taxes

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

Stock-Based Compensation

The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees," and complies with the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."

Comprehensive Income

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

F-11

Business Segments

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

Computation of Basic and Diluted Net Loss Per Share

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

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

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivatives and Hedging Activities." This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities, SFAS No. 133 was effective for the year beginning January 1,
2001. The adoption of SFAS No. 133 did not have an effect on the Company's
results of operations, financial position, or cash flows. The Company's policy
is to not enter into any transactions involving derivative instruments.

In June 2001, the FASB issued SFAS No. 141, "Business Combinations." This
Statement addresses financial accounting and reporting for business combinations
and is effective for all business combinations initiated after June 30, 2001,
and for all business combinations accounted for by the purchase method for which
the date of acquisition is after June 30, 2001. The adoption of the SFAS No. 141
did not have an effect on the Company's results of operations, financial
position, or cash flows.

Also, during June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." This Statement addresses financial accounting and reporting
for intangible assets acquired individually or with a group of other assets at
acquisition. This Statement also addresses financial accounting and reporting
for goodwill and other intangible assets subsequent to their acquisition. The
provisions of SFAS 142 are effective for fiscal years beginning after December
15, 2001. The Company will adopt the provisions of SFAS 142 in its first quarter
ended March 31, 2002. The Company is in the process of preparing for its
adoption of SFAS 142 and expects that it will no longer amortize its existing
goodwill. We will also expect to test, at that time and on an ongoing basis, the
goodwill for impairment. The amortization expense associated with goodwill for
the year 2001 was $3,504,000.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." This Statement applies to all long-lived assets (including
discontinued operations) and consequently amends Accounting Principles Board
Opinion No. 30 (APB 30), "Reporting Results of Operations Reporting the Effects
of Disposal of a Segment of a Business." The provisions of SFAS No. 144 will be
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and, generally, its provisions are to be applied
prospectively. We are currently assessing the effect (if any) the adoption of
SFAS No. 144 will have on our results of operations, financial position, or cash
flows.

NOTE 3 - RELATED PARTY TRANSACTIONS:

The Company was advanced $373,000 in fiscal 1998 from certain shareholders. A
total amount of $293,000 was repaid in 1998 and the remaining balance was paid
in January 1999. As of December 31, 2000, the Company had accrued $400,000 of
compensation payable to two key employees in recognition of past services
rendered; this amount was paid during 2001.

F-12

On November 8, 1995, Global entered into an agreement (the "Genpharm Agreement")
with Genpharm, a Canadian corporation and an indirect subsidiary of Merck KGaA,
under which Merck KGaA purchased 150,000 shares of Global's common stock. Global
also issued to Merck KGaA a warrant to purchase 100,000 shares of common stock
at an exercise price of $2.00 per share, (the "A warrant") and additional
warrants to purchase up to 700,000 shares at an exercise price of $8.50 per
share, whose exercise is contingent upon the gross profit (as defined in the
agreement), if any, earned by Global. The Genpharm Agreement provides the
Company with the opportunity to develop products with the assistance of Merck
KGaA that are marketed outside the U.S. During 1998, the Company filed ANDAs for
two products previously selected, from which one product, minocycline, received
approval in March 1999. Merck KGaA exercised its A warrant in 2000. The B
warrants were not exercised and expired in December 2000.

NOTE 4 - INVENTORY

Inventory consists of the following:

December 31,
2001 2000
-------- --------
(in thousands)

Raw materials......................................................... $ 2,004 $ 1,870
Finished goods........................................................ 1,634 1,509
----------- -----------
3,638 3,379
Less: Reserve for obsolete inventory and net realizable value 150 430
----------- -----------
$ 3,488 $ 2,949
=========== ===========

NOTE 5 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

December 31,
Estimated 2001 2000
useful life ------ ------
(years) (in thousands)
-----------

Land....................................................... - $ 1,970 $ 170
Building and building improvements......................... 15 9,802 2,872
Equipment.................................................. 7 - 10 8,321 8,358
Leasehold improvements..................................... * - 895
Office furniture and equipment............................. 5 722 451
Construction in progress................................... - 7,316 -
-------- ----------
28,131 12,746
Less: Accumulated depreciation 3,797 3,047
-------- ----------
$ 24,334 $ 9,699
======== ==========

*Depreciated over the life of the lease or the life of the asset, whichever is
shorter.

Depreciation expense was $1,940,000, $1,351,000, and $676,000 for the years
ended December 31, 2001, 2000, and 1999, respectively.

NOTE 6 - GOODWILL AND INTANGIBLES

Goodwill and intangibles consist of the following:

December 31,
Estimated 2001 2000
useful life ------ ------
(years) (in thousands)
---------

Product rights and licenses...................... 3 - 8 $ 2,691 $ 2,691
Goodwill ........................................ 10 34,727 34,727
----------- -----------
37,418 37,418
Less: Accumulated amortization 8,697 4,809
----------- -----------
$ 28,721 $ 32,609
=========== ===========

Amortization expense was $3,888,000, $4,604,000, and $205,000 for the years
ended December 31, 2001, 2000, and 1999, respectively.

F-13

NOTE 7 - ACCRUED EXPENSES AND DEFERRED REVENUES

December 31,
2001 2000
-------- --------
(in thousands)

Sales returns................................................... $ 1,900 $ 216
Patent infringement legal expenses.............................. 155 381
Accrued professional fees....................................... 361 330
Accrued salaries and payroll related expenses................... 388 265
Accrued royalty expense......................................... 121 85
Accrued taxes................................................... 153 40
Other accruals.................................................. 431 164
Deferred revenues............................................... 66 -
------- --------
$ 3,575 $ 1,481
======= ========

During the years ended 2001, 2000, and 1999, the Company has received product
returns for primarily expired product of $2,840,000, $707,000, and $181,000,
respectively. As a result of the increase in the returns in 2001, the Company
has increased its reserve for future returns from $216,000 at December 31, 2000
to $1,900,000 at December 31, 2001. Therefore, the total expense recognized for
the years ended December 31, 2001, 2000, and 1999 was $4,524,000, $923,000, and
$181,000 respectively.

NOTE 8 - INCOME TAXES

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

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

December 31,
2001 2000
-------- --------
(in thousands)

Net operating losses.................................................. $ 28,802 $ 20,588
Deferred start-up and organization costs............................... 847 1,976
Research and development credit........................................ 2,068 1,110
Other.................................................................. 1,683 940
-------- --------
Total gross deferred tax assets..................................... 33,400 24,614
Deferred tax liability.................................................
Tax depreciation and amortization in excess of book depreciation.... (705) (423)
Valuation allowance.................................................... (32,695) (24,191)
-------- --------
Net deferred tax asset/(liability).................................. $ - $ -
========= ========

Deferred start-up and organization expenditures are amortized for tax purposes
over a 60-month period ending 2003. Cash paid for income taxes was $0, $0 and
$1,000 for the years ended December 31, 2001, 2000, and 1999, respectively. Due
to historical losses incurred by the Company, a full valuation allowance for net
deferred tax assets has been provided. If the Company achieves profitability,
certain of these net deferred tax assets would be available to offset future
income taxes. Under the Tax Reform Act of 1986, the amounts of and benefits from
net operating loss-carryforwards may be impaired or limited in certain
circumstances. Events which cause limitations in the amount of net operating
losses that the Company may utilize in any one year include, but are not limited
to, a cumulative ownership change of more than 50%, as defined, over a three
year period.

At December 31, 2001, the Company had a net operating loss-carryforward totaling
approximately $72,005,000, which expires from 2009 through 2021. The Company
also had research and development expenditure tax credits totaling approximately
$2,068,000 at December 31, 2001, which begin to expire in 2011. As indicated
above, these losses and credits will have limitations. Of the $72 million,
approximately $54 million will be currently available as of December 31, 2001,
to offset any potential future taxable profits, with the remainder being fully
available by December 31, 2004.

NOTE 9 - NOTES PAYABLE

In July 1998, the Company entered into a three year revolving credit facility
with GE Capital, providing funding up to $5 million based on the levels of
accounts receivable and inventory. Amounts borrowed under this facility bear
interest, payable monthly, at the Index Rate plus 4% per annum. In July 2001,
the Company notified GE Capital that it would not seek the renewal of its
revolving credit facility that expired at the end of July 2001.

F-14

NOTE 10 - LONG TERM DEBT

December 31,
2001 2000
-------- --------
(in thousands)

2% loan payable to PIDA (No.1) in 180 monthly installments of $6,602
commencing June 1, 1994, through May 1, 2009............................... $ 546 $ 613
3.75% loan payable to PIDA (No. 2) in 180 monthly installments of $5,513
commencing September 1, 1997, through August 1, 2012....................... 581 624
5% loan payable to DRPA in 120 monthly installments of $3,712 commencing
September 1, 1997, through August 1, 2007.................................. 219 252
8.17% loan payable to Cathay Bank in 83 monthly installments of $19,540
commencing June 28, 2001, through May 27, 2008, with a balance of
$2,208,843 due on June 28, 2008............................................ 2,458 -
7.50% loan payable to Cathay Bank in 83 monthly installments of $24,629
commencing November 14, 2001, through October 13, 2008, with a balance
of $2,917,598 due on November 14, 2008 3,296 -
-------- --------
$ 7,100 $ 1,489
Less: Current portion of long-term debt 232 144
-------- --------
$ 6,868 $ 1,345
======== ========

The PIDA (No. 1) loan is collateralized by land, building and building
improvements in the Philadelphia facility. The PIDA (No. 2) and the DRPA loans
are collateralized by land, building, and building improvements in the
Philadelphia facility, and additional collateral of $528,000 invested in
interest bearing certificates of deposit owned by the Company.

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

The 8.17% Cathay Bank loan is collateralized by land, building and building
improvements in the 30831 Huntwood Avenue, Hayward facility. The 7.50% Cathay
Bank loan is collateralized by land, building and building improvements in the
31153 San Antonio Street, Hayward facility.

Scheduled maturities of long-term debt as of December 31, 2001, are as follows,
in thousands:

2002............................................... 232
2003............................................... 238
2004............................................... 251
2005............................................... 264
2006............................................... 277
Thereafter......................................... 5,838
------
Total $ 7,100
=======

We believe that the fair value of our fixed rate long-term debt and refundable
deposit approximates its carrying value of approximately $29 million at December
31, 2001.

The interest paid during the years ended December 31, 2001, 2000, and 1999 was
approximately $224,000, $339,000, and $9,000, respectively.

NOTE 11 - REFUNDABLE DEPOSIT

In June 2001, the Company entered into a strategic alliance agreement for twelve
controlled release pharmaceutical products with a subsidiary of Teva
Pharmaceutical Industries Ltd. ("Teva"). This agreement grants Teva exclusive
U.S. marketing rights and an option to acquire exclusive marketing rights in the
rest of North America, South America, the European Union, and Israel for the
following:

>> five IMPAX products pending approval at the U.S. Food and Drug
Administration ("FDA"); and
>> six products under development.

F-15

In consideration for the potential transfer of the marketing rights, we received
$22 million from Teva. The $22 million is reflected on the balance sheet as a
refundable deposit. The refundable deposit was provided by Teva in the form of a
loan, the repayment of which will be forgiven upon IMPAX's attainment of certain
milestones. The loan contains a number of covenants to which the Company is in
compliance. The refundable deposit bears interest at the annual interest rate of
8%. The loan and related interest obligation is due and payable on January 15,
2004, unless partially or totally forgiven based on the Company's attainment of
certain incentives. It is collateralized via a second mortgage by land,
building, and building improvements at the 31153 San Antonio Street, Hayward
facility. In addition, Teva is required to invest $15 million in the common
stock of IMPAX according to a fixed schedule through June 15, 2002. These equity
purchases equal the average closing sale price of the Company's common stock
measured over a ten trading day period ending two days prior to the date when
Teva acquires the common stock. However on the date Teva completes its first
sale of any one of the products specified in the agreement, Impax may repurchase
from Teva 16.66% of these shares for an aggregate of $1.00. The first two
purchases, for an aggregate of 579,015 shares of common stock, were completed in
2001 for aggregate proceeds of $7,500,000.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

Leases

The Company leases office space through July 31, 2002, with option to lease for
two additional six month periods at an annual rent of $40,200. Rent expense for
the years ended December 31, 2001, 2000 and 1999 was $463,000, $165,000 and
$165,000, respectively. The Company recognizes rent expense on a straight-line
basis over the lease period.

The Company also leases certain equipment under various non-cancelable operating
leases with various expiration dates through 2006. Future minimum lease payments
under the non-cancelable operating leases are as follows (in thousands):

Year Ended
December 31

2002 $ 110
2003 60
2004 48
2005 20
2006 17
------
Total minimum lease payments $ 255
======

Richlyn Order

The Company is in compliance with a May 25, 1993, order which was entered by the
United States District Court for the Eastern District of Pennsylvania (the
"Richlyn Order"). The Richlyn Order, among other things, permanently enjoined
Richlyn from introducing into commerce any drug manufactured, processed, packed
or labeled at its manufacturing facility unless it met certain stipulated
conditions. The Company, as a purchaser of the Richlyn facility, remains
obligated by the terms of the Richlyn Order. We are currently packaging,
warehousing, and distributing our products from this facility.

Patent Litigation

As of December 31, 2001, the Company filed nine ANDAs under Paragraph IV of the
Hatch-Waxman Amendments. Filings made under the Hatch-Waxman Amendments often
result in the initiation of litigation by the patent holder. In seven out of the
nine filings, the respective patent holder has filed suit against the Company
and it is reasonably possible the two other filings will result in suits being
filed against the Company by the respective patent holders in the future. The
Company has a $7 million patent infringement liability insurance policy from
American International Specialty Line Company (an affiliate of AIG
International) which covers the Company against the costs associated with patent
infringement claims made against it relating to seven of the ANDAs. The Company
believes this insurance coverage is sufficient for the legal defense costs
related to the seven ANDAs, however, the Company does not believe that this type
of litigation insurance will be available on acceptable terms for other current
or future ANDAs.

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.

F-16

NOTE 13 - MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

The Company has authorized 2,000,000 shares of preferred stock, $0.01 par value
per share (the "Preferred Stock"). The Company issued in March 2000, 150,000
shares of Series 2 Preferred Stock from which 75,000 were outstanding at
December 31, 2001, and are classified as Mandatorily Redeemable Convertible
Preferred Stock. The remaining authorized but unissued shares could be issued
with or without mandatory redemption or conversion features. During 2001,
163,030 shares of Series 1 Preferred Stock and 45,000 Shares of Series 2
Preferred Stock were converted into 10,040,871 and 900,000 shares of Common
Stock, respectively.

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

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

o vote, in general, as a single class with the holders of the common stock on
all matters voted on by the stockholders of the Company, with each holder
of Series 2 Preferred entitled to a number of votes equal to the number of
shares of common stock into which that holders' shares would then be
convertible;
o are entitled to receive dividends on an as-converted basis, with the
outstanding shares of common stock payable when and as declared by the
Company's Board of Directors;
o have conversion rights with the conversion price adjusted for certain
events; currently, the conversion price for the Series 2 is $5.00 per
share;
o have the benefit of (a) mandatory redemption by the Company at a price per
share of preferred stock of $100 plus all declared but unpaid dividends on
March 31, 2005, for the Series 2; (b) optional redemption at the option of
the holders upon the occurrence of certain events, including the sale of
the combined company or its assets, the elimination of a public trading
market for shares of its common stock, or the insolvency of or bankruptcy
filing by the combined company. In either case the redemption price can be
paid, at the Company's option, in cash or shares of common stock,
discounted (in the case of shares) by 10% from the then current market
price of the common stock;
o have pre-emptive rights entitling them to purchase a pro rata share of any
capital stock, including securities, convertible into capital stock of the
Company, issued by the Company in order for the holders to retain their
percentage interest in the Company; except the Company can issue shares of
its capital stock without triggering the preemptive rights when issued: as
pro rata dividends to all holders of common stock; as stock options to
employees, officers and directors; in connection with a merger, acquisition
or business combination for consideration of less than $500,000 in any
single permitted transaction and for less than $1,000,000 in the aggregate
for all permitted transactions; and during the first five years in
connection with a business relationship (there is a cap on the amount of
shares the Company may issue without trigging the pre-emptive rights); and
o after two years from the date of issuance, are subject to having their
shares called for redemption at a price per share of preferred stock of
$100 plus all declared but unpaid dividends, at the Company's option, when
the common stock has traded on its principal market for a period of thirty
consecutive days with an average daily volume in excess of 50,000 shares
for the 30-day period and the market price of a share of the Company's
common stock is, for the Series 2, at least equal to or greater than 300%
of the applicable conversion price.

NOTE 14 - STOCKHOLDERS' EQUITY

Common Stock

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

The Company has outstanding warrants as follows:

Number of Shares Range of
Under Warrants Exercise Price
---------------- --------------

1,755,266 $0.75 to $2.00 per share
1,020,000 $2.01 to $4.00 per share
23,000 $4.01 to $6.00 per share
---------
2,798,266
=========

F-17

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

In connection with a deferred compensation agreement in 1998 with the Company's
founders, the Company issued warrants to purchase 1,734,616 shares of Common
Stock for $0.75 per share. Such warrants, which are included in the above table,
expire in 2003. In addition, the Company issued warrants to purchase 625,000
shares of common stock for $4.00 per share to J. P. Morgan Chase (formerly
Robert Fleming) in conjunction with Series 1A Preferred Stock, and warrants to
purchase 225,000 shares of common stock at $4.00 per share to Bear Stearns Small
Cap Value in conjunction with a previous private equity financing. The Company
determined that the intrinsic value of the warrants at the date of grant was
$260,000 and has charged this amount to expense in 1998 in accordance with APB
Opinion No 25.

Unearned Compensation

In April 1999, the Company granted 836,285 options to employees to purchase
common stock for $0.75 per share. As a result of the grant, the Company recorded
$1,805,000 of unearned compensation in accordance with APB Opinion No. 25;
$472,000, $446,000, and $335,000 of the unearned compensation was amortized to
expense during the year ended December 31, 2001, 2000, and 1999, respectively.
During 2001, the Company granted options to a consultant to purchase common
stock at market price. As a result of the grant, the Company recorded $27,000 of
unearned compensation and expensed $26,000 during the year ended December 31,
2001. The Company amortizes unearned compensation over the vesting period of the
underlying option.

NOTE 15 - EMPLOYEE BENEFIT PLANS

401-(K) Defined Contribution Plan

The Company sponsors a 401-(K) defined contribution plan covering all employees.
Contributions made by the Company are determined annually by the Board of
Directors. There were $40,000, $36,000, and $12,000 in matching contributions
under this plan for the year ended December 31, 2001, 2000, and 1999,
respectively.

Employee Stock Purchase Plan

In February 2001, the Board of Directors of the Company approved the 2001
Non-Qualified Employee Stock Purchase Plan (the "Plan"). Under this Plan, the
Company registered 500,000 shares of common stock under a Form S-8 Registration
Statement. The purpose of this Plan is to enhance employee interest in the
success and progress of the Company by encouraging employee ownership of common
stock of the Company. The Plan provides the opportunity to purchase the
Company's common stock at a 15% discount to the market price through payroll
deductions or lump-sum cash investments. During 2001, 6,119 shares of common
stock were sold by the Company to its employees under this Plan for net proceeds
of $64,240.

NOTE 16 - STOCK OPTION PLANS

1996 Stock Option Plan

In September 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan"). The 1996 Plan provides for the granting of stock options to employees
and consultants of the Company. Options granted under the 1996 Plan may be
either incentive stock options or non-qualified stock options. Incentive stock
options ("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Non-qualified stock options ("NSO") may be
granted to Company employees and consultants. The Company has reserved 500,000
shares (pre-recapitalization) of Common Stock for issuance under the 1996 Plan.

Effective June 1, 1998, the Company's Board of Directors approved the re-pricing
of all outstanding options to $0.75 per share, the fair market value of common
stock on that date. As a result, all outstanding options at June 1, 1998, were
effectively rescinded and re-issued at an exercise price of $0.75 per share.

As a result of the merger, each outstanding and unexercised option to purchase
shares of common stock was converted into new options by multiplying these
options by 3.3358. Therefore, at December 31, 1999, 266,800 outstanding and
unexercised options under the 1996 Plan were converted into 889,991 new options.
563,010 and 791,111 options were outstanding at December 31, 2001 and 2000,
respectively.

F-18

1999 Equity Incentive Plan (Pre-Merger)

In April 1999, the Company adopted the 1999 Equity Incentive Plan (the "1999
Pre-Merger Plan"). The 1999 Pre-Merger Plan reserves for issuance of 1,000,000
shares (pre-recapitalization) of common stock for issuance pursuant to stock
option grants, stock grants and restricted stock purchase agreements. As a
result of the merger, each outstanding and unexercised option to purchase shares
of common stock was converted into new options by multiplying these options by
3.3358. Therefore, at December 31, 1999, 249,300 outstanding and unexercised
options under the 1999 Pre-Merger Plan were converted into 831,615 new options.
801,298 and 813,605 options were outstanding at December 31, 2001 and 2000,
respectively.

Global's 1995 Stock Incentive Plan

In 1995, Global's Board of Directors adopted the 1995 Stock Incentive Plan. As a
result of the merger, each outstanding and unexercised option to purchase shares
of common stock was converted into one Impax Laboratories, Inc. option. At
December 31, 1999, 525,987 options were outstanding. As a result of the reverse
acquisition, the 525,987 options were reflected in the following table as
options acquired during 1999. 313,800 and 430,037 options were outstanding at
December 31, 2001 and 2000, respectively.

Impax Laboratories, Inc. 1999 Equity Incentive Plan

The Company's 1999 Equity Incentive Plan (the "Plan") was adopted by IMPAX's
Board of Directors in December 1999, for the purpose of offering equity-based
compensation incentives to eligible personnel with a view toward promoting the
long-term financial success of the Company and enhancing stockholder value. In
October 2000, the Company's stockholders approved the increase in the aggregate
number of shares of common stock that may be issued pursuant to the Company's
1999 Equity Incentive Plan from 2,400,000 to 5,000,000. 1,606,961 and 1,152,577
options were outstanding at December 31, 2001 and 2000, respectively.

To date, options granted under each of the above plans vest from three to five
years and have a term of ten years. Stock option transactions in each of the
past three years under the aforementioned plans in total were:

2001 2000 1999
------ ------ ------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------------- ------------------------ ---------------------------

Options Outstanding at January 1 3,187,330 $2.56 2,589,622 $1.62 955,707 $0.74
Acquired - - - - 525,987 $2.99
Granted 593,000 $9.81 859,501 $5.31 1,180,310 $1.68
Exercised (364,728) $1.56 (179,529) $1.71 (67,044) $0.75

Cancelled (130,533) $5.35 (82,264) $3.59 (5,338) $0.75
Rescinded - - - - - -
Reissued - - - - - -

------------------------- ------------------------ ---------------------------
Options outstanding at December 31 3,285,069 $3.88 3,187,330 $2.56 2,589,622 $1.62
---------- ---------- ----------
Options exercisable at December 31 1,195,366 924,322 663,766
---------- ---------- ----------
Options available for grant at December 31 1,674,538 2,137,036 336,364
---------- ---------- ----------

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, "Accounting for Stock Based Compensation," the Company's loss would have
been increased to the pro forma amounts indicated below (in thousands):

For the Year Ended For the Year Ended For the Year Ended
December 31, 2001 December 31, 2000 December 31, 1999
----------------------- ----------------------- ------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma

Net loss ($25,111) (26,561) ($24,961) ($25,892) ($8,949) ($9,190)
Net loss per common share ($0.60) (0.64) ($0.91) ($0.94) ($1.12) ($1.15)
(basic and diluted)

The pro forma results may not be representative of the effect on reported
operations for future years. The Company calculated the fair value of each
option grant on the date of grant using the Black-Scholes pricing method with
the following assumptions: dividend yield at 0%; weighted average expected
option term of five years; risk free interest rate of 4.30%, 5.48%, and 6.50% to
6.93% for the years ended December 31, 2001, 2000, and 1999, respectively. The
expected stock price volatility for the year ended December 31, 2001, was 50%.
The weighted average fair value of options granted during 2001, 2000, and 1999
was $4.43, $2.66, and $2.27, respectively.

F-19

The following table summarizes information concerning outstanding and
exercisable options at December 31, 2001:

Options Outstanding Options Exercisable
---------------------------------------------------------------------------------- ---------------------------------

Weighted Average Weighted Weighted
Range of Number Remaining Life Average Number Average
Exercise Prices of Options (Years) Exercise Price of Options Exercise Price
---------------------------------------------------------------------------------- --------------------------------

$0.30 -$ 0.75 1,030,728 6.62 $ 0.75 593,645 $0.74
$0.82 -$ 2.06 359,080 7.21 $ 0.98 188,957 $0.95
$2.19 -$ 5.63 1,399,761 8.11 $ 4.57 402,764 $3.67
$6.50 - $11.95 495,500 9.68 $10.56 10,000 $6.50
---------------------------------------------------------------------------------- -----------------------------
$0.30 - $11.95 3,285,069 7.78 $ 3.88 1,195,366 $1.81
================================================================================== =============================

NOTE 17 - RESTRUCTURING CHARGES AND NON-RECURRING ITEMS

In August 2000, the Company ceased manufacturing operations at its Philadelphia
facility and consolidated all manufacturing activities at its facility in
Hayward, California. The Philadelphia facility continues as the Company's
packaging, repackaging and distribution of finished products center.
Additionally, a review of all manufactured products was undertaken in order to
rationalize the product line consistent with these changes. This action was
taken to utilize the Company's resources in the most economic way and to resolve
long-standing regulatory issues with the Philadelphia facility. The
restructuring charges and non-recurring items related to this action amounted to
$3,646,000 and represented a one-time write-off for impairment of $2,037,000 of
intangibles, $957,000 of inventory, and $652,000 of equipment due to ceasing
manufacturing in the Philadelphia facility and rationalizing the product lines.

NOTE 18 - SUBSEQUENT EVENTS

On February 20, 2002, IMPAX was granted by FDA a tentative approval to the
Company's ANDA for a generic version of Tricor(R) (Fenofibrate), Micronized.
Tricor(R) is marketed by Abbott Laboratories ("Abbott"). The FDA approval covers
67mg, 134mg, and 200mg capsules and is contingent upon the earlier of (1) the
settlement of pending patent infringement litigation brought by Abbott against
IMPAX, or (2) the expiration of the 30 month stay process under the Hatch-Waxman
Amendments, and the expiration of any generic marketing exclusivity. Final
approval is also dependent upon FDA's evaluation of any new information
subsequent to this tentative approval.

NOTE 19 - SUPPLEMENTARY QUARTERLY DATA (UNAUDITED)

The following is the summary of the unaudited quarterly results of operations
for the fiscal years 2001 and 2000:

(dollars in thousands except Year 2001
share and per share data) For The Quarter Ended
--------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------

Net Sales $ 1,772 $ 1,136 $ 1,658 $ 2,025

Gross margin (loss) (504) (856) (589) (1,129)

Net loss $ (5,338) $ (6,150) $ (6,769) $ (6,854)

Net loss per share
(basic and diluted) $ (0.16) $ (0.15) $ (0.15) $ (0.15)

Weighted Average
Common Shares
Outstanding 33,951,876 41,138,673 45,943,604 46,680,047

F-20

(dollars in thousands except Year 2000
share and per share data) For The Quarter Ended
-------------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------

Net Sales $ 3,185 $ 2,908 $ 2,777 $ 1,300

Gross margin (loss) 833 322 (144) (557)

Net loss $ (4,392) $ (5,147) $ (9,618) $ (5,804)

Net loss per share
(basic and diluted) $ (0.18) $ (0.21) $ (0.38) $ (0.20)

Weighted Average
Common Shares
Outstanding 24,808,129 24,900,197 25,094,236 29,544,225

F-21

IMPAX LABORATORIES, INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(in thousands of dollars)

Balance at Additions,
Beginning Costs and Deductions, Balance at
of Year Expense Write-offs End of Year
------------------------------------------------------------------------------------------------------------------------

Reserve for returns and allowances:
Year ended December 31, 2001 $ 610 $ 7,081 $ 4,125 $ 3,566
Year ended December 31, 2000 $ 1,316 $ 3,427 $ 4,133 $ 610
Year ended December 31, 1999 $ - $ 2,677 $ 1,361 $ 1,316

Inventory reserves:
Year ended December 31, 2001 $ 430 $ 69 $ 349 $ 150
Year ended December 31, 2000 $ 90 $ 412 $ 72 $ 430
Year ended December 31, 1999 $ - $ 90 $ - $ 90

Deferred tax valuation allowance:
Year ended December 31, 2001 $ 24,191 $ 8,504 $ - $ 32,695
Year ended December 31, 2000 $ 18,701 $ 5,490 $ - $ 24,191
Year ended December 31, 1999 $ 3,324 $15,377 $ - $ 18,701

S-1