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, 2002

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

For the transition period from ___________ to ___________

Commission file number 33-99310-NY

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

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

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

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

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

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

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

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

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

The aggregate market value of the Common Stock held by non-affiliates
of the registrant (based on the closing price for the Common Stock on the Nasdaq
Stock Market on June 28, 2002) was approximately $206,607,575./(1)/ As of June
28, 2002, there were 47,750,632 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 2003 Annual Meeting of Stockholders, which
is expected to be filed no later than 120 days after the Registrant's fiscal
year ended December 31, 2002.

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

/(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 $7.49,
the last reported sale price for the Company's common stock on June 28,
2002, the last business day of the registrant's most recently completed
second fiscal quarter. The information provided shall in no way be
construed as an admission that any officer, director or 10% shareholder
in the Company may be deemed an affiliate of the Company or that he is
the beneficial owner of the shares reported as being held by him, and
any such inference is hereby disclaimed. The information provided
herein is included solely for record keeping purposes of the Securities
and Exchange Commission.

IMPAX LABORATORIES, INC.

INDEX TO FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2002

Page
----

PART I

ITEM 1. Business..................................................................................... 4
ITEM 2. Properties................................................................................... 22
ITEM 3. Legal Proceedings............................................................................ 23
ITEM 4. Submission of Matters to a Vote of Security Holders.......................................... 28

PART II

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters........................ 29
ITEM 6. Selected Financial Data...................................................................... 29
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 30
ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk................................... 52
ITEM 8. Financial Statements and Supplementary Data.................................................. 52
ITEM 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure......... 52

PART III

ITEM 10. Directors and Executive Officers of the Registrant........................................... 52
ITEM 11. Executive Compensation....................................................................... 53
ITEM 12. Security Ownership of Certain Beneficial Owners and Management............................... 53
ITEM 13. Certain Relationships and Related Transactions............................................... 53
ITEM 14. Controls and Procedures...................................................................... 53

PART IV

ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 54

SIGNATURES ............................................................................................. 57

CERTIFICATIONS ............................................................................................ 58

PART I

Forward-Looking Statements

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

ITEM 1. BUSINESS

Introduction

Impax Laboratories, Inc. ("we," "us," "our," "the Company" or "IMPAX") is a
technology based, specialty pharmaceutical company focused on the development
and commercialization of generic and brand name pharmaceuticals, utilizing our
controlled-release and other in-house development and formulation expertise. In
the generic pharmaceuticals market, we are primarily focusing our efforts on
selected controlled-release generic versions of brand name pharmaceuticals. We
are also developing other generic pharmaceuticals that 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. Additionally, where strategically appropriate, IMPAX has developed
marketing partnerships to fully leverage its technology platform. Prior to
December 14, 1999, the Company was known as Global Pharmaceutical Corporation
("Global"). On December 14, 1999, Impax Pharmaceuticals, Inc., a privately held
drug delivery company, was merged into the Company and the Company changed its
name to Impax Laboratories, Inc. For accounting purposes, however, the
acquisition has been treated as the recapitalization of Impax Pharmaceuticals,
Inc., with Impax Pharmaceuticals, Inc. deemed the acquirer of Global in a
reverse acquisition.

IMPAX, a Delaware corporation, maintains its headquarters in Hayward,
California, in an approximately 35,125 square foot facility that also serves as
the primary development center of the Company. A second facility of
approximately 50,400 square feet, located in Hayward, California, serves as the
primary manufacturing center. The third facility is approximately 14,400 square
feet located in Hayward, California and is used primarily for administration. A
fourth facility, located in Philadelphia, Pennsylvania, serves as the primary
commercial center, with sales and marketing, packaging, warehousing, and
distribution occurring in this approximate 113,000 square foot facility.

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

TRADEMARK OWNER
Allegra-D(R) Aventis S.A.
Alavert(TM) Wyeth Consumer Products

TRADEMARK OWNER
Betapace(R) Berlex Laboratories
Brethine(R) aaiPharma
Claritin-D(R) Schering-Plough Corp.
Claritin Reditabs(R) Schering-Plough Corp.
Creon(R) Solvay Pharmaceuticals
Flumadine(R) Forest Laboratories, Inc.
Florinef(R) King Pharmaceuticals
Minocin(R) Wyeth Consumer Products
Nexium(R) AstraZeneca PLC
Norflex(R) 3M Pharmaceuticals
OxyContin(R) Purdue Pharma L.P.
Pancrease(R) McNeil Laboratories
Prilosec(R) AstraZeneca PLC
Rilutek(R) Aventis S.A.
Sinemet(R) Merck & Co.
Tricor(R)capsules and tablets Abbott Laboratories
Ultrase(R) Scandipharm
Wellbutrin(R)and Wellbutrin SR(R) GlaxoSmithKline
Zyban(R) GlaxoSmithKline

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
Abbreviated New Drug Applications ("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,
limited competition, or are technically challenging.

- Strategically Expand the Sales and Distribution of Our
Products - We entered into a strategic alliance with a
subsidiary of Teva covering twelve of our controlled-release
generic pharmaceutical products. We also entered into
agreements to grant Novartis, Wyeth, and Schering-Plough
marketing rights to market over-the-counter ("OTC") versions
of our generic Claritin (loratadine) products. We will depend
on our strategic alliances with Teva, Novartis, Wyeth, and
Schering-Plough to achieve market penetration and generate
revenues for those products covered by the alliances. We
intend to seek additional strategic alliances with these and
other partners for the expanded marketing and distribution of
our products.

- Leverage Our Technology and Development Strengths - We intend
to continue to leverage our technology and development
strengths, including our patented oral controlled-release drug
delivery technologies. We have developed eight 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.

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 $16.3 billion for the year ended December 31, 2002. The FDA has
approved more than 80 different 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 1996, the FDA has approved
approximately 234 ANDAs per year. During this period, the
median approval time for ANDAs has been reduced from
approximately 23 months to approximately 18 months.

- Payor Support for Generic Drugs - Managed care organizations
and government-sponsored health care programs are increasingly
encouraging the use of generic drugs as a means to control
health care costs. As a result, the market share of generic
drugs as a percent of total U.S. prescription units dispensed
has been increased since the passage of the Hatch-Waxman
Amendments. In 2001, approximately 45% of the prescriptions in
the United States were filled with generics. This fill rate
has increased significantly since 1994, when approximately 36%
of the prescriptions in the United States were filled with
generics.

- Significant Patent Expirations on Brand Name Products - A
significant number of brand name products with annual sales
over $100 million are expected to come off patent in the next
few years. This represents significant opportunity for generic
drug companies. The 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.

Technology

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

Our product development strategy is centered on both proprietary and
non-proprietary drug delivery technology and capabilities. We have developed
several proprietary drug delivery technologies covering the formulation of
dosage forms with controlled-release and multiple modes of release rates. We
have obtained four U.S. patents, have filed one application, and expect to file
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 Many of today's controlled-release technologies are designed for the
Delivery System (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 ("USPTO") has granted us a
patent for CMDS; patent #US 5,885,616.

Timed Multiple-Action Delivery System (TMDS) Similar to CMDS, this system controls release rates for multiple
ingredients within a single tablet in a programmed manner. Our TMDS
technology allows for the release of more than one active ingredient in a
single tablet formulation to be released in multiple profiles over time.
The USPTO has granted us a patent for TMDS; patent #US 6,372,254.

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

Programmed Multiple-action Delivery System (PMDS) Our PMDS technology is designed to provide for the multi-phasic delivery
of any active ingredient in a more controlled fashion as compared to
typical controlled release technologies. Our PMDS technology is designed
to allow for the release of the active ingredient at predetermined time
intervals and desired levels on a consistent basis.

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

This technology allows us to overcome one of the technical challenges in
the development of multi-particulate dosage forms - achieving acceptable
uniformity and reproducibility of a product with a variety of release
rates. It is designed to provide greater dosing flexibility that improves
product efficacy and may reduce side effects. We expect to file a patent
application for PMDS with the USPTO.

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

Particle Dispersion Systems (PDS) One of the challenges in the formulation of an insoluble drug is to
achieve satisfactory bioavailability in humans. Our proprietary PDS system
provides a drug delivery system for the oral administration of water
insoluble inactive ingredients. The USPTO has granted us a patent for PDS:
Patent #US 6,531,158.

Pharmaceutical Stabilization System (PSS) Our PSS system is designed to create an acidic micro-environment for
drugs which require an acidic environment to achieve optimal
stability. We achieve this environment through the addition of an
organic acid using several salts which retard the degradation of, and
therefore stabilize, certain active ingredients. The USPTO has
granted us a patent for PSS: patent #US 6,333,332.

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

Products And Product Development

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

As of February 24, 2003, we had nineteen applications pending at the Food and
Drug Administration ("FDA"), including three tentatively approved, that address
more than $5.8 billion in U.S. product sales for the twelve months ended
December 31, 2002. Thirteen of these filings were made under Paragraph IV of the
Hatch-Waxman Amendments. We have approximately seventeen other products in
various stages of development for which applications have not yet been filed.
These products are for generic versions of brand name pharmaceuticals that had
U.S. sales of approximately $3.2 billion for the twelve months ended December
31, 2002.

All the sales data referenced herein is based on information obtained from IMS
Health, US, all channels, for the year ended December 31, 2002.

The following table lists the ten recent Abbreviated New Drug Applications
("ANDAs") which have been approved:

SPECIALTY CONTROLLED RELEASE
----------------------------------------------------------------------------------------------------------------------------
Product Strengths U.S. Product Strengths U.S.
Market Size Market Size
(mil) (mil)
============================================================================================================================

Minocycline Hydrochloride 50mg, 75mg, 100mg $180 Omeprazole Delayed 10mg, 20mg $3,197
Capsules Released Capsules

Sotalol Hydrochloride Tablets 80mg, 120mg, $69 Loratadine and 5mg/120mg $296
160mg, 240mg Pseudoephedrine
Sulfate 12-hour
Extended Release
Tablets

Riluzole Tablets 50mg $35 Pentoxifylline 400mg $35
Extended Release
Tablets

Fludrocortisone Acetate 0.1mg $29 Orphenadrine Citrate 100mg $19
Tablets Extended Release
Tablets

Terbutaline Sulfate Tablets 2.5mg, 5mg $13

Rimantadine Hydrochloride 100mg $7
Tablets

TOTAL $333 TOTAL $3,547

The following table provides the current status of the Generic
Controlled-Release (CR) Projects:

---------------------------------------------------------------------------------------------------------------------------
Project Innovator Status U.S.
Market Size
(mil)
===========================================================================================================================

CR1 Disclosed Projects 8 Projects Pending at FDA $4,487
---------------------------------------------------------------------------------------------------------------------------
Omeprazole 40mg Delayed Released Prilosec (AstraZeneca) Tentative Approval $340
Capsules

Bupropion Hydrochloride 100mg and Wellbutrin SR (Glaxo) Paragraph IV $1,501
150mg Extended Release Tablets

Bupropion Hydrochloride 150mg Zyban (Glaxo) Paragraph IV $78
Extended Release Tablets

Loratadine and Pseudoephedrine Claritin-D 24 hr (Schering) Tentative Approval $489
Sulfate 10mg/240mg 24 hour
Extended Release Tablets

Fexofenadine and Pseudoephedrine Allegra-D (Aventis) Paragraph IV $407
Hydrochloride 60mg/120mg Extended
Release Tablets

Oxycodone Hydrochloride 80mg OxyContin (Purdue) Paragraph IV $544
Extended Release Tablet

Oxycodone Hydrochloride 10mg, OxyContin (Purdue) Paragraph IV $974
20mg, and 40mg Extended Release
Tablets

Carbidopa and Levodopa 25 Sinemet CR (BMS) Paragraph IV $154
mg/100mg and 50mg/200mg Extended
Release Tablets

CR1 Undisclosed Projects 2 Projects Pending at FDA $533

Total Group CR1 Projects 10 Projects Pending at FDA $5,020

Total Group CR2 Projects 9 Projects Under Development $3,386

19 Total Controlled Release Projects $8,406

The following table provides the current status of the Generic Specialty (SP)
Projects:

SP1 Disclosed Projects 3 Projects Pending at FDA $744

Fenofibrate 67mg, 134mg, and Tricor Capsules (Abbott) Tentative Approval $2
200mg Capsules

Loratadine 10mg Orally Claritin Reditabs (Schering) Paragraph IV $330
Disintegrating Tablets

Fenofibrate 160mg Tricor Tablets (Abbott) Paragraph IV $411
Tablets

SP1 Undisclosed Projects 6 Projects Pending at FDA $119

Total Group SP1 Projects 9 Projects Pending at FDA $862

Total Group SP2 Projects 8 Projects Under Development $272

17 Total Generic Specialty Projects $1,134

Controlled-release generic pharmaceuticals

We apply our controlled-release drug delivery technologies and formulation
skills to develop bioequivalent versions of selected brand name pharmaceuticals.
We generally employ our 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 four ANDAs approved and
ten ANDAs under review by the FDA for controlled-release generic
pharmaceuticals. Nine of our pending ANDA filings for controlled-release generic
pharmaceuticals contain certifications under Paragraph IV of the Hatch-Waxman
Amendments. Under Paragraph IV, we are required to certify to the FDA that we
believe 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 the FDA accepts our ANDA, 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. Our ANDA was granted final
approval for the 10mg and 20mg strengths, and tentative
approval for the 40mg strength, by the FDA on November 10,
2002. Total U.S. sales for Prilosec were approximately
$3.5 billion in 2002.

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"). Glaxo commenced
patent infringement litigation against us with respect to
this product in October 2000. In August 2002, the United
States District Court, Northern District of California,
issued an order granting IMPAX's Motion for Summary
Judgment of Non-Infringement. This ruling is currently
under appeal by Glaxo. Total U.S. sales for Wellbutrin SR
were approximately $1.5 billion in 2002.

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 commenced patent infringement litigation
against us with respect to this product in October 2000.
In August 2002 the United States District Court, Northern
District of California, issued an order granting IMPAX's
Motion for Summary Judgment of Non-Infringement. This
ruling is currently under appeal by Glaxo. Total U.S.
sales for Zyban were approximately $78 million in 2002.

Claritin-D 24 In September 2000, the FDA accepted our ANDA submission
for a bioequivalent version of Claritin-D 24-hour, which
is a once-a-day antihistamine for the treatment of
allergies and is currently being marketed by
Schering-Plough. Schering-Plough commenced patent
infringement litigation against us with respect to this
product in January 2001. Schering-Plough said in a March
8, 2002 press release that it had filed with the U.S. Food
and Drug Administration to switch all Claritin
formulations from prescription to OTC marketing status.
The FDA granted tentative approval to our ANDA in May
2002. In August 2002, a United States District Court in
Newark, New Jersey ruled some of the claims on a patent
filed by Schering-Plough covering desloratadine, the
metabolized form of Claritin's active ingredient
loratadine, were anticipated by prior patent and were not
valid. In doing so, the judge granted a Motion for Summary
Judgment filed by 15 generic drug manufacturers, including
IMPAX. This ruling is currently being appealed by
Schering-Plough. In December 2002, FDA approved
Schering-Plough's request to switch this product to OTC
marketing status. Total U.S. sales of Claritin-D 24-hour
were approximately $489 million in 2002. Another
Schering-Plough patent covering loratadine formulations is
still being litigated.

Claritin-D 12 In December 2000, the FDA accepted our ANDA submission for
the bioequivalent version of Claritin-D 12-hour, which is
an antihistamine for the treatment of allergies and is
currently being marketed by Schering-Plough.
Schering-Plough commenced litigation against us with
respect to this product in January 2001. Schering-Plough
said in a March 8, 2002 press release that it had filed
with the U.S. Food and Drug Administration to switch all
Claritin formulations from prescription to OTC marketing
status. The FDA granted tentative approval to our ANDA in
May 2002. In August 2002, a United States District Court
in Newark, New Jersey ruled some of the claims on a patent
filed by Schering-Plough covering desloratadine, the
metabolized form of Claritin's active ingredient
loratadine, were anticipated by prior patent and were not
valid. In doing so, the judge granted a Motion for Summary
Judgment filed by 15 generic drug manufacturers, including
IMPAX. This ruling is currently being appealed by
Schering-Plough. In December 2002, the FDA approved
Schering-Plough's request to switch this product to OTC
marketing status. Our ANDA was granted final approval by
the FDA in January 2003 and we began shipping the product
at the end of January 2003. Total U.S. sales of Claritin-D
12-hour were approximately $296 million in 2002.

Allegra-D In December 2001, 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. Aventis
commenced patent litigation against us with respect to
this product in March 2002. Total U.S. sales for Allegra-D
were approximately $407 million in 2002.

OxyContin 80mg In December 2001, 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. ("Purdue"). Purdue commenced patent litigation
against us with respect to this product in April 2002.
Total U.S. sales for OxyContin 80mg were approximately
$544 million in 2002.

OxyContin 10mg, In June 2002, the FDA accepted our ANDA submission for a
20mg and 40 mg bioequivalent version of the 40mg strength of OxyContin,
which is used for the management of moderate to severe
pain, and is currently marketed by Purdue Pharmaceuticals
L.P. This application was subsequently amended to add the
10mg and 20mg strengths. Purdue commenced patent
litigation against us with respect to this product in
September 2002. Total U.S. sales for OxyContin 10mg, 20mg
and 40mg were approximately $974 million in 2002.

Sinemet CR In December 2002, the FDA accepted our ANDA submission
for a bioequivalent version of Sinemet CR that is used in
the treatment of Parkinsonism and is currently distributed
by Bristol Myers Squibb. Merck & Co., the patent holder,
commenced patent infringement litigation against us with
respect to this product in February 2003. Total U.S.
market sales for Sinemet CR and its generic equivalent
were $154 million in 2002.

We have also submitted ANDAs related to two additional products, the details of
which have not been publicly disclosed, with U.S. sales of approximately $533
million for the twelve months ended December 31, 2002.

We believe that we were first to have an ANDA that included a Paragraph IV
Certification accepted for filing by the FDA for the bioequivalent version of
our 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. When the FDA approved our ANDA in January 2003, our
bioequivalent version of Claritin-D 12-hour was granted the 180-day period of
marketing exclusivity. This exclusivity period would run from commencement of
the first commercial marketing of the product. We do not believe we were the
first to file with respect to our other pending applications with Paragraph IV
Certifications.

In June 2002, we signed a semi-exclusive Development, License and Supply
Agreement with Wyeth relating to our Loratadine and Pseudoephedrine Sulfate
5mg/120mg 12-hour Extended Release Tablets and Loratadine and Pseudoephedrine
Sulfate 10mg/240mg 24-hour Extended Release Tablets for the OTC market under the
Alavert(TM) brand. IMPAX is responsible for developing and manufacturing the
products, while Wyeth is responsible for their marketing and sale. The structure
of the agreement includes milestone payments and a royalty on Wyeth sales.

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

In addition to the products for which we have submitted applications, we have
nine other controlled-release ANDA eligible products in various stages of
development. Total U.S. sales for the brand name versions of these products were
approximately $3.4 billion in 2002. We are continually evaluating these and
other potential product candidates. In selecting our target product candidates,
we focus on pharmaceuticals which we believe will have potential for high sales
volume, are technically challenging, and may be suitable for filing under
Paragraph IV Certification.

Other generic pharmaceuticals

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

As of February 24, 2003 we had nine applications pending at the FDA for other
generic pharmaceuticals. These applications are for products that are generic
versions of brand name pharmaceuticals whose total U.S. sales were approximately
$862 million for the twelve months ended December 31, 2002. We have an
additional eight other products under development relating to brand name
products that had approximately $272 million in total U.S. sales for the twelve
months ended December 31, 2002.

We have submitted ANDAs for generic versions of the following brand name
products, the first three 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
commenced litigation against us with respect to this
product in January 2001. Schering-Plough said in a March
8, 2002 press release that it had filed with the U.S. Food
and Drug Administration to switch all Claritin
formulations from prescription to OTC marketing status.
The FDA granted tentative approval to our ANDA in May
2002. In August 2002, the United States District Court in
Newark, New Jersey ruled some of the claims on a patent
filed by Schering-Plough covering desloratadine, the
metabolized form of Claritin's active ingredient
loratadine, were

anticipated by prior patent and were not valid. In doing
so, the judge granted a Motion for Summary Judgment filed
by 15 generic drug manufacturers, including IMPAX. This
ruling is currently being appealed by Schering-Plough. In
December 2002, the FDA approved Schering-Plough's request
to switch this product to OTC marketing status. Our ANDA
was granted final approval by the FDA in January 2003 and
we began shipping the product at the end of January 2003.
Total U.S. sales for Claritin Reditabs were approximately
$330.2 million for the twelve months ended December 31,
2002.

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"). 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. sales for Tricor Capsules were
approximately $2.3 million for the twelve months ended
December 31, 2002. On March 26, 2003, the United States
District Court in Chicago, Illinois, ruled that our ANDA
does not infringe Abbott's patent.

Tricor Tablets In December 2002, the FDA accepted our ANDA
submission for a bioequivalent version of Tricor 160mg
Tablets, which is used for the treatment of very high
serum triglyceride levels, currently marketed by Abbott.
Abbott commenced patent infringement litigation against us
with respect to this product in January 2003. Total U.S.
sales for Tricor Tablets were approximately $410.5 million
for the twelve months ended December 31, 2002.

Rilutek Tablets In May 2001, the FDA accepted our ANDA submission for a
bioequivalent version of Rilutek Tablets, which is used in
the treatment of amyotrophic lateral sclerosis (ALS), also
known as Lou Gehrig's disease. In June 2002, we received
tentative FDA approval of this ANDA due to the Orphan Drug
Exclusivity (ODE) for Rilutek that extended through
December 2002. In June 2002, we filed a declaratory
judgment action seeking a Judicial Declaration of
Invalidity against Aventis regarding patent #US 5,527,814
that was only recently listed by Aventis in the FDA
"Orange Book." On December 12, 2002, the District Court of
Wilmington, Delaware, granted the Preliminary Injunction
Notice brought by Aventis in October 2002 to forestall our
entry into this market. Trial is currently scheduled for
October 2003. Total U.S. sales for Rilutek were
approximately $34.8 million for the twelve months ended
December 31, 2002.

We have also submitted applications relating to six additional products, the
details of which have not been publicly disclosed, with U.S. sales of
approximately $119 million for the twelve months ended December 31, 2002.

In December 2001, we entered into a License and Supply Agreement granting to
Novartis exclusive rights to market an OTC generic Claritin (loratadine)
product. Under the terms of the agreement, IMPAX is responsible for developing
and manufacturing the product, while Novartis is responsible for its marketing
and sale. The structure of the agreement includes milestone payments and a
royalty on Novartis sales.

In addition, we currently market twenty-seven generic pharmaceuticals that
represent twelve different pharmaceutical compounds. Our revenues from these
products were approximately $23.8 million in the year ended December 31, 2002.

Brand name pharmaceuticals

In the brand name pharmaceuticals market, we are focusing our efforts on the
development of products for the treatment of Central Nervous System ("CNS")
disorders. Our strategy is to build this portfolio primarily through internal
development and, 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, Michael G. Wokasch, our Chief Operating Officer, and
Nigel Fleming, Ph.D., a Director, all have extensive experience in developing
and/or marketing products for the treatment of CNS disorders.

According to IMS Health Incorporated data, CNS is the largest therapeutic
category in the U.S. with 2002 retail sales of $32 billion, or 15.7% of the $203
billion U.S. retail drug market. CNS drug sales grew 10.4% in 2002 versus a
sales growth of 9.1% for the entire industry.

CNS disorders include ailments such as Alzheimer's disease, attention deficit
hyperactivity, depression, epilepsy, migraines, multiple sclerosis, Parkinson's
disease, and schizophrenia. 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. We are currently evaluating three
additional brand name projects.

These potential products may require us to file Investigational New Drug
applications ("IND"s) with the FDA before commencing clinical trials, and New
Drug Applications ("NDA"s) in order to obtain FDA approval. 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 believe we may also be eligible for FDA marketing exclusivity
rights for certain products which we develop in our brand name drug development
programs that will be ultimately approved by the FDA.

Sales And Marketing

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
products, competition is often limited to those competitors who possess the
appropriate drug delivery technology.

The principal competitive factors in the generic pharmaceutical market include:

- the ability to introduce generic versions of products promptly after
a patent expires;
- price;
- quality of products;

- customer service (including maintenance of inventories for timely
delivery);
- breadth of product line; and
- the ability to identify and market niche products.

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

Customers

Our existing customer base includes pharmaceutical wholesalers, warehousing
chain drug stores, mass merchandisers and mail-order pharmacies. We market our
generic products through personal sales calls, direct advertising and promotion,
as well as trade journal advertising and attendance at major trade shows and
conferences. We had three major customers, Amerisource-Bergen, Cardinal Health
and McKesson, that account for approximately 57% of total sales for the year
ended December 31, 2002.

Controlled-release and other generics

In June 2001, we entered into a strategic alliance agreement with a subsidiary
of Teva Pharmaceutical Industries, Ltd. for twelve controlled-release generic
products. The agreement grants Teva exclusive U.S. prescription marketing rights
for six of our products. The six products for which ANDAs were already filed at
the time of the agreement were Omeprazole 10mg, 20mg, and 40mg Delayed Released
Capsules (generic of Prilosec), Bupropion Hydrochloride 100mg and 150mg Extended
Release Tablets (generic of Wellbutrin), Bupropion Hydrochloride 150mg Extended
Release Tablets (generic of Zyban), Loratadine and Pseudoephedrine Sulfate
5mg/120mg 12-hour Extended Release Tablets (generic of Claritin-D 12-Hour) and
Loratadine and Pseudoephedrine Sulfate 10mg/240mg 24 hour Extended Release
Tablets (generic of Claritin-D 24-hour) and Loratadine Orally Disintegrating
Tablets (generic of Claritin Reditabs). The agreement allows IMPAX to enter into
agreements with other companies relating to the development, supply and
marketing of these products for the OTC market. Of the six products to be
developed at the time the agreement was signed, three ANDAs have since been
filed with the FDA. Teva elected to commercialize a competing product to one of
the three 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.

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

In February 2002, we received tentative approval from the FDA for a generic
version of Tricor (Fenofibrate 67mg, 134mg, and 200mg) Micronized Capsules. On
March 26, 2003, the United States District Court in Chicago, Illinois, ruled
that our ANDA does not infringe Abbott's patent.

In March 2002, we received FDA approval for a generic version of Florinef
(Fludrocortisone Acetate 0.1mg) Tablets. This was the first approval for a
generic form of Florinef.

In May 2002, we received tentative approval from the FDA for generic versions of
Claritin-D 12-hour (Loratadine and Pseudoephedrine Sulfate 5mg/120mg) and
Claritin-D 24-hour (Loratadine and Pseudoephedrine Sulfate 10mg/240mg) Extended
Release Tablets.

In June 2002, we signed a semi-exclusive agreement with Wyeth relating to our
Loratadine and Pseudoephedrine Sulfate 5mg/120mg 12-hour Extended Release
Tablets and Loratadine and Pseudoephedrine Sulfate 10mg/240mg 24 hour Extended
Release Tablets for the OTC market under the Alavert(TM) brand. IMPAX is
responsible for developing and manufacturing the products, while Wyeth is
responsible for their marketing and sale. The structure of the agreement
includes milestone payments and a royalty on Wyeth sales.

Also in June 2002, we signed a non-exclusive agreement with Schering-Plough
relating to our Loratadine and Pseudoephedrine Sulfate 5mg/120mg 12-hour
Extended Release Tablets for the OTC market under the Claritin-D 12-hour brand.
The structure of the agreement includes milestone payments and agreed sales
prices. We commenced shipment to Schering-Plough at the end of January 2003.

In July 2002, we received tentative approval from the FDA for a generic version
of Rilutek (Riluzole) 50mg tablets.

In September 2002, we received FDA approval for a generic version of Flumadine
(Rimantadine Hydrochloride 100mg) Tablets and subsequently launched the product
in the fourth quarter of 2002.

In November 2002, we received FDA approval for generic versions of Prilosec
(Omeprazole Delayed Released Capsules) 10mg and 20mg, and tentative approval for
a generic version of Prilosec (Omeprazole Delayed Release Capsules) 40mg. A
lawsuit with AstraZeneca is still pending in the courts.

In January 2003, we received final approval from the FDA for a generic version
of Rilutek (Riluzole 50mg) tablets. A lawsuit with Aventis is still pending in
the courts.

Also in January 2003, we received final approval from the FDA for a generic
version of Claritin-D 12-hour (Loratadine and Pseudoephedrine Sulfate 5mg/120mg
12-hour Extended Release Tablets). Following this approval, we commenced
shipping this product to Schering-Plough.

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

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

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

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

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 Health
data, 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 Alliances

Strategic Alliance With Teva

In June 2001, we entered into a strategic alliance agreement with a subsidiary
of Teva Pharmaceutical Industries, Ltd. ("Teva") for twelve controlled-release
generic pharmaceutical products. Teva (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 granted Teva exclusive U.S. marketing rights for six of our
products pending approval at the FDA and six products under development at the
time the agreement was signed. Of the six products under development, three have
been filed with the FDA. Teva elected to commercialize a competing product to
one of the three 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 twelve products. For six products pending approval at the FDA in
June 2001, Teva will pay 50% of the attorneys' fees and costs of obtaining FDA
approval, including the fees and costs for the patent infringement litigation
instituted by brand name pharmaceutical manufacturers in excess of the $7.0
million to be paid by our patent litigation insurer. For three other products,
all of which were filed with the FDA, Teva will pay 45% of all fees, costs,
expenses, damages or awards, including attorneys' fees, related to patent
infringement claims with respect to these products. For the remaining three
products, Teva will pay 50% of these fees, costs, expenses, damages or awards.

We also agreed to sell to Teva $15.0 million worth of our common stock in four
equal installments, with the last sale occurring on June 15, 2002. Teva
purchased a total of 1,462,083 shares of common stock, or approximately 3% of
the total shares of common stock outstanding at December 31, 2002. The price of
the common stock was equal to the average closing sale price of our common stock
measured over a ten-trading-day period ending two days prior to the date when
Teva acquired the common stock. However, on the date Teva completes its first
sale of any one of six of the products specified in our alliance agreement,
IMPAX may repurchase from Teva 16.66% (243,583) of these shares for an aggregate
of $1.00.

In addition, in consideration for the potential transfer of the marketing
rights, we received $22.0 million from Teva which assisted in the construction
and improvement of our Hayward, California facilities and the development of the
twelve products specified in our 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. This loan originally had an 8% annual
interest rate. According to the agreement, if IMPAX received tentative or final
approval for any of three products, the accrued interest is forgiven and no
future interest will accrue. During 2002, we received tentative approvals for
our Loratadine and Pseudoephedrine Sulfate 5mg/120mg 12-hour Extended Release
Tablets, Loratadine and Pseudoephedrine Sulfate 10mg/240mg 24-hour Extended
Release Tablets, and Omeprazole Delayed Released 40mg products and final
approvals for our Omeprazole Delayed Release 10mg and 20mg capsules resulting in
the reversal of the accrued interest in the fourth quarter of 2002 and no future
interest will accrue. 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; these milestones, if achieved, will
represent the culmination of a separate earnings process. 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.

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.

If we repay the loan in stock, such payment will result in dilution. If we repay
all or a portion of the loan in cash, we may seek additional sources of
liquidity to fund such payment, as discussed in the "Liquidity and Capital
Resources" section of Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.

As of February 25, 2003, we believe that approximately $10.5 million of the $22
million may be forgiven prior to January 15, 2004, although there is no
assurance that any of the $22 million may be ultimately forgiven.

OTC Alliances

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

MANUFACTURING

We manufacture our finished dosage form products at our 31153 San Antonio
Street, Hayward, California facility and then package, warehouse and distribute
the products from our Philadelphia facility. This strategy allows us to use the
lower operating cost and larger Philadelphia facility for packaging and
warehousing, which requires significant space, while focusing the 31153 San
Antonio Street, Hayward, California facility on tablet and capsule
manufacturing, which requires less space. The facility currently manufactures
Loratadine and Pseudoephedrine Sulfate 5mg/120mg 12 hour Extended Release
Tablets, Orphenadrine Citrate 100mg Extended Release Tablets, Sotalol
Hydrochloride 80mg, 120mg, 160mg, and 240mg Tablets, Methitest(TM)
(methyltestosterone) Tablets, Minocycline Hydrochloride 50mg, 75mg, and 100mg
Capsules, Fludrocortisone Acetate Tablets 0.1mg, Terbutaline Sulfate 2.5mg and
5.0mg Tablets, and Rimantadine Hydrochloride 100mg Tablets. We began full-scale
manufacturing in this facility in June 2002 and believe we have sufficient
capacity to produce new products in the future. Currently, we are using about
one-third of our estimated annual production capacity of up to approximately 1.5
billion tablets and capsules.

Our research and development activities are situated at 30831 Huntwood Avenue,
Hayward, California. We believe this proximity allows for a more efficient
transfer and scale-up of products from research and development to
manufacturing. Currently, our 30831 Huntwood Avenue, Hayward, California
facility serves as our research and development center and analytical
development laboratory, and has a pilot plant that can accommodate our current
development work. This facility will also provide space for the expansion of our
development resources in future years.

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

RAW MATERIALS

The active chemical raw materials, essential to IMPAX's business, are generally
readily available from multiple sources in the U.S. and throughout the world.
Certain raw materials used in the manufacture of our products are, however,
available

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

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

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

QUALITY CONTROL

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

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

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

REGULATION

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

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

All facilities engaged in the manufacture and packaging and repackaging of drug
products must be registered with the FDA and are subject to FDA inspection to
ensure that drug products are manufactured in accordance with current Good
Manufacturing Practices. For fiscal year 2003, annual establishment fees for
facilities that produce products subject to NDAs are approximately $209,900, and
product listing fees are approximately $32,400 per product.

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

New Drug Application (NDA) - For drug products with an active ingredient or
ingredients or indications not previously approved by the FDA, a prospective
manufacturer must submit a complete application containing the results of a
clinical study or studies supporting the drug product's safety and efficacy.
These studies may take anywhere from two to five years, or more. An NDA may also
be submitted through Section 505(b)(2) for a drug with a previously approved
active ingredient if the drug will be used to treat an indication for which the
drug was not previously approved, if the method of delivery is

changed, or if the abbreviated procedure discussed below is not available.
Currently, FDA approval of an NDA, on average, is estimated to take
approximately 12 to 15 months following submission to the FDA. During fiscal
year 2003, user fees to file an NDA are approximately $533,400.

Abbreviated New Drug Application (ANDA) - The Drug Price Competition and Patent
Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments,
established an abbreviated new drug application procedure for obtaining FDA
approval of generic versions of certain drugs. An ANDA is similar to an NDA
except that the FDA waives the requirement that the applicant conduct and submit
to the FDA clinical studies to demonstrate the safety and effectiveness of the
drug. Instead, for drugs that contain the same active ingredient and are of the
same route of administration, dosage form, strength and indication(s) as drugs
already approved for use in the United States (the 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 FFDCA does not require applicants to pay user fees for ANDAs.

Patent certification requirements for generic drugs could also result in
significant delays in obtaining FDA approvals. First, where patents covering a
listed drug are alleged to be invalid, unenforceable, or not infringed, the
holder or holders of the brand name drug patents may institute patent
infringement litigation. 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 following approval of its ANDA
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,
they 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, as well as a new use.
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 and during FDA review of NDAs. Patent term extension
may not exceed five additional years, nor may the total period of patent
protection following FDA marketing approval be extended beyond 14 years. In
addition, by virtue of the Uruguay Round Agreements Act of 1994 that ratified
the General Agreement on Tariffs and Trade ("GATT"), certain brand name drug
patent terms have been extended to 20 years from the date of filing of the
pertinent patent application (which can be longer than the former patent term of
17 years from date of issuance of a patent). These extensions can further delay
ANDA effective dates. Patent term extensions may delay the ability of IMPAX to
use its proprietary technology in the future to market new extended release
products, file section 505(b)(2) NDAs referencing approved products (see below),
and file ANDAs based on listed drugs when those approved products or listed
drugs have acquired patent term extensions.

With respect to any drug with active ingredients not previously approved by the
FDA, a prospective manufacturer must submit a full NDA, including complete
reports of pre-clinical, clinical, and other studies to prove that product's
safety and efficacy for its intended use or uses. An NDA may also need to be
submitted for a drug with a previously approved active ingredient if, among
other things, the drug will be used to treat an indication for which the drug
was not previously approved, if the method of delivery is changed, or if the
abbreviated procedure discussed above is otherwise not available. A manufacturer
intending to conduct clinical trials for a new drug compound as part of an NDA
is required first to submit an Investigational New Drug ("IND") application to
the FDA containing information relating to pre-clinical and planned clinical
studies. The full NDA process is expensive and time consuming. Controlled or
extended-release versions of approved immediate-release drugs will require the
filing of an NDA. The FDA will not accept ANDAs when the delivery system or
duration of drug availability differs significantly from the listed drug.
However, the FFDCA provides for NDA submissions that may rely in whole or in
part on publicly available clinical data on safety and efficacy under section
505(b)(2) of the FFDCA. We may be able to rely on the existing safety and
efficacy data for a chemical entity in filing NDAs for extended-release products
when the data exists for an approved immediate-release version of that chemical
entity. However, the FDA may not accept our applications under section
505(b)(2), or that the existing data may not be available or useful. Utilizing
the section 505(b)(2) NDA process is uncertain because we have not had
significant experience with it. Additionally, under the Prescription Drug User
Fee Act of 1992, as amended by the Prescription Drug User Fee Amendments of
2002, all NDAs

require the payment of a substantial fee upon filing, and other establishment
and product fees must be paid annually after approval. These fees increase on an
annual government fiscal year basis. No assurances exist that, if approval of an
NDA is required, the approval can be obtained in a timely manner, if at all.

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

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

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

We are subject to the Maximum Allowable Cost ("MAC") Regulations which limit
reimbursements for certain generic prescription drugs under Medicare, Medicaid,
and other programs to the lowest price at which these drugs are generally
available. In many instances, only generic prescription drugs fall within the
MAC Regulations' limits. Generally, the 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 Impax's financial condition, results of operations, or cash flows.

EMPLOYEES

As of February 28, 2003, we employed approximately 273 full-time employees. Of
these employees, approximately 96 are in operations, 80 are in research and
development, 49 work in the quality area, 38 are in administration, and 10 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 are subject to collective bargaining agreements with labor
unions, and we believe our employee relations are good.

EXECUTIVE OFFICERS OF THE REGISTRANT

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

Charles Hsiao 59 Chairman, Co-Chief Executive Officer and Director
Barry R. Edwards 46 Co-Chief Executive Officer and Director
Larry Hsu 54 President and Director
Michael G. Wokasch 51 Chief Operating Officer
Cornel C. Spiegler 58 Chief Financial Officer and Corporate Secretary
May Chu 53 Vice President, Quality Affairs
David S. Doll 44 Senior Vice President, Sales and Marketing

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 and Director since January 2, 2003, and was
President, Chief Operating Officer and Director through January 1, 2003. Dr. Hsu
co-founded Impax Pharmaceuticals, Inc. in 1994 and served as its President,
Chief Operating Officer and a Director 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.

Michael G. Wokasch joined IMPAX on January 3, 2003 as Chief Operating Officer.
Mr. Wokasch was a member of the IMPAX Board of Directors from May 2001 to
December 2002. Mr. Wokasch has over 20 years pharmaceutical experience in all
aspects of the business, including operations, product development and
commercialization, distribution, and sales and marketing. Mr. Wokasch served as
President of PanVera LLC, a wholly-owned subsidiary of Vertex Pharmaceuticals,
from July 2001 until December 2002. Prior to his position at PanVera, he was CEO
and President of Gala Design Inc., a biotechnology start-up specializing in
production of pharmaceutical proteins from transgenic cattle. In addition, from
1997 to 1999, Mr. Wokasch was Corporate Senior Vice President and Group
President of Covance Early Development, which was spun out of Corning, Inc.
Throughout his career, Mr. Wokasch has held a variety of senior management
positions at companies such as Promega Corporation, Abbott Laboratories, Bayer
Corporation, and Merck & Co. Mr. Wokasch received his B.S. in Pharmacy from the
University of Minnesota in 1978.

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

May Chu, M.S., has been Vice President, Quality Affairs since December 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 seven 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.

ADDITIONAL INFORMATION

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

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

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

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

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

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

ITEM 2. PROPERTIES

We have four facilities, as follows:

30831 Huntwood Avenue - Hayward, California

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

31153 San Antonio Street - Hayward, California

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

1502 Crocker Ave - Hayward, California

This 14,400 square foot facility includes some of our administrative functions,
accounting, information technology, and

human resources, and is adjacent to our Huntwood Avenue building. The facility
includes approximately 10,400 square feet of office and administration area, and
4,000 square feet of warehouse area. This facility is subject to a lease with a
term from November 2002 through December 2005.

3735 Castor Avenue - Philadelphia, PA

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

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

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

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

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

ITEM 3. LEGAL PROCEEDINGS

PATENT LITIGATION

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

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

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

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

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

Early in the multidistrict litigation, the trial court ruled that one of the six
patents-in-suit was not infringed by the sale of a generic omeprazole product
and that another is invalid. In particular, the '794 patent (omeprazole in
combination with clarithromycin in the treatment of H.pylori); '305 (combination
therapy for H.pylori related disease); and the '342 patent (H.pylori treatment)
were declared invalid either in pre-trial summary proceedings or after the trial
described below. The trial court also ruled that the '499 (sulphenamide salt of
omeprazole) was not infringed in related summary proceedings. These rulings
effectively eliminated these four patents from the trial of these infringement
cases, although AstraZeneca may appeal these decisions as part of the overall
appeal process in the case.

On October 11, 2002, after a 52-day long trial involving Andrx, Genpharm,
Cheminor, and Kremers, the trial judge handling the multidistrict litigation
rendered a 277-page opinion that ruled on AstraZeneca's complaints that these
four defendants (the "First Wave Defendants") infringed the remaining
patents-in-suit. Most importantly, the trial judge ruled that three of the First
Wave defendants, Andrx, Genpharm, and Cheminor, infringed the '505 and '230
patents asserted by AstraZeneca in its complaints, and that those patents are
valid until 2007. The court construed the specific language of those two related
patents and found that each of these three First Wave Defendants proposed to
manufacture their generic equivalents of omeprazole using a process that
employed an Alkaline Reacting Compound, which the trial court said was defined
in the patent to include disodium hydrogen phosphate (a substance also used in
Impax's formulation), to create a "stabilizing" alkaline protective
"microenvironment" around active omeprazole particles in the "core region." The
trial court also construed the language of these patents to require that an
inert "subcoating" be "disposed" on the "core." The court said that the language
of the patents should be construed to mean that such a "subcoating" might be
created "in situ" by some reaction between elements of the "core" and an enteric
coating. The court held that the formulations employed by Andrx, Genpharm, and
Cheminor met these patent requirements as well, and that these three First Wave
defendants thus infringed both the '505 and '230 patents.

In the same ruling, the trial court ruled that the remaining First Wave
defendant, Kremers, did not infringe either the '505 or the '230 patent. This
defendant's formulation differed from the formulation used by the other First
Wave defendants in several respects. Among other things, the trial court's
opinion stated that Kremers does not use an Alkaline Reacting Compound in its
"core."

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

In December 2002, following proceedings before a Special Master appointed to
supervise discovery in the case, the trial court entered a new scheduling order
governing pre-trial proceedings relating to the six Second Wave defendants,
including IMPAX. The timing of further proceedings in this litigation may be
adversely affected by the appellate proceedings that have been commenced by
AstraZeneca and several of the First Wave Defendants. Under the scheduling order
entered by the court, discovery and pretrial proceedings have already commenced,
with the parties exchanging additional document requests and interrogatories.
Depositions of fact witnesses commenced on February 15, 2003 and, under the
scheduling order, must be completed by June 2003. Expert witness depositions
will occur thereafter and must be completed by mid-August 2003.

Two of the Second Wave defendants filed Motions for Summary Judgment of
Non-Infringement based upon Judge Jones' October 2002 ruling. The trial court
has deferred ruling on those motions until discovery is completed.

Under the scheduling order, any further Motions for Summary Judgment must be
filed by mid-September 2003 and will be heard by the trial court later in the
Fall of 2003. IMPAX may well file a Motion for Summary Judgment of
non-infringement following the close of discovery. If the case is not summarily
resolved (as by Summary Judgment), the case involving IMPAX will be returned to
the U.S. District Court in Delaware for trial. A possibility exists that the
case will be transferred back to New York for a consolidated trial before the
same judge who decided the First Wave cases. Trial will commence as

soon as practicable thereafter. If IMPAX does not file a Motion for Summary
Judgment or if such a motion is denied, IMPAX will press the court to schedule a
date for trial of the case in 2003, but no assurance can be given that trial
will commence at any particular time. IMPAX believes, however, that any trial
that might be scheduled in the case will commence no later than early 2004.
IMPAX is vigorously defending the action brought by AstraZeneca. IMPAX's defense
of the action is being conducted under an insurance policy issued by AIG, which
pays a portion of the costs of IMPAX's defense of AstraZeneca's suit (see
"Insurance" below). In March, 2001, AstraZeneca advised all of the defendants in
the multidistrict litigation that four new patents had been added to the FDA's
Orange Book as Omeprazole patents. IMPAX filed Paragraph IV certifications
asserting that, to its knowledge, its Omeprazole 10mg, 20mg, and 40mg Delayed
Released 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 patents expired on August 6, 2001. AstraZeneca did not file
suit on these patents against IMPAX or any other generic company that filed
Paragraph IV certifications for these patents.

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

In August 2000, Abbott Laboratories and Fournier Industrie et Santee and a
related company, filed suit against IMPAX in the United States District Court in
Chicago, Illinois claiming that IMPAX's submission of an ANDA for Fenofibrate
(Micronized) Capsules, 67mg, constitutes infringement of a U.S. patent owned by
Fournier and exclusively licensed to Abbott, relating to Abbott's TRICOR
product.

In December 2000, Abbott and Fournier filed a second action against IMPAX in the
same court making the same claims against IMPAX's 200mg Fenofibrate (Micronized)
capsules. A third action was filed for IMPAX's 134mg Fenofibrate (Micronized)
Capsules in March 2001. All three actions seek an injunction preventing IMPAX
from marketing its fenofibrate products until January 19, 2009, and an award of
damages for any commercial manufacture, use, or sale of IMPAX's fenofibrate
product, together with costs and attorney fees.

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

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

In March 2002, Judge Darrah granted Novopharm's Motion for Summary Judgment of
Non-Infringement. The grounds for finding non-infringement by Novopharm were
directly applicable to IMPAX. IMPAX filed its own Motion for Summary Judgment of
Non-Infringement before Judge Gottschall, the judge who is presiding over the
IMPAX case.

In the interim, Abbott appealed Judge Darrah's ruling to the United States Court
of Appeals for the Federal Circuit. IMPAX has filed a brief in that appeal as a
"friend of court," although IMPAX is not directly a party to the appeal. On
March 20, 2003, the Court of Appeals upheld the lower court's decision.

On March 26, 2003, Judge Gottschall ruled that IMPAX's product does not infringe
on Abbott's patent. An appeal by Abbott is likely.

IMPAX is vigorously defending the action brought by Abbott Labs under an
insurance policy issued by AIG, which pays a portion of the costs of IMPAX's
defense of Abbott's suit (see "Insurance" below).

GlaxoSmithKline (Glaxo) v. IMPAX: The Bupropion Cases

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

All parties attended a Status Conference in July 2001 to discuss the need for a
Markman (claim construction) Hearing. IMPAX was successful in convincing the
Court that a Markman Hearing was unnecessary because there was no literal
infringement and no dispute regarding the Claim Construction proffered by Glaxo.
Instead, IMPAX advocated that our Summary Judgment Motion, based upon
prosecution history estoppel grounds, be calendared for oral argument. The
parties completed the briefing on this issue and oral argument was held on
November 19, 2001. At the request of the Court, in July 2002, both sides
submitted briefs on the impact of the recent Supreme Court decision in Festo v.
Shoketsu Kinzoku Kogyo Kabushi Co., et al. to the pending Motion for Summary
Judgment. An additional Motion for Summary Judgment was

brought in early August 2002, requesting Judge Patel apply the District Court
for the Eastern District of Virginia's decision limiting the scope of the '798
patent in the Glaxo v. Excel case to IMPAX's ANDA formulation.

On August 21, 2002, Judge Patel granted IMPAX's motions for Summary Judgment,
stating that "prosecution estoppel bars infringement by equivalents throughout
the '798 patent." Glaxo has appealed Judge Patel's decision to the Court of
Appeals for the Federal Circuit and that appeal was fully briefed on January 22,
2003. Oral argument will be scheduled for sometime in the first quarter 2003,
after which IMPAX expects a decision on the appeal. The defense costs in this
litigation are covered under an insurance policy issued by AIG (see "Insurance"
below).

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

Schering-Plough Corporation v. IMPAX: The Loratadine Cases

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

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

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

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

Fact discovery and expert discovery on issues related to the '716 patent have
ended. In accordance with the schedule set by the Court, the parties filed
Initial Dispositive Motions on issues related to the '716 patent on October 31,
2001 - and these motions were fully briefed December 2001. Oral argument on two
of the Dispositive Motions took place before Judge Bissell on June 26, 2002. On
August 8, 2002, Judge Bissell granted Defendants' Motion for Summary Judgment
that Claims 1 and 3 of the '716 Patent are inherently anticipated by
Schering-Plough's '233 Patent and denied Schering-Plough's Motion for Summary
Judgment on Defendants' inherent anticipation defenses and counterclaims. The
Court held that Claims 1 and 3 of the '716 patent - the claims of that patent
that Schering-Plough asserted against IMPAX in Case Nos. 01-0009, 01-0279,
01-0520 - are invalid. Schering-Plough has appealed Judge Bissell's decision to
the U.S. Court of Appeals for the Federal Circuit. The appeal has been fully
briefed. The Federal Circuit has not yet scheduled oral argument on the appeal.

In Case No. 01-0009, fact discovery on the '697 patent is completed and expert
discovery on the '697 patent was completed on January 24, 2003. The Court has
not yet entered a schedule for Briefing Dispositive Motions on the '697 patent.
The defense costs in this litigation are covered under an insurance policy
issued by AIG (see "Insurance" below).

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

On March 25, 2002, Aventis Pharmaceuticals Inc., Merrell Pharmaceuticals Inc.,
and Carderm Capital L.P. (collectively "Aventis") sued IMPAX in the United
States District Court for the District of New Jersey (Civil Action No.
02-CV-1322) alleging that IMPAX's proposed fexofenadine and pseudoephedrine
hydrochloride tablets, containing 60mg of fexofenadine

and 120mg of pseudoephedrine hydrochloride, infringe United States Patent Nos.
6,039,974; 6,037,353; 5,738,872; 6,187,791; 5,855,912; and 6,113,942. On
November 7, 2002, Aventis filed an amended complaint, which added an allegation
that IMPAX's Fexofenadine and Pseudoephedrine Hydrochloride 60mg/120mg Extended
Release Tablet product infringes United States Patent No. 6,399,632. Aventis
seeks an injunction preventing IMPAX from marketing its Fexofenadine and
Pseudoephedrine Hydrochloride 60mg/120mg Extended Release Tablet product until
the patents-in-suit have expired, and an award of damages for any commercial
manufacture, use, or sale of IMPAX's Fexofenadine and Pseudoephedrine
Hydrochloride 60mg/120mg Extended Release Tablet product, together with costs
and attorneys' fees.

On March 26, 2002, Aventis filed a virtually identical complaint against IMPAX
in the United States District Court for the District of Delaware (Civil Action
No. 02-226). The Delaware complaint was filed in case Aventis could not obtain
personal jurisdiction over IMPAX in New Jersey. On May 8, 2002, IMPAX moved to
dismiss the New Jersey action for lack of personal jurisdiction. On December 18,
2002, IMPAX's Motion to Dismiss the action in New Jersey was denied. On December
19, 2002, a stipulation dismissing the Delaware action without prejudice was
filed.

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

Aventis has also filed a suit against Barr Laboratories, Inc. in New Jersey
asserting the same patents against Barr's proposed Fexofenadine and
Pseudoephedrine Hydrochloride 60mg/120mg Extended Release Tablet product. The
IMPAX case will be coordinated with the Barr case for discovery purposes, but it
has not yet been decided whether the two will be consolidated for trial.

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

On April 11, 2002, Purdue Pharma and related companies filed a complaint in the
United States District Court for the Southern District of New York alleging that
IMPAX's submission of ANDA No. 76-318 for 80mg OxyContin Tablets infringes three
patents owned by Purdue. The Purdue patents are U.S. 4,861,598, U.S. 4,970,075
and U.S. 5,266,331, all directed to controlled release opiod formulations. On
September 19, 2002, Purdue filed a second Infringement Complaint regarding
IMPAX's 40mg OxyContin generic product. On October 9, 2002, Purdue filed a third
Infringement Complaint regarding IMPAX's 10mg and 20mg OxyContin generic
products. Purdue is seeking, among other things, a court order preventing IMPAX
from manufacturing, using or selling any drug product that infringes the subject
Purdue patents. IMPAX is currently disputing the jurisdiction of the United
States District Court for the Southern District of New York in which Purdue has
brought this matter by pursuing a Motion to Dismiss Purdue's action. As of March
21, 2003, the court has not ruled on IMPAX's pending motion. Discovery will
begin once this jurisdictional question has been resolved.

Purdue previously has sued Boehringer-Ingelheim/Roxane, Endo and Teva on the
same patents. It is possible that one or more of these other defendants will
resolve the invalidity issues surrounding the Purdue patents prior to IMPAX
going to trial.

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

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

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

The parties are currently engaged in the discovery phase of the action. IMPAX is
pursuing its assertions that claims of the '814 patent are invalid in view of
prior art and are unenforceable in view of inequitable conduct committed during
the prosecution of the patent before the U.S. Patent & Trademark Office. Until
discovery is completed, no estimate can be given of IMPAX's likelihood of
success on its invalidity and unenforceability defenses.

If IMPAX is not ultimately successful in proving invalidity or unenforceability,
there is a substantial likelihood that the court will enter a Permanent
Injunction enjoining IMPAX from marketing Riluzole 50mg tablets for the
treatment of ALS in the

United States until the expiration of the '814 patent(June 18, 2013). If IMPAX
is ultimately successful in proving either defense, the Preliminary Injunction
would be set aside and IMPAX would be permitted to market its Riluzole 50mg
Tablet product for the treatment of ALS in the United States.

Abbott Laboratories v. IMPAX: The Fenofibrate Tablets Cases

On January 27, 2003, Abbott Laboratories filed a lawsuit against the Company in
the United States District Court in Delaware alleging patent infringement
related to IMPAX's filing of an ANDA for a generic version of Abbott's Tricor
(Fenofibrate) 160mg Tablets. IMPAX believes that it has strong defenses to the
claims made by Abbott based on non-infringement.

Abbott has filed the same lawsuits against Novapharm, Teva and Pharmaceutical
Resources.

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

On February 24, 2003, Merck & Co., Inc. filed a lawsuit against the Company in
the United States District Court in Delaware alleging patent infringement
related to IMPAX's filing of an ANDA for a generic version of Sinemet CR
Tablets. IMPAX believes that it has strong defenses to the claims made by Merck
based on non-infringement.

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. However, as we file additional applications with FDA that contain Paragraph
IV certifications, it is likely we will become involved in additional litigation
related to those filings.

INSURANCE

As part of our patent litigation strategy, we have obtained two policies
covering up to $7 million of patent infringement liability insurance from
American International Specialty Line Company ("AISLIC"), an affiliate of AIG
International. This litigation insurance covers us against the costs associated
with patent infringement claims made against us relating to seven of the ANDAs
we filed under Paragraph IV of the Hatch-Waxman Amendments. At present, we
believe this insurance coverage is sufficient for our legal defense costs
related to these seven ANDAs. Correspondence received from AISLIC indicated
that, as of January 14, 2003, one of the policies had approximately $1,879,000
remaining on the limit of liability and the second of the policies had
approximately $675,000 remaining on the limit of liability. In addition, as per
the agreement with Teva, for the six products already filed at the time of the
agreement, Teva will pay 50% of the attorneys' fees and costs in excess of the
$7 million to be paid by AISLIC. For the three products filed since the
agreement was signed, Teva will pay 45% of the attorneys' fees and costs, and
for the remaining three products, Teva will pay 50% of the attorneys' fees and
costs.

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. In
those cases, our policy is to record such expenses as incurred.

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

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, 2002.

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, 2002
Quarter ended March 31, 2002 $ 13.72 $ 6.70

Quarter ended June 30, 2002 $ 8.38 $ 6.90
Quarter ended September 30, 2002 $ 7.10 $ 3.15
Quarter ended December 31, 2002 $ 6.11 $ 2.75

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

As of February 21, 2003, there were approximately 4,174 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. Our
loan agreements and our strategic agreement with Teva prohibit the payment of
dividends without the other party's consent.

In March 2002 and June 2002, under the terms of a strategic alliance announced
in June 2001, we issued an aggregate of 883,068 shares of IMPAX common stock to
a subsidiary of Teva Pharmaceutical Industries Ltd. for proceeds to the Company
of approximately $7.5 million. The stock was issued pursuant to the exemption
from registration provided by Section 4(2) of the Securities Act of 1933 and
Regulation D adopted under such Act.

For information regarding the Company's equity compensation plans, please see
Item 12.

ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data as of and for each of the
five years ended December 31, 2002, are derived from the financial statements of
IMPAX. The data should be read together with IMPAX's financial statements and
related notes, and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" which are included elsewhere in this report.

For The Year Ended December 31,
------------------------------------------------------------
Statement of Operations Data 1998 1999/(1)/ 2000 2001 2002
(in thousands, except per share data) --------- -------- --------- --------- ---------

Net revenues/(2)/....................... $ - $ 1,240 $ 10,170 $ 6,591 $ 24,515
Research and development................ 5,127 7,858/(3)/ 11,096 10,972 15,549
Total operating expenses................ 5,267 9,648 25,546 22,252 26,817
Operating loss.......................... (5,267) (9,333) (25,092) (25,330) (20,794)
Net loss................................ (5,222) (8,949) (24,961) (25,111) (20,040)
Net loss per share (basic and diluted).. $ (0.73) $ (1.12) $ (0.91) $ (0.60) $ (0.42)

In 2002, the Company adopted the non-amortization provisions of Statement of
Financial Accounting Standards ("SFAS") No. 142. As a result of the adoption of
SFAS No. 142, results of the year 2002 do not include certain amounts of
amortization of goodwill that are included in prior years' financial results.
See Note 2 to the Company's financial statements for additional information.

At December 31,
---------------------------------------------------------
Balance Sheet Data 1998 1999 2000 2001 2002
--------- -------- --------- --------- ---------

Cash, cash equivalents
and short-term investments.......... $ 370 $ 7,413 $ 19,228 $ 35,466 $ 10,219
Restricted cash....................... - - - - 10,000
Working capital....................... (795) 6,297 17,802 36,180 4,946
Total assets.......................... 3,408 61,705 67,128 97,612 104,403
Refundable deposit.................... - - - 22,876 22,000
Long term debt........................ - - 1,345 6,868 9,105
Mandatory redeemable
convertible preferred stock......... 12,206* 22,000 28,303 7,500 7,500
Accumulated deficit................... (11,281) (20,230) (45,191) (70,302) (90,342)

Total stockholders' equity............ 1,682 30,278 30,754 52,448 41,064

*The convertible preferred stock was not mandatory redeemable in 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

Critical Accounting Policies

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

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

During the year 2000, we adopted Staff Accounting Bulletin ("SAB") 101
issued by the Securities and Exchange Commission ("SEC") in December
1999. We recognize revenue from the sale of products when the shipment
of products is received and accepted by the customer. Provisions for
estimated discounts, rebates, chargebacks, returns and other
adjustments are provided for in the period the related sales are
recorded. If historical data used to calculate these estimates does not
properly reflect future activity, our net sales, gross profit, net
income and earnings per share could be impacted.

The application of the SAB 101 guidance to the Company's previous
revenue recognition policy requires 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.

Revenue from strategic alliances includes up-front payments and
milestone payments. Up-front payments are generally deferred and
recognized on a straight-line basis over the life of the related
agreement. Milestone payments are generally recognized when the
requirements set forth in the related agreement are met and such
recognition represents a separate earnings process. In evaluating
whether a separate earnings process has been met, the Company considers
the following criteria: a) level of effort involved in achieving the
milestone; b) reasonableness of the milestone payment in relation to
the effort expended in achieving the milestone; c) the amount of time
that has passed from the up-front payment, if any, to the milestone
payment and between various milestones; d) the amount of the payment in
relation to the risk involved in achieving the milestone; and e)
relationship between the amount of the up-front payment and the first
milestone payment.

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

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

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

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

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

The Company believes that its estimated returns reserves were adequate
at each balance sheet date since they were formed based on the
information that was known and available at the time of the Form 10-K
filing, management's expectations, which were supported by the
Company's historical experience when similar events occurred in the
past, and management's overall knowledge of and experience in the
generic pharmaceutical industry. In estimating its returns reserve, the
Company looks to returns after the balance sheet date but prior to
filing its financial statements to ensure that any unusual trends are
considered.

At December 31, 2002 and 2001, our returns reserve was $3.1 million and
$1.9 million, respectively.

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

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

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

Company's contract price with retail pharmacies or buying groups. At
December 31, 2002 and 2001, our reserves for rebates were $1.5 million
and $0.9 million, respectively, and at December 31, 2002 and 2001, our
reserves for chargebacks were $1.4 million and $0.6 million,
respectively.

While the determination of reserves for sales rebates and chargebacks
does not require significant judgments or estimates, the Company
believes it is important for the users of its financial statements to
understand the key components, which reduce gross sales to net sales.

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

Inventory is stated at the lower of cost or market. Cost is determined
using a standard cost method, which assumes a first-in, first-out
(FIFO) flow of goods. Standard costs are revised annually, and
significant variances between actual costs and standard 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
include materials, labor, quality control, and production overhead.
Inventory is adjusted for short-dated, unmarketable inventory equal to
the difference between the cost of inventory and the estimated value
based upon assumptions about future demand and market conditions. If
actual market conditions are less favorable than those projected by
management, additional inventory write-downs may be required. At
December 31, 2002 and 2001, our inventory reserve was $200,000 and
$150,000 respectively.

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

A reserve is estimated at the point of sale for certain products for
which it is probable that shelf-stock credits to customers for
inventory remaining on their shelves following a decrease in the market
price of these products will be granted. When estimating this reserve,
we consider the competitive products, the estimated decline in market
prices, and the amount of inventory in the pipeline. At December 31,
2002 and 2001, the shelf-stock reserve was $660,000 and $0,
respectively.

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

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

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

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

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

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

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

On a quarterly basis, we perform a review of our business to determine
if events or changes in circumstances have occurred which could have a
material adverse effect on the fair value of the Company and its
goodwill. If such events or changes in circumstances were deemed to
have occurred, we would consult with one or more valuation specialists
in estimating the impact on our estimate of fair value. We believe the
estimation methods are reasonable and reflective of common valuation
practices. We perform our annual goodwill impairment test in the fourth
quarter of each year.

At December 31, 2002 and 2001, the Company had recorded goodwill of
approximately $28 million.

General

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

We are a technology based, specialty pharmaceutical company applying formulation
and development expertise, as well as our drug delivery technology, to the
development of controlled-release and niche generics, in addition to the
development of branded products. We currently market twenty-seven generic
pharmaceuticals, which represent dosage variations of twelve different
pharmaceutical compounds, and have nineteen applications pending at the FDA,
including three tentatively approved, that address $5.8 billion in U.S. product
sales for the twelve months ended December 31, 2002. Thirteen of these filings
were made under Paragraph IV of the Hatch-Waxman Amendments. We have
approximately seventeen other products in various stages of development for
which applications have not yet been filed. These products are generic versions
of brand name pharmaceuticals that had U.S. sales of approximately $3.2 billion
for the twelve months ended December 31, 2002.

The major highlights of 2002 operational activity included the following:

- In February 2002, the FDA tentatively approved the Company's ANDA for
a generic version of Tricor (Fenofibrate), Micronized Capsules. Tricor
is marketed by Abbott Laboratories. The tentative approval covers 67mg,
134mg, and 200mg capsules. Final approval is contingent upon the
earlier of (1) the resolution of 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
the FDA's evaluation of any new information it receives subsequent to
this tentative approval.

- In February 2002, the FDA accepted our filing of an ANDA for a
generic version of Allegra-D (Fexofenadine and Pseudoephedrine
Hydrochloride) 60mg/120mg Extended Release Tablets (IMPAX's eighth
Paragraph IV filing). In March 2002, Aventis Pharmaceuticals Inc.,
which markets Allegra-D for the relief of symptoms associated with
seasonal rhinitis in adults and children 12 years of age and older,
filed a lawsuit against us in the United States District Court in
Delaware alleging patent infringement related to our subject filing.

- Also in February 2002, the FDA accepted our filing of an ANDA for a
generic version of OxyContin (Oxycodone Hydrochloride) Extended Release
80mg Tablets (IMPAX's ninth Paragraph IV filing). Purdue Pharma L.P.
markets OxyContin for the management of moderate-to-severe pain. In
April 2002, Purdue Pharma L.P. filed a lawsuit against us alleging
patent infringement related to IMPAX's earlier filing of an ANDA for a
generic version of OxyContin (Oxycodone Hydrochloride) Extended Release
80mg Tablets.

- In March 2002 and June 2002, under the terms of a strategic alliance
announced in June 2001, we issued an aggregate of 883,068 shares of
IMPAX common stock to a subsidiary of Teva Pharmaceutical Industries
Ltd. for proceeds to the Company of approximately $7.5 million.
Together with the shares sold in 2001, Teva purchased a total of
1,462,083 shares, or approximately 3% of total shares of common stock
outstanding at December 31, 2002.

- Also in March 2002, the FDA approved our ANDA to market
Fludrocortisone Acetate Tablets 0.1mg, a generic version of Florinef,
which is marketed by Monarch Pharmaceuticals, a division of King
Pharmaceuticals, as partial replacement for primary and secondary
adrenocortical insufficiency in Addison's disease. Our Global
Pharmaceuticals division began marketing the product immediately.

- In May 2002, the FDA tentatively approved our ANDAs for generic
versions of Claritin-D 24-hour (Loratadine and Pseudoephedrine Sulfate,
10mg/240mg) Extended Release Tablets and Claritin-D 12-hour (Loratadine
and Pseudoephedrine Sulfate, 5mg/120mg) Extended Release Tablets.
Schering-Plough Corporation markets both products for the relief of
symptoms of seasonal allergic rhinitis (hay fever). In March 2002,
Schering-Plough announced that it filed with the FDA an application to
switch all of the prescription Claritin formulations to OTC. In August
2002, the United States District Court of New Jersey granted our Motion
for Summary Judgment and declared portions of the Schering-Plough
Corporation U.S. Patent No 4,659,716 invalid as they relate to our
generic Claritin ANDAs. In December 2002, FDA granted Schering-Plough's
application to switch all Claritin formulations to OTC. In January
2003, FDA granted final approval to our ANDA for our generic version of
Claritin-D 12-Hour (Loratadine and Pseudoephedrine Sulfate, 5mg/120mg)
Extended Release Tablets and we immediately began shipment of the
product.

- In June 2002, we signed a semi-exclusive Development, License and
Supply Agreement with Wyeth, acting through its Wyeth Consumer
Healthcare Division, relating to our generic versions of Claritin-D
12-hour (Loratadine and Pseudoephedrine Sulfate, 5mg/120mg) Extended
Release Tablets and Claritin-D 24-hour (Loratadine and Pseudoephedrine
Sulfate, 10mg/240mg) Extended Release Tablets for the OTC market.

- Also in June 2002, we signed a non-exclusive Licensing, Contract
Manufacturing and Supply Agreement with Schering-Plough Corporation
relating to Claritin-D 12-hour (Loratadine and Pseudoephedrine Sulfate)
Extended Release Tablets, 5mg/ 120mg for the OTC market. This agreement
did not resolve the ongoing patent litigation between Schering-Plough
and IMPAX to decide whether we may market our generic Claritin-D
12-hour product, or manufacture such a product for companies other than
Schering-Plough prior to the expiration of a Schering-Plough patent in
2004.

- In July 2002, the FDA tentatively approved our ANDA for a generic
version of Rilutek (Riluzole) 50mg Tablets. Aventis Pharmaceutical
Products, Inc. markets Rilutek for the treatment of amyotrophic lateral
sclerosis (ALS), also known as Lou Gehrig's disease.

We filed a lawsuit in June 2002 against Aventis Pharmaceuticals, Inc.
in the United States District Court in Delaware seeking a declaration
that Aventis' U.S. Patent No. 5,527,814 is invalid. Aventis filed an
Answer and Counterclaim, claiming that our submission of an ANDA for
Riluzole 50mg Tablets constituted infringement of U.S. Patent No.
5,527,814, and that our intended marketing activities constituted
inducement of infringement of this patent. On October 15, 2002, Aventis
filed a motion seeking a Preliminary Injunction enjoining us from
marketing Riluzole 50mg Tablets until a final decision is reached by
the court in this case. On December 12, 2002, the District Court of
Delaware granted the Preliminary Injunction Motion brought by Aventis.
Litigation is currently scheduled for trial in October 2003.

On January 30, 2003, we received the final approval from the FDA for
our generic version of Rilutek (riluzole) 50mg tablets.

- In August 2002, the FDA accepted our filing of an ANDA for a generic
version of OxyContin (Oxycodone Hydrochloride) Extended Release 40mg
Tablets (IMPAX's tenth Paragraph IV filing). In September 2002, Purdue
Pharma L.P. filed a lawsuit against us alleging patent infringement. In
addition, we amended our ANDA for the 40mg Tablets to include 10mg and
20mg Extended Release Tablets.

- Also in August 2002, the U.S. District Court for the Northern
District of California granted our Motion for Summary Judgment of
Non-Infringement regarding our ANDAs for Wellbutrin SR and Zyban.
GlaxoSmithKline markets Wellbutrin SR for the treatment of depression
and Zyban for the cessation of smoking.

- In September 2002, the FDA approved our ANDA for a generic version of
Flumadine (Rimantadine Hydrochloride 100mg) Tablets. Forest
Laboratories, Inc. markets Flumadine for the prevention and treatment
of illness caused by various strains of influenza-A virus in adults.
Our Global Pharmaceuticals division began marketing the product during
the quarter ended December 31, 2002.

- In November 2002, the FDA granted approval for our ANDA for its 10mg
and 20mg strengths and tentative approval for its 40mg strength of
Omeprazole Delayed Release Capsules, a generic version of Prilosec.
AstraZeneca markets Prilosec for the treatment of duodenal/gastric
ulcers and gastro-esophageal reflux disease.

- During December 2002, the FDA accepted our ANDA for a generic version
of Tricor (Fenofibrate) 160mg Tablets. Abbott Laboratories, Inc.
markets Tricor for treatment of very high serum triglyceride levels. On
January 27, 2003, Abbott Laboratories filed a lawsuit against us in the
federal district court in Delaware alleging patent infringement.

Results of Operations

We have incurred net losses in each year since our inception. We had an
accumulated deficit of $90,342,000 at December 31, 2002.

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

Overview

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

Revenues

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

(in $000's) 2002 2001
--------- ---------
Product sales $ 38,400 $ 16,119
Other revenues 757 -
--------- ---------
Gross Sales 39,157 16,119

Less:
Actual returns 1,281 2,841
Increase in reserve for product returns 1,200 1,684
Rebates, chargebacks and other credits 12,161 5,003
--------- ---------

Net Sales $ 24,515 $ 6,591
========= =========

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

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

Cost of Sales

The cost of sales for the year ended December 31, 2002 was $18,492,000 as
compared to $9,669,000 for the same period in 2001. This increase in 2002 as
compared to 2001 was primarily due to higher sales volume, startup costs of the
new

manufacturing facility in Hayward, California and unabsorbed fixed costs due to
excess plant capacity in the Hayward, California and Philadelphia, Pennsylvania
facilities. Because of the nature of returns (discontinued products or
short-dated products), we concluded the returned inventory had no value to the
Company and the products were destroyed.

Gross Margin

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

Research and Development Expenses

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

Selling Expenses

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

General and Administrative Expenses

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

Interest Income

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

Interest Expense

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

(in $000's) 2002 2001
------- -------
Interest expense $ 565 $ 253
Interest on refundable deposit - 876
Forgiveness of interest on refundable deposit (876) -

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

Total interest expense $ (110) $ 929
------- -------

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

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

Net Loss
36

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 the fact that the Company discontinued certain products during 2000 (the
"discontinued products"). These discontinued products accounted for gross sales
of approximately $4,977,000 in 2000. Additionally, the Company experienced
higher sales returns expense of approximately $3,662,000 in 2001. These
decreases were partially offset by the introduction of new products in 2001 that
had gross sales of approximately $2,455,000. The following table summarizes the
activity in net sales for the year ended December 31, 2001 and 2000:

( in $000's ) 2001 2000
------ -------
Active products 16,119 8,898
Discontinued products/1/ - 4,977
SAB 101 adjustment/2/ - 667
------ -------
Gross Sales 16,119 14,542

Less:
Actual returns 2,841 707
Increase in reserve for product returns 1,684 156
Rebates, chargebacks and other credits 5,003 3,509
------ -------
Net Sales 6,591 10,170
------ -------

/1/Due to the consolidation of all manufacturing activities in Hayward,
California, a number of products, which represented approximately 35% of our
sales for the period, were discontinued in August 2000 and a change in National
Drug Code ("NDC") numbers for one of the Lipram products. Regarding the old NDC
Lipram, the Company determined that, for customer relations purposes as well as
for competitive reasons, it accepted the return of the old NDC Lipram.

/2/See Note 2 to the financial statements for a discussion of this adjustment.

The actual returns of $2,841,000 included approximately $1,166,000 of
discontinued products. The increase of $1,684,000 in 2001 returns reserve was
the result of our review and analysis of the historical return rates through
2001 and the lag period, adjusted by estimates of the future return rates. The
increase in rebates, chargebacks, and other credits was primarily due to sales
volume increase and increased competition.

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 unabsorbed fixed costs due to excess plant capacity in
Philadelphia, Pennsylvania. Because of the nature of the sales returns
(discontinued products, old NDC numbers, or short-dated products), we concluded
the returned inventory had no value to the Company and the products were
destroyed.

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 expense reimbursements 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 in 2001 research and development expenses 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 from funds received in connection with
the Teva refundable deposit and equity investments, and the 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 in 2001 on the refundable deposit from Teva. The 2001 interest expense
is net of $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 in 2001.

Liquidity and Capital Resources

At December 31, 2002, we had $10,219,000 in cash and cash equivalents as
compared to $15,044,000 at December 31, 2001.

The net cash provided from financing activities for the year ended December 31,
2002 was approximately $5,006,000, consisting of proceeds of $7,500,000 from the
sale of common stock to Teva, proceeds of $409,000 from issuance of common stock
upon exercise of stock options and warrants, net borrowing of $6,865,000 from
Congress Financial less the transfer of $10,000,000 to a restricted cash account
that serves as collateral for the $25 million revolving credit facility and term
loan agreement signed with Congress Financial in October 2002.

During the year ended December 31, 2002, the sale and maturities of short-term
investments of $20,422,000 funded capital expenditures of approximately
$15,054,000 related to the completion of the manufacturing facility in Hayward,
California and the purchases of machinery and equipment required for expansion
of our operating capacity. The $5,368,000 in net cash provided by investing
activities and the $5,006,000 provided by financing activities funded our net
cash used in operating activities during the year ended December 31, 2002. The
increase in the accounts receivable and inventory was substantially offset by
the increase in accounts payable and accrued liabilities. Accounts receivable at
December 31, 2002 were $6,524,000, or $3,001,000 higher than those at December
31, 2001, with the increase primarily attributable to increased product sales.
Most of the Company's major customers have payment terms between 2% 60 days and
2% 90 days. As such, the accounts receivable balance normally represents the
previous two to three months of net sales.

On October 23, 2002, we signed a three-year, $25 million Loan and Security
Agreement with Congress Financial Corporation, comprised of a revolving loan of
up to $20,500,000, and a term loan of up to $4,500,000. The revolving loan is
collateralized by eligible accounts receivable and inventory, subject to
sublimits and other terms, and the term loan is collateralized by machinery and
equipment, with a 60-month amortization. In addition, a $10 million restricted
cash account was established as collateral for this credit facility to be
reduced based on meeting certain profitability targets. The interest rates for
the revolving loans range from prime rate plus 1% to 1.75%, or eurodollar rate
plus 3% to 3.75%, at our option, based on excess availability. The term loan has
an interest rate of prime rate plus 1.5%, or eurodollar rate plus 4%, at our
option. As of December 31, 2002, we borrowed approximately $3,999,000 against
the revolving credit line and $3,098,000 against the term loan. The revolving
credit facility and the term loan agreement have a number of quarterly covenants
primarily covering Minimum Tangible Net Worth, and either EBITDA or excess
availability and annual capital expenditures limit of $8 million. At December
31, 2002, all the bank loan covenants were met.

The $22 million refundable deposit from Teva, less any forgiven amounts upon
IMPAX's attainment of certain milestone, if any, is due and payable on January
15, 2004, in cash or equity at our discretion. As previously indicated in Part
I, Item 1, as of February 25, 2003, we believe that approximately $10.5 million
of the $22 million may be forgiven prior to January 15, 2004, although there is
no assurance that any of the $22 million may be ultimately forgiven. These
milestone events, if achieved, will represent the culmination of a separate
earnings process. If we repay the loan in stock, such payment will result in
dilution. If we repay all our portion of the loan in cash, we may seek
additional sources of liquidity to fund such payment, as discussed below.

Our capital expenditures planned for 2003 include, primarily, purchases of
machinery and equipment, and range between $2 and $4 million as compared to
approximately $15,054,000 spent in 2002.

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

Although our existing cash and cash equivalents are expected to decline during
2003, we believe that our existing cash and cash equivalent balances, together
with our $25 million term loan and revolving line of credit, will be sufficient
to meet our operational plan for the next twelve months. We may, however, seek
additional financing through strategic alliances and/or equity markets to repay
the Teva deposit, if required, and to fund our research and development plans,
and potential revenues shortfall due to delays in new products introduction.
However, we may be unable to obtain such financing.

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

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

Recent Accounting Pronouncements

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

The Company adopted the provisions of SFAS No. 143 on January 1, 2003. Upon
initial application of the provisions of SFAS No. 143, entities are required to
recognize a liability for any existing asset retirement obligations adjusted for
cumulative accretion to the date of adoption of this Statement, an asset
retirement cost capitalized as an increase to the carrying amount of the
associated long-lived asset, and accumulated depreciation on that capitalized
cost. The effect, if any, of initially applying this Statement will be reported
in the Statements of Operations as the cumulative effect of a change in
accounting principle. The Company is evaluating the effect this Statement will
have on the Company's future financial statements.

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

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

In November 2002, the EITF reached a consensus on Issue No. 00-21, "Revenue
Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance
on how to account for arrangements that involve the delivery or performance of
multiple products, services and/or rights to use assets. The provisions of EITF
Issue No. 00-21 will apply to revenue arrangements entered into in fiscal
periods beginning after June 15, 2003. The Company is currently evaluating the
effect that the adoption of EITF Issue No. 00-21 will have on its results of
operations and financial condition.

In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34." FIN
45 clarifies the requirements of SFAS No. 5, "Accounting for Contingencies,"
relating to the guarantor's accounting for, and disclosure of, the issuance of
certain types of guarantees. The disclosure provisions of FIN 45 are effective
for the current fiscal year, and the Company has included this information in
Note 13 to the Company's financial statements. However, the provisions for
initial recognition and measurement are effective on a prospective basis for
guarantees that are issued or modified after December 31, 2002, irrespective of
a guarantor's year-end. We reviewed all material agreements and concluded that
all indemnifications are excluded from the FIN No. 45 scope of interpretation
since they relate primarily to our own future performance and do not require any
contingent payments.

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

SFAS No. 123, as amended by SFAS No. 148. However, the Company has adopted the
disclosure provisions for the current fiscal year and has included this
information in Note 2 to the Company's financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities in
which an enterprise obtains an interest after that date. It applies in the first
fiscal year or interim period beginning after June 15, 2003, to variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. FIN 46 applies to public enterprises as of the
beginning of the applicable interim or annual period. As discussed in Note 13 to
the Company's financial statements, IMPAX does not have any relationships with
variable interest entities as of December 31, 2002.

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 are
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and, generally, its provisions are to be applied
prospectively. The adoption of SFAS No. 144 did not have a material effect on
the Company's results of operations, financial position or cash flows.

In April 2002, FASB issued SFAS No. 145, this Statement rescinds FASB Statement
No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment
of that Statement, FASB Statement No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB Statement
No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement
amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. The adoption of SFAS No. 145 did not have a material effect on the
Company's results of operations, financial position or cash flows.

In June 2002, FASB issued SFAS No. 146, this Statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The adoption of
SFAS No. 146 did not have a material effect on the Company's 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, 2002, our accumulated deficit was $90,342,000 and
we had outstanding indebtedness in an aggregate principal amount of $35,965,000,
including $22,000,000 due Teva. 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 twenty-seven generic pharmaceuticals which represent dosage
variations of twelve different pharmaceutical compounds. Our revenues from these
products for the twelve months ended December 31, 2002 were $23.8 million. We do
not anticipate further revenue growth from these products; rather, we anticipate
that revenues from these products will decline over time. As a result, our
future prospects are dependent on our ability to successfully introduce new
products. As of December 31, 2002, we had nineteen ANDAs pending at the FDA for
generic versions of brand name pharmaceuticals. The FDA and the regulatory
authorities may not approve our products submitted to them, or our other
products under development. Additionally, we may not successfully complete our
development efforts. Even if the FDA approves our products, we may not be able
to market our products if we do not prevail in the patent infringement
litigation in which we are involved. Our future results of operations will
depend significantly upon our ability to develop, receive FDA approval for, and
market new pharmaceutical products.

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

We are required to obtain FDA approval before marketing new drug products. The
FDA approval requirements are costly and time consuming. 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 drugs), 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. Our bioequivalence studies and other data may not result in FDA approval
to market our new drug products. While we believe that the FDA's 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.

Bioequivalent pharmaceuticals, commonly referred to as generics, are the
pharmaceutical and therapeutic equivalents of brand name drugs and are usually
marketed under their established nonproprietary drug names rather than by a
brand name. Controlled-release drug delivery technologies generally provide more
consistent and appropriate drug levels in the bloodstream than immediate-release
dosage forms and may improve drug efficacy and reduced side effects by releasing
drug dosages at specific times and in specific locations in the body. These
technologies also allow for the development of "patient friendly" dosage forms
that reduce the number of times a drug must be taken, thus improving patient
compliance.

Approvals for our new drug products may become more difficult to obtain if
changes to FDA approval requirements are instituted.

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.

We have no experience in conducting clinical trials or preparing a New Drug
Application which may be required if a drug we develop does not qualify for the
FDA's abbreviated applications procedures.

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, or
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.

We face significant delays in obtaining FDA approval as a result of patent
infringement litigation.

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. We apply our proprietary drug delivery technologies
and formulation skills to develop bioequivalent versions of selected
controlled-release brand name pharmaceuticals. Specifically, we apply our
proprietary processes and formulations to develop a product that will produce
the brand product's physiological characteristics but not infringe upon the
patents of the owner of the NDA or other innovator. In connection with this
process, we conduct studies to establish that our product is bioequivalent to
the brand product, and obtain legal advice that our products do not infringe the
NDA owner's or

the innovator's patents or that such patents are invalid or unenforceable. As
required by the Drug Price Competition and Patent Restoration Act of 1984, known
as the Hatch-Waxman Amendments, we then assemble and submit an ANDA to the FDA
for review. If we believe that our product does not infringe a patent associated
with the brand product which has been listed in the FDA's Approved Drug Products
with Therapeutic Equivalence Evaluation Book, commonly referred to as the
"Orange Book," or that such patent is invalid or unenforceable, we are required
to make such a certification. This is called a Paragraph IV certification.

Once the FDA accepts our ANDA for filing, we must also send notice of a
Paragraph IV certification to the NDA owner and patent holder. The NDA owner or
patent holder may then initiate a legal challenge for patent infringement. If
they do so within 45 days of their receipt of notice of our Paragraph IV
certification, that ensuing lawsuit will automatically prevent the FDA from
approving our ANDA until the earlier of 30 months, expiration of the patent, or
when the infringement case is decided in our favor. Brand name companies may
obtain additional patents after an ANDA has been filed, but before final
marketing approval has been granted, which may result in a new legal challenge
and may require submission of a new Paragraph IV certification and trigger a new
notice and waiting period requirements. Thus, the developer of bioequivalent
products may invest a significant amount of time and expense in the development
of these products only to be subject to significant delays and the uncertain
results of patent litigation before its products may be commercialized. Patent
litigation has been instituted against us with respect to nine of our pending
ANDAs relating to our generic controlled-release product candidates.

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. As of February 24, 2003, we had nineteen ANDAs
pending at the FDA for generic versions of brand name pharmaceuticals. To date,
patent litigation has been filed against us in connection with twelve 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 that 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 fails to benefit us as expected, our
business will be harmed.

In June 2001, we entered into a strategic alliance agreement with Teva
Pharmaceuticals Curacao N.V., a subsidiary of Teva Pharmaceutical Industries,
Ltd. ("Teva") for twelve controlled-release generic products. The agreement
grants Teva exclusive U.S. marketing rights for six of our products. The six
products already filed at the time of the agreement were Omeprazole 10mg, 20mg,
and 40mg Delayed Released Capsules (generic of Prilosec), Bupropion
Hydrochloride 100mg and 150mg Extended Release Tablets (generic of Wellbutrin
SR), Bupropion Hydrochloride 150mg Extended Release Tablets (generic of Zyban),
Loratadine and Pseudoephedrine Sulfate 5mg/120mg 12-hour Extended Release
Tablets (generic of Claritin-D 12-Hour) and Loratadine and Pseudoephedrine
Sulfate 10mg/240mg 24-hour Extended Release Tablets (generic of Claritin-D
24-hour) and Loratadine 10mg Orally Disintegrating Tablets (generic of Claritin
Reditabs). Of the six products to be developed at the time the agreement was
signed, three have since been filed with the FDA. Teva elected to commercialize
a competing product to one of the three 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. We will depend on our strategic
alliance with Teva to achieve market penetration and revenue generation for the
products covered by the agreement. We entered into the agreement with Teva on
the basis of certain expectations of the level of sales of the products that
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 have entered into strategic alliances or license agreements with respect to
certain of our products with Teva, Wyeth, Novartis, and Schering-Plough. In the
future, we may enter into strategic alliances or licensing arrangements with
respect to other products with these or other companies. These arrangements may
require us to relinquish rights to certain of our technologies or product
candidates, or to grant licenses on terms that ultimately may prove to not be
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. The
following table based upon publicly available information reflects the companies
which, to our knowledge, market brand name or generic products that compete with
our three largest product families currently on the market, which accounted for
approximately 85% of our net revenues for the twelve months ended December 31,
2002:

Product Brand Competition Generic Competition
------------------------------------ -------------------------------- -----------------------------------

Lipram Capsules (Pancreatic enzymes) McNeil Laboratories (Pancrease), Ethex Corporation, Mutual
Solvay Pharmaceuticals (Creon), Pharmaceuticals, Contract Pharmacal
Scandipharm (Ultrase)

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

Fludrocortisone Acetate Tablets 0.1mg Monarch Pharm (Florinef) Barr Laboratories

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

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

Development Product Brand Competition Potential Generic Competition
-------------------------------- --------------------------------- -------------------------------------------

Omeprazole Delayed Release AstraZeneca (Prilosec, Nexium) Andrx Pharmaceuticals, Genpharm
Capsules Proctor and Gamble (Prilosec 1) International, Dr. Reddy Laboratories Ltd.,
KUDCO/Schwarz Pharma, Eon Labs, Lek
International Pharmaceutical Group, Mylan
Laboratories, Apotex USA and IVAX
Pharmaceuticals

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

Loratadine and Pseudoephedrine Schering-Plough (Claritin-D Andrx Pharmaceuticals
Sulfate Extended Release Tablets 12-hour, Claritin-D 24-hour,
Clarinex D)Wyeth (Alavert)

Loratadine Orally Disintegrating Schering-Plough (Claritin CIMA Laboratories, Andrx Pharmaceuticals
Tablets Reditabs, Clarinex Reditabs)Wyeth
(Alavert)

Fenofibrate Capsules and Tablets Abbott Labs (Tricor Tablets) Teva Pharmaceutical Ind, Ltd.,
Pharmaceutical Resources

Development Product Brand Competition Potential Generic Competition
-------------------------------- --------------------------------- -------------------------------------------

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

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

Oxycodone Hydrochloride Extended Purdue Pharma (OxyContin) Boehringer Ingelheim/Roxane Pharmaceuticals,
Release Tablets Endo Pharmaceuticals, Teva Pharmaceutical
Industries, Ltd.

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
partners, may not be able to successfully market our products.

We face risks related to goodwill and intangibles.

At December 31, 2002, our goodwill and intangibles were approximately $28.3
million, or approximately 27% of our total assets. We may never realize the
value of our goodwill and intangibles. We will continue to evaluate, on a
regular basis, whether events or circumstances have occurred that indicate all,
or a portion, of the carrying amount of goodwill may no longer be recoverable,
in which case an impairment charge to earnings would become necessary. As of
December 31, 2002, the carrying value of goodwill was not impaired based on our
assessment performed in accordance with accounting principles generally accepted
in the United States of America. Any such future determination requiring the
write-off of a significant portion of carrying value of goodwill could have a
material adverse effect on our financial condition or results of operations.

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

Our cash used in operations has exceeded cash generated from operations in each
period since our inception. We anticipate continuing to incur expenses
substantially in excess of our product revenues for the foreseeable future. As
of December 31, 2002, we had outstanding indebtedness of approximately
$35,965,000 of which $13,965,000 bears interest at rates ranging from 2.0% to
8.17% annually. For the year ended December 31, 2002, we paid interest on our
indebtedness of approximately $561,000. Additionally, as of December 31, 2002,
we had an accumulated stockholders' deficit of approximately $90,342,000. 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, 2002, we had approximately $10.2 million in cash and cash
equivalents, and $10.0 million in restricted cash that serves as collateral for
the $25 million revolving credit facility and loan agreement with Congress
Financial. Although we estimate that these funds will be sufficient for at least
the next twelve 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, 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
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 that 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 that may not bear out as we expect. In our press releases
and other public documents, we have forecasted the accomplishment of objectives
material to our success, such as anticipated filings with the FDA and
anticipated receipt of FDA approvals. For example, we have assumed that we would
file with the FDA at least six ANDAs per year. The actual timing and results of
these events can vary dramatically due to factors such as the uncertainties
inherent in the drug development and regulatory approval process, and delays in
achieving manufacturing capacity and marketing infrastructure sufficient to
commercialize our products. We may not make regulatory submissions or receive
regulatory approvals as forecasted, or we may not be able to adhere to our
current schedule for product launches.

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

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

we would be prohibited from marketing our product other than as an
over-the-counter drug, in which case product revenues could be significantly
less than we anticipated.

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, including strategic partners.

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 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 four U.S. patents and various foreign
patent applications relating to our drug delivery technologies. Our U.S. patents
are for our Concentric Multiple-Particulate Delivery System, our Timed
Multiple-Action Delivery System, Particle Dispersion System, and our
Pharmaceutical Stabilization System. We expect to apply for additional U.S. and
foreign patents in the future. The issuance of a patent is not conclusive as to
its validity or as to the enforceable scope of the claims of the patent. In
addition, the issuance of a patent to us does not mean that our products do not
infringe on the patents of others. We cannot assure you that:

- 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 that 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, 2002, we had $7 million of patent infringement liability
insurance from AISLIC covering us against the costs associated with patent
infringement claims made against us relating to seven ANDAs we filed under
Paragraph IV of the Hatch-Waxman Amendments. Correspondence received from AISLIC
indicated that, as of January 14, 2003, one of the policies had approximately
$1,879,000 remaining on the limit of liability and the second of the policies
had approximately $675,000 remaining on the limit of liability. At present, we
believe this remaining insurance coverage is sufficient for our defense costs
related to these seven ANDAs. In addition, as for the agreement with Teva for
the six products already filed at the time of the agreement, Teva will pay 50%
of the attorneys' fees and costs in excess of the $7 million we expect to be
paid by AISLIC. For the three products filed since the agreement was signed,
Teva will pay 45% of the attorneys' fees and costs, and for the remaining three
products, Teva will pay 50% of the attorneys' fees and costs.

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. In those cases, our policy is to record
such expenses as incurred.

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. We currently have
product liability insurance that covers us for liability of up to $10 million.
This insurance may not be adequate to cover any product liability claims to
which we may become subject. Product liability insurance coverage is expensive,
difficult to obtain, 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. Approximately 35% of
our 2002 net sales were attributable to one product family, which is supplied by
a sole source supplier, Eurand America, Inc., under an exclusive licensing
agreement that expires in 2007. Generally, we would need up to one year to find
and qualify a new sole source supplier. If we receive less than one year's
notice from a sole source supplier that it intends to cease supplying raw
materials, it could result in disruption of our ability to produce the drug
involved. Further, a significant portion of our raw materials may be available
only from foreign sources. Foreign sources can be subject to the special risks
of doing business abroad, including:

- 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 approximately 273 employees as of February 28, 2003, 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, Michael Wokasch our 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 four 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 serves as our primary manufacturing center and a
14,400 square foot administrative office and warehouse facility in Hayward,
California and the Philadelphia, Pennsylvania, 113,000 square foot facility
which serves as our center for sales and marketing, packaging, warehousing and
distribution.

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

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

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

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

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

We have experienced rapid growth of our operations. We have increased our
employee count from 150 as of March 1, 2002 to 273 as of February 28, 2003. The
number of ANDAs pending approval at the FDA has increased from 11 at June 2001
to 19 at February 2003. This growth has required us to expand, upgrade and
improve our administrative, operational and management systems, controls and
resources. We anticipate additional growth in connection with the expansion of
our manufacturing operations, development of our brand name products, and our
marketing and sales efforts for the products we develop. Although we cannot
assure you that we will, in fact, grow as we expect, if we fail to manage growth
effectively or to develop a successful marketing approach, our business and
financial results will be materially harmed.

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, 2002, we had 75,000 shares
outstanding of our Series 2 Preferred Stock that are 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.
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.

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 47,874,614 shares outstanding as of December
31, 2002 of which approximately 20.2 million shares were owned by our officers
and directors or their affiliates and are considered restricted shares.
Substantially all of these approximately 20.2 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, 2002 we had 75,000 shares of Series 2 Preferred Stock outstanding,
convertible into an aggregate 1,500,000 shares of common stock, outstanding
warrants to purchase 2,548,266 shares of common stock, and outstanding stock
options to purchase 4,625,525 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, 2002 we had 4,616,597 shares
of common stock available for issuance under employee benefit plans in addition
to the 4,625,525 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 five stockholders who beneficially
own approximately 41% of our outstanding common stock and who can exercise
significant influence over all matters requiring stockholder approval.

As of December 31, 2002, our present directors, executive officers and their
respective affiliates and related entities beneficially owned approximately 44%
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. For example, the closing sale
price of our stock during the past year has ranged from a high of $13.72 during
the quarter ended March 31, 2002 to a low of $2.75 during the quarter ended
December 31, 2002.

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.

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

Our Board of Directors has the authority to issue up to 2,000,000 shares of our
preferred stock and to determine the price, rights, preferences, and privileges
of those shares without any further vote or action by the stockholders (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 on our common stock.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's investment portfolio consisted of cash and cash equivalents and
marketable securities stated at cost which approximates market value. The
primary objective of the Company's investment activities is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, the Company maintains its portfolio
in a variety of high credit quality securities, including U.S. Government
securities, treasury bills, short-term commercial paper, and highly rated money
market funds. One hundred percent of the Company's portfolio matures in less
than one year. The carrying value of the investment portfolio approximates the
market value at December 31, 2002. The Company's debt instruments at December
31, 2002, are subject to fixed interest rates and principal payments. We believe
that the fair value of our fixed rate long-term debt and refundable deposit
approximates its carrying value of approximately $31 million at December 31,
2002. 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 15(a) under the heading "Financial Statements" as a part of
this report.

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

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
2003 Annual Meeting of Stockholders, to be held on May 15, 2003 (the "2003 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 2003 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table details information regarding the company's existing equity
compensation plans as of December 31, 2002:

----------

(c)
Number of securities
(a) (b) remaining available for
Number of securities to be Weighted-average future issuance under equity
Plan Category issued upon exercise of exercise price of compensation plans
outstanding options, outstanding options, (excluding securities
----------------------------------- warrants and rights warrants and rights reflected in column (a))
-------------------------- -------------------- ----------------------------

Equity compensation plans 4,625,525 $ 4.85 4,138,789
approved by security holders.....
Equity Compensation Plans not
approved by security holders/(1)/.. 22,192 - 477,808
-------------------------- -------------------- ----------------------------
Total.............................. 4,647,717 4,616,597
-------------------------- ----------------------------

/(1)/ See page F-21, Note 16 for information on IMPAX Employee Stock Purchase
Plan.

The remaining information required under this Item is incorporated herein by
reference from our 2003 Proxy statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required under this Item is incorporated herein by reference
from our 2003 Proxy Statement.

ITEM 14. CONTROL AND PROCEDURES

Within ninety days prior to the date of this Annual Report on Form 10-K, the
Company, under the supervision and with the participation of our management,
including our principal executive officers and our principal financial officer,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures. Based on this evaluation, our principal executive
officers and our principal financial officer concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized, and reported within the
time period specified in the Securities and Exchange Commission's rules and
forms. In addition, subsequent to the date of the evaluation of our disclosure
controls and procedures, there were no significant changes in our internal
controls, or in other factors that could significantly affect these controls.

Company's management, including the Co-Chief Executive Officers and Chief
Financial Officer, does not expect that its Disclosure Controls or its "internal
controls and procedures for financial reporting" ("Internal Controls") will
prevent all error and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.

PART IV

ITEM 15. 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, 2002 and 2001............................................... F-3

Statements of Operations for each of the three years in the period
ended December 31, 2002.................................................................... F-4

Statements of Stockholders Equity for each of the three years in the period
ended December 31, 2002.................................................................... F-5

Statements of Cash Flows for each of the three years in the period
ended December 31, 2002.................................................................... F-6

Notes to Financial Statements................................................................. F-7 to F-25

2. FINANCIAL STATEMENT SCHEDULES

The following financial statement schedule of Impax Laboratories, Inc.
for each of the years ended December 31, 2002, 2001 and 2000 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 of Global
Pharmaceutical Corporation dated November 2, 1995. /(1)/

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

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

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

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

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

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

3.6 By-laws of the Company. /(13)/

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.63 2002 Equity Incentive Plan /(12)/

23.1 Consent of PricewaterhouseCoopers LLP. /(13)/

99.1 Certification of Chairman and Co-Chief Executive Officer
/(13)/

99.2 Certification of Co-Chief Executive Officer /(13)/

99.3 Certification of Chief Financial Officer /(13)/
----------

/(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)/ Previously filed with the Commission as Exhibit 10, and
incorporated herein by reference from, the Registrant's Yearly
Report on Form 10-K for the year ended December 31, 2001.

/(10)/ Previously filed with the Commission as Exhibit to, and
incorporated herein with reference from, the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2002.

/(11)/ Previously filed with the Commission as Exhibit to, and
incorporated herein with reference from, the Registrant's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 2002.

/(12)/ Previously filed with the Commission, and incorporated herein
by reference from, the Registrant's Registration Statement on
Form S-8 filed on May 24, 2002 (File No. 333-89098).

/(13)/ 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, 2002.

SIGNATURES

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

IMPAX LABORATORIES, INC.
(Registrant)

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

Date: March 27, 2003

By s/s CORNEL C. SPIEGLER
CHIEF FINANCIAL OFFICER

Date March 27, 2003

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

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

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

/s/ LARRY HSU, Ph.D. President and Director
(Larry Hsu, Ph.D.)

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

/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 PETER R. TERRERI Director
(Peter R. Terreri)

CERTIFICATION OF
Co-CHIEF EXECUTIVE OFFICER

I, Charles Hsiao, Chairman & Co-CEO, certify that:

1. I have reviewed this annual report on Form 10-K for the twelve
months ended December 31, 2002 of Impax Laboratories, Inc.

2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact, or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading, with respect to the period covered by this
annual report.

3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present, in all material respects, the financial condition,
results of operations, and cash flows of the registrant as of,
and for, the periods presented in this annual report.

4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant, and we have:

a) designed such disclosure controls and
procedures to ensure that material
information relating to the registrant,
including its consolidated subsidiaries, is
made known to us by others within those
entities, particularly during the period in
which this annual report is being prepared;

b) evaluated the effectiveness of the
registrant's disclosure controls and
procedures as of a date within 90 days prior
to the filing date of this annual report
(the "Evaluation Date"); and

c) presented in this annual report our
conclusions about the effectiveness of the
disclosure controls and procedures based on
our evaluation as of the Evaluation Date.

5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the Audit Committee of registrant's
Board of Directors (or persons performing the equivalent
function):

a) all significant deficiencies in the design
or operation of internal controls which
could adversely affect the registrant's
ability to record, process, summarize, and
report financial data, and have identified
for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that
involves management or other employees who
have a significant role in the registrant's
internal controls.

6. The registrant's other certifying officers and I have
indicated in this annual report whether or not there were
significant changes in internal controls, or in other factors
that could significantly affect internal controls, subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.

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

March 27, 2003
-----------------------------------------

CERTIFICATION OF
Co-CHIEF EXECUTIVE OFFICER

I, Barry R. Edwards, Co-CEO, certify that:

1. I have reviewed this annual report on Form 10-K for the twelve
months ended December 31, 2002 of Impax Laboratories, Inc.

b) evaluated the effectiveness of the
registrant's disclosure controls and
procedures as of a date within 90 days prior
to the filing date of this annual report
(the "Evaluation Date"); and

c) presented in this annual report our
conclusions about the effectiveness of the
disclosure controls and procedures based on
our evaluation as of the Evaluation Date.

b) any fraud, whether or not material, that
involves management or other employees who
have a significant role in the registrant's
internal controls.

/s/ BARRY R. EDWARDS
------------------------------------------
Barry R. Edwards
Co-Chief Executive Officer

March 27, 2003
------------------------------------------

CERTIFICATION OF
CHIEF FINANCIAL OFFICER

I, Cornel C. Spiegler, CFO, certify that:

1. I have reviewed this annual report on Form 10-K for the twelve
months ended December 31, 2002 of Impax Laboratories, Inc.

b) evaluated the effectiveness of the
registrant's disclosure controls and
procedures as of a date within 90 days prior
to the filing date of this annual report
(the "Evaluation Date"); and

c) presented in this annual report our
conclusions about the effectiveness of the
disclosure controls and procedures based on
our evaluation as of the Evaluation Date.

b) any fraud, whether or not material, that
involves management or other employees who
have a significant role in the registrant's
internal controls.

/s/ CORNEL C. SPIEGLER
------------------------------------
Cornel C. Spiegler
Chief Financial Officer

March 27, 2003
------------------------------------

IMPAX LABORATORIES, INC.

INDEX TO FINANCIAL STATEMENTS

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

Balance Sheets at December 31, 2002 and December 31, 2001........................................... F-3

Statements of Operations for each of the three years in the period ended December 31, 2002 F-4

Statements of Changes in Stockholders' Equity for each of the three years in the period
ended December 31, 2002.............................................................................. F-5

Statements of Cash Flows for each of the three years in the period ended December 31, 2002 F-6

Notes to Financial Statements........................................................................ F-7 to F-25

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 15(a)(1) on page 54 present fairly, in all material respects, the financial
position of Impax Laboratories, Inc. at December 31, 2002 and 2001, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2002, 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
15(a)(2) on page 54 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.

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

PRICEWATERHOUSECOOPERS LLP

March 24, 2003
Philadelphia, Pennsylvania

F-2

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

December 31,
------------
2002 2001
------------- -----------

ASSETS

Current assets:
Cash and cash equivalents $ 10,219 $ 15,044
Short-term investments - 20,422
Accounts receivable, net 6,524 3,523
Inventory 10,478 3,488
Prepaid expenses and other assets 973 1,506
------------- -----------
Total current assets 28,194 43,983
Restricted Cash 10,000 -
Property, plant and equipment, net 37,065 24,334
Investments and other assets 807 574
Goodwill, net 27,574 27,574
Intangibles, net 763 1,147
------------- -----------
Total assets $ 104,403 $ 97,612
============= ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt $ 861 $ 232
Accounts payable 7,529 3,996
Notes payable 3,999 -
Accrued expenses and deferred revenues 10,859 3,575
------------- -----------
Total current liabilities 23,248 7,803
Long term debt 9,105 6,868
Refundable deposit 22,000 22,876
Deferred revenues 1,486 117
------------- -----------
55,839 37,664
------------- -----------

Commitments and contingencies Mandatory redeemable convertible Preferred Stock:
Series 2 mandatory redeemable convertible Preferred Stock, $0.01 par value
75,000 shares outstanding at December 31, 2002, and 2001,
redeemable at $100 per share 7,500 7,500
------------- -----------
7,500 7,500
------------- -----------
Stockholders' equity:

Redeemable convertible Preferred Stock - -
Common stock, $0.01 par value, 75,000,000 shares authorized
and 47,874,614 and 46,680,047 shares issued and outstanding
at December 31, 2002, and 2001, respectively 479 466
Additional paid-in capital 131,085 122,957
Unearned compensation (158) (673)
Accumulated deficit (90,342) (70,302)
------------- -----------
Total stockholders' equity 41,064 52,448
------------- -----------
Total liabilities and stockholders' equity $ 104,403 $ 97,612
============= ===========

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,
-----------------------
2002 2001 2000
------------ ------------ ------------

Net sales $ 23,758 $ 6,591 $ 10,170
Other Revenue 757 - -
------------ ------------ ------------
Total Revenues $ 24,515 $ 6,591 $ 10,170
Cost of sales 18,492 9,669 9,716
------------ ------------ ------------
Gross margin (loss) 6,023 (3,078) 454

Research and development 16,254 11,890 11,096
Less: Reimbursements from Teva (705) (918) -
------------ ------------ ------------
Research and development, net 15,549 10,972 11,096

Selling Expenses 2,836 2,186 1,346
General and administrative 8,396 9,258 9,764
Other operating income, net (36) 164 306
Restructuring charges and non-recurring items - - 3,646
------------ ------------ ------------
Net loss from operations (20,794) (25,330) (25,092)
Interest income 644 1,148 758
Interest (expense) 110 (929) (339)
------------ ------------ ------------
Net loss before cumulative effect of accounting change $ (20,040) $ (25,111) $ (24,673)
============ ============ ============
Cumulative effect of accounting change (SAB 101) - - (288)

Net loss $ (20,040) $ (25,111) $ (24,961)
============= ============ ============
Net loss per share before cumulative effect of accounting change $ (0.42) $ (0.60) $ (0.90)
============ ============ ============
Net loss per share (basic and diluted) $ (0.42) $ (0.60) $ (0.91)
============ ============ ============
Weighted average common shares outstanding 47,444,364 41,555,818 27,538,989
============ ============ ============

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, 2000 THROUGH DECEMBER 31, 2002
(dollars and shares in thousands, except per share amounts)

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

Balance at January 1, 2000.................. 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 and options ........... 348 4 507 - - 511
Expenses related to sale of stock........... - - (728) - - (728)
Fair value of stock option 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

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

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

The accompanying notes are an integral part of these financial statements

F-5

IMPAX LABORATORIES, INC.
STATEMENTS OF CASH FLOWS

(dollars in thousands)

Year ended December 31,
-----------------------
2002 2001 2000
--------- --------- --------

Cash flows from operating activities:
Net loss $ (20,040) $ (25,111) $(24,961)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 2,707 5,828 5,955
Non-cash compensation charge (warrants and options) 515 498 457
Non-cash asset impairments - - 3,646
Other - - (11)
Change in assets and liabilities:
Accounts receivable (3,001) (1,942) 2,211
Inventory (6,990) (539) (1,884)
Prepaid expenses and other assets 300 (1,018) (143)
Accounts payable and other liabilities 11,310 4,407 (1,274)
--------- --------- --------
Net cash used in operating activities (15,199) (17,877) (16,004)
--------- --------- --------
Cash flows from investing activities:
Purchases of property and equipment (15,054) (16,575) (3,563)
Purchases of short-term investments - (32,232) (18,569)
Sale and maturities of short term investments 20,422 19,590 10,789
--------- --------- --------
Net cash provided by (used in) investing activities 5,368 (29,217) (11,343)
--------- --------- --------
Cash flows from financing activities:
Notes payable borrowings (repayments) 3,999 (2,425) 572
Additions to long-term debt 3,150 5,770 -
Repayment of long-term debt (284) (159) (473)
Proceeds from issuance of preferred stock (net of expense) - - 14,902
Proceeds from sale of common stock (net of expense) 7,500 24,831 15,870
Proceeds from issuance of common stock (upon exercise of stock
options and warrants) and sale of common stock under ESPP 409 673 511
Reversal of previous year expenses related to sales of stock (net) 232 - -
Refundable deposit from Teva - 22,000 -
Restricted Cash Account with Congress Financial (10,000) - -
--------- --------- --------
Net cash provided by financing activities 5,006 50,690 31,382
--------- --------- --------
Net (decrease) increase in cash and cash equivalents (4,825) 3,596 4,035
Cash and cash equivalents, beginning of the year 15,044 11,448 7,413
--------- --------- --------
Cash and cash equivalents, end of year 10,219 15,044 11,448
========= ========= ========

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

F-6

NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

NOTE 1. - THE COMPANY

Nature of Operations

The financial statements included herein have been prepared by the Company,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations; however, the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the notes included in this report.

Impax Laboratories, Inc.'s ("IMPAX," "we," "us," or "the Company") main business
is the development, manufacturing, and marketing of specialty prescription
pharmaceutical products utilizing its own formulation expertise and drug
delivery technologies. The Company is currently marketing twenty-seven generic
pharmaceuticals, which represent dosage variations of twelve different
pharmaceutical compounds, and has nineteen Abbreviated New Drug Applications
(ANDAs) under review with the Food and Drug Administration (FDA), addressing
more than $5.8 billion in U.S. product sales in the twelve months ending
December 31, 2002. Thirteen of these ANDAs were filed under Paragraph IV of the
Hatch-Waxman Amendments. The Company has approximately seventeen other products
in various stages of development for which applications have not yet been filed.
The products are generic versions of brand name pharmaceuticals that had U.S.
sales of $3.2 billion in the twelve months ending December 31, 2002.

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, 2002, our accumulated deficit was $90,342,000 and
we had outstanding indebtedness in an aggregate amount of $35,965,000, including
the $22,000,000 refundable deposit from Teva. 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 litigations 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.

As discussed further in Note 12, the $22 million refundable deposit from Teva,
less any forgiven amounts upon IMPAX's attainment of certain milestones, if any,
is due and payable on January 15, 2004, in cash or equity at our discretion. As
of February 25, 2003, we believe that approximately $10.5 million of the $22
million may be forgiven prior to January 15, 2004, although there is no
assurance that any of the $22 million may be ultimately forgiven. These
milestone events, if achieved, will represent the culmination of a separate
earnings process. If we repay the loan in stock, such payment will result in
dilution. If we repay all or a portion of the loan in cash, we may seek
additional sources of liquidity to fund such payment, as discussed below.

Although our existing cash and cash equivalents are expected to decline during
the remainder of 2003, we believe that our existing cash and cash equivalent
balances, together with our $25 million term loan and revolving line of credit,
will be sufficient to meet our operational plan for the next twelve months. We
may, however, seek additional financing through strategic alliances and/or
equity markets to repay the Teva deposit, if required, and to fund our research
and development plans, and potential revenues shortfall due to delays in new
products introduction. However, we may be unable to obtain such financing.

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

F-7

NOTE 2. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.

Cash and Cash Equivalents

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

Short-Term Investments

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

Fair Value of Financial Instruments

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

Allowance for Doubtful Accounts

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

Concentration of Credit Risk

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

The Company has three major customers, Amerisource-Bergen, Cardinal Health, and
McKesson, that account for approximately 57% of total sales for the year ended
December 31, 2002. At December 31, 2002, accounts receivable from these three
customers, represent approximately 64% of total trade receivables. Approximately
35% of the Company's net sales were attributable to one product family, which is
supplied by a vendor, Eurand America, Inc., under an exclusive licensing
agreement that expires in 2007.

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
include materials, labor, quality control, and production overhead. Inventory is
adjusted for short-dated, unmarketable inventory equal to the difference between
the cost of inventory and the estimated value based upon assumptions about
future demand and market conditions.

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.

F-8

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, 2002, the cost of the Company's
investments approximates fair value.

Goodwill

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

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

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

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

On a quarterly basis, we perform a review of our business to determine if events
or changes in circumstances have occurred which could have a material adverse
effect on the fair value of the Company and its goodwill. If such events or
changes in circumstances were deemed to have occurred, we would consult with one
or more valuation specialists in estimating the impact on our estimate of fair
value. We believe the estimation methods are reasonable and reflective of common
valuation practices. We perform our annual goodwill impairment test in the
fourth quarter of each year.

Intangibles

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

Impaired Assets

F-9

involved. Losses on long-lived assets to be disposed of are determined in a
similar manner, except that fair values are reduced for disposal costs. As the
Company's assumptions related to assets to be held and used are subject to
change, additional write-downs may be required in the future. If estimates of
fair value less costs to sell are revised, the carrying amount of the related
asset is adjusted, resulting in recognition of a charge or benefit to earnings.

Revenue Recognition

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.

Revenue from strategic alliances includes up-front payments and milestone
payments. Up-front payments are generally deferred and recognized on a
straight-line basis over the life of the related agreement. Milestone payments
are generally recognized when the requirements set forth in the related
agreement are met and such recognition represents a separate earnings process.
In evaluating whether a separate earnings process has been met, the Company
considers the following criteria: a) level of effort involved in achieving the
milestone; b) reasonableness of the milestone payment in relation to the effort
expended in achieving the milestone; c) the amount of time that has passed from
the up-front payment, if any, to the milestone payment and between various
milestones; d) the amount of the payment in relation to the risk involved in
achieving the milestone; and e) relationship between the amount of the up-front
payment and the first milestone payment.

Returns

The sales return reserve is calculated using historical lag period (that is, the
time between when the product is sold and when it is ultimately returned) and
return rates, adjusted by estimates of the future return rates based on various
assumptions which may include changes to internal policies and procedures,
changes in business practices and commercial terms with customers, competitive
position of each product, amount of inventory in the pipeline, the introduction
of new products, and changes to NDC numbers. Our returned goods policy requires
prior authorization for the returns, with corresponding credits being issued at
the original invoice prices, less amounts previously granted to the customer for
rebates and chargebacks. Products eligible for return must be expired and
returned within one year following the expiration date of the product. Prior to
2002, we allowed returns of products within six months of expiration date.
Because of the lengths of the lag period and volatility that may occur from
quarter to quarter, we are currently using a rolling 21-month calculation to
estimate our product return rate. In addition to the rolling 21-month
calculation, we also review the level of pipeline inventory at major wholesalers
to assess the reasonableness of our estimate of future returns.

In estimating its returns reserve, the Company looks to returns after the
balance sheet date but prior to filing its financial statements to ensure that
any unusual trends are considered.

Rebates and Chargebacks

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

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

Shelf-Stock Reserve

A reserve is estimated at the point of sale for certain products for which it is
probable that shelf-stock credits to customers for inventory remaining on their
shelves following a decrease in the market price of these products will be
granted. When estimating this reserve, we consider the competitive products, the
estimated decline in market prices, and the amount of inventory in the pipeline.
At December 31, 2002 and 2001, the shelf-stock reserve was $660,000 and $0,
respectively.

F-10

Shipping and Handling Fees and Costs

Shipping and handling fees related to sales transactions when billed to
customers are recorded as sales revenue. Shipping and handling costs which are
recorded in selling expense were $195,000, $132,000, and $126,000 in 2002, 2001
and 2000, respectively.

Research and Development

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

Derivatives

On January 1, 2001 the Company adopted SFAS No. 133, as amended by SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
The adoption of SFAS No. 133, as amended by SFAS No. 138, did not have and will
not have a material impact on the results of operations, financial position or
cash flows as it is the Company's policy to not enter into any transactions
involving derivative instruments.

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". Compensation cost for stock options,
if any, is measured as the excess of the quoted market price of the stock at the
date of grant over the amount an employee must pay to acquire the stock. The
Company has adopted the disclosure only provisions of SFAS No. 123 and SFAS No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure - An
Amendment to FASB Statement No. 123".

If the Company had elected to recognize compensation expense based upon the fair
value at the grant dates for awards under its plans, the Company's loss would
have been increased to the pro forma amounts indicated below (in thousands):

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, 2002 December 31, 2001 December 31, 2000
----------------- ----------------- -----------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma

Net loss $ (20,040) $ (26,426) $ (25,111) $ (26,561) $ (24,961) $ (25,892)
Net loss per common share $ (0.42) $ (0.56) $ (0.60) $ (0.64) $ (0.91) $ (0.94)
(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 4.39%, 4.30%, and 5.48%
for the years ended December 31, 2002, 2001, and 2000, respectively. The
expected stock price volatility for the year ended December 31, 2002, was 50%.
The weighted average fair value of options granted during 2002, 2001, and 2000
was $3.18, $4.43, and $2.66, respectively.

Comprehensive Income

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

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.

Mandatory redeemable convertible stock of 1,500,000 shares (on an as-converted
basis), warrants to purchase 2,548,266 shares, and stock options to purchase
4,625,525 shares were outstanding at December 31, 2002, but were not included in
the calculation of diluted earnings per share, as their effect would be
anti-dilutive.

Recent Accounting Pronouncements

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

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

F-12

FIN 45 are effective for the current fiscal year, and the Company has included
this information in Note 13 to the Company's financial statements. However, the
provisions for initial recognition and measurement are effective on a
prospective basis for guarantees that are issued or modified after December 31,
2002, irrespective of a guarantor's year-end. We reviewed all material
agreements and concluded that all indemnifications are excluded from FIN No. 45
scope of interpretation since they relate primarily to our own future
performance and do not require any contingent payments.

In April 2002, FASB issued SFAS No. 145. This Statement rescinds FASB Statement
No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment
of that Statement, FASB Statement No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB Statement
No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement
amends FASB Statement No. 13, Accounting for Leases, to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement also
amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed
conditions. The adoption of SFAS No. 145 did not have a material effect on the
Company's results of operations, financial position or cash flows.

NOTE 3 - RELATED PARTY TRANSACTIONS:

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-13

NOTE 4 - ACCOUNTS RECEIVABLE

Gross receivables and related deductions at December 31, 2002, 2001 and 2000 are
set forth below:

(in $000's) Year 2002 Year 2001 Year 2000
--------- --------- ---------

Gross accounts receivable $ 9,827 $ 5,112 $ 1,948
Less: Accrued rebates (1,525) (886) (181)
Less: Accrued chargebacks (1,373) (580) (144)
Less: Other deductions (405) (123) (42)
---------- --------- -------
Net accounts receivable $ 6,524 $ 3,523 $ 1,581
---------- --------- --------

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

Chargebacks and Rebates Accruals activity for the years ended December 31, 2002,
2001 and 2000, is set forth below.

CHARGEBACKS ACCRUAL

(in $000's) Year 2002 Year 2001 Year 2000
------- ------- --------

Beginning Balance $ 580 $ 144 $ 552
Add: Provision related to sales made in current period 4,632 1,938 1,838
Less: Credits issued during the current period (3,839) (1,502) (2,246)
------ ------- --------
Ending Balance $ 1,373 $ 580 $ 144
------- ------- --------

REBATES ACCRUAL

(in $000's) Year 2002 Year 2001 Year 2000
------- ------- --------

Beginning Balance $ 886 $ 181 $ 532
Add: Provision related to sales made in current period 4,095 2,052 1,341
Less: Credits issued during the current period (3,456) (1,347) (1,692)
------- ------- --------
Ending Balance $ 1,525 $ 886 $ 181
------- ------- -------

NOTE 5 - INVENTORY

Inventory consists of the following:

December 31,
2002 2001
-------- --------
(in thousands)

Raw Materials......................................................... $ 7,122 $ 2,004
Work-in-Process..................................................... 365 -
Finished goods........................................................ 3,191 1,634
----------- ------------
10,678 3,638
Less: Reserve for obsolete inventory and net realizable value 200 150
----------- ------------
$ 10,478 $ 3,488
=========== ============

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:

F-14

Estimated December 31,
useful life 2002 2001
(years) ---- ----
------------- (in thousands)

Land......................................................... - $ 1,970 $ 1,970
Building and building improvements........................... 15 22,190 9,802
Equipment.................................................... 7 - 10 13,757 8,321
Office furniture and equipment............................... 5 1,161 722
Construction in progress..................................... - 3,869 7,316
--------- --------
42,947 28,131
Less: Accumulated depreciation 5,882 3,797
--------- --------
$ 37,065 $ 24,334
========= ========

Depreciation expense was $2,323,000, $1,940,000, and $1,351,000 for the years
ended December 31, 2002, 2001, and 2000, respectively.

NOTE 7 - INTANGIBLES

Intangibles consist of the following:

Estimated December 31,
useful life 2002 2001
(years) --------- -------
--------- (in thousands)

Product rights and licenses...................... 3 - 8 $ 2,691 $ 2,691
Less: Accumulated amortization 1,928 1,544
--------- --------
$ 763 $ 1,147
========= ========

Amortization expense was $384,000, $388,000, and $4,604,000 for the years ended
December 31, 2002, 2001, and 2000, respectively. Expected amortization for 2003
and 2004 is $384,000 and $379,000, respectively. The existing intangible assets
will be fully amortized by December 31, 2004.

NOTE 8 - ACCRUED EXPENSES AND DEFERRED REVENUES

December 31,
2002 2001
-------- --------
(in thousands)

Sales returns......................................................... $ 3,100 $ 1,900
Accrued salaries and payroll related expenses.................. 984 388
Accrued shelf stock price protection............................ 660 -
Patent infringement and other legal expenses.................. 516 354
Accrued royalty and gross profit sharing expense............... 446 121
Accrued Medicaid rebates......................................... 275 77
Accrued taxes........................................................ 270 153
Accrued professional fees......................................... 331 207
Other accruals........................................................ 644 309
Deferred revenues................................................... 3,633 66
--------- --------
$ 10,859 $ 3,575
======== ========

During the years ended 2002, 2001, and 2000, the Company has received product
returns, for primarily expired product of $1,262,000, $2,840,000, and $707,000,
respectively. Based on its product returns reserve calculation, taking into
account the historical lag time and various management assumptions and reviews,
the Company has increased its reserve for future returns from $1,900,000 at
December 31, 2001 to $3,100,000 at December 31, 2002. Therefore, the total
expense recognized for the years ended December 31, 2002, 2001, and 2000 was
$2,462,000, $4,524,000, and $923,000 respectively.

Reserve for Sales Returns activity for the years ended December 31, 2002 and
2001 is set forth below:

F-15

RESERVE FOR SALES RETURNS

(in $000's) Year 2002 Year 2001
--------- ---------

Beginning Balance $ 1,900 $ 216
Add: Current provision related to sales made in current period 1,633 1,363
Add: Current provision related to sales made in prior periods 829 3,162
Less: Actual returns in current period of sales in current period (4) (444)
Less: Actual returns in current period of sales in prior periods (1,258) (2,397)
-------- ---------
Ending Balance $ 3,100 $ 1,900
-------- ---------

NOTE 9 - 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,
2002 2001
-------- --------
(in thousands)

Net operating losses.........................................................$ 34,100 $ 28,802
Deferred start-up and organization costs...................................... - 847
Research and development credit............................................... 2,764 2,068
Other......................................................................... 4,974 1,683
-------- --------
Total gross deferred tax assets........................................... 41,838 33,400
Deferred tax liability
Tax depreciation and amortization in excess of book depreciation........... (260) (705)
Valuation allowance........................................................... (41,578) (32,695)
-------- --------
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
$0 for the years ended December 31, 2002, 2001, and 2000, 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, 2002, the Company had a net operating loss-carryforward totaling
approximately $85,249,000, which expires from 2009 through 2022. The Company
also had research and development expenditure tax credits totaling approximately
$2,764,000 at December 31, 2002, which begin to expire in 2011. As indicated
above, these losses and credits will have limitations. Of the $85 million,
approximately $60 million will be currently available as of December 31, 2002,
to offset any potential future taxable profits, with the remainder being fully
available by December 31, 2004.

NOTE 10 - NOTES PAYABLE

On October 23, 2002, we signed a three year, $25 million Loan and Security
Agreement with Congress Financial Corporation, comprised of a revolving loan of
up to $20,500,000, and a term loan of up to $4,500,000. The revolving loan is
collateralized by eligible accounts receivable and inventory, subject to
sublimits and other terms, and the term loan is collateralized by machinery and
equipment, with a 60-month amortization. In addition, a $10 million restricted
cash account was established as collateral for this credit facility to be
reduced based on meeting certain profitability targets. The interest rates for
the revolving loans range from prime rate plus 1% to 1.75%, or eurodollar rate
plus 3% to 3.75%, at our option, based on excess availability. The term loan has
an interest rate of prime rate plus 1.5%, or eurodollar rate plus 4%, at our
option. As of December 31, 2002, we borrowed approximately $3,999,000 against
the revolving credit line and $3,098,000 against the term loan. The rate of the
revolving credit line at December 31, 2002 was 5.25% and the rate of the term
loan at December 31, 2002 was 5.75%. The revolving credit facility and the term
loan agreement have a number of quarterly covenants primarily covering minimum
tangible net worth, and either EBITDA or excess availability and annual capital
expenditures limit of $8 million. At December 31, 2002, all the bank loan
covenants were met.

F-16

NOTE 11 - LONG TERM DEBT

December 31,
2002 2001
-------- --------
(in thousands)

2% loan payable to PIDA (No.1) in 180 monthly installments of $6,602
commencing June 1, 1994, through May 1, 2009.............................$ 477 $ 546
3.75% loan payable to PIDA (No. 2) in 180 monthly installments of $5,513
commencing September 1, 1997, through August 1, 2012.................... 536 581
5% loan payable to DRPA in 120 monthly installments of $3,712 commencing
September 1, 1997, through August 1, 2007............................... 185 219
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......................................... 2,422 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 3,248 3,296
Loan payable to Congress Financial in 60 monthly installments of $52,500
commencing December 1, 2002, through November 30, 2007, at prime
interest rate plus 1.5%................................................. 3,098 -
-------- --------
$ 9,966 $ 7,100
-------- --------
Less: Current portion of long-term debt 861 232
-------- --------
$ 9,105 $ 6,868
======== ========

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

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

The 8.17% Cathay Bank loan is collateralized by land, building and building
improvements in the 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.

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

Scheduled maturities of long-term debt as of December 31, 2002, are as follows,
in thousands:

2003............................................... $ 861
2004............................................... 868
2005............................................... 881
2006............................................... 894
2007............................................... 855
Thereafter......................................... 5,607
------
Total $ 9,966
=======

We believe that the fair value of our fixed rate long-term debt and refundable
deposit approximates its carrying value of approximately $31 million at December
31, 2002.

The interest paid during the years ended December 31, 2002, 2001, and 2000 was
approximately $561,000, $224,000, and $339,000, respectively.

NOTE 12 - REFUNDABLE DEPOSIT

In June 2001, we entered into a strategic alliance agreement with a subsidiary
of Teva for twelve controlled-release generic pharmaceutical products. Teva
(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.

F-17

The agreement granted Teva exclusive U.S. marketing rights for six of our
products pending approval at the FDA and six products under development at the
time the agreement was signed. Of the six products under development, three have
been filed with the FDA. Teva elected to commercialize a competing product to
one of the three 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 and revenue generation for our products.
Teva's exclusive marketing right for each product will run for a period of ten
years in each country from the date of Teva's first sale of that product. Unless
either party provides appropriate notice, this ten-year period will
automatically be extended for two additional years.

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

We also agreed to sell to Teva $15.0 million worth of our common stock in four
equal installments, with the last sale occurring on June 15, 2002. Teva
purchased a total of 1,462,083 shares of common stock, or approximately 3% of
the total shares of common stock outstanding at December 31, 2002. The price of
the common stock was equal to the average closing sale price of our common stock
measured over a ten-trading-day period ending two days prior to the date when
Teva 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% (243,583) of these shares for an aggregate
of $1.00.

In addition, in consideration for the potential transfer of the marketing
rights, we received $22.0 million from Teva which assisted in the construction
and improvement of our Hayward, California facilities and the development of the
twelve products specified in our 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. This loan originally had an 8% annual
interest rate. According to the agreement, if IMPAX received tentative or final
approval for any of three products, the accrued interest is forgiven and no
future interest accrues. During 2002, we received tentative approvals for our
Loratadine and Pseudoephedrine Sulfate 5mg/120mg 12-hour Extended Release
Tablets, Loratadine and Pseudoephedrine Sulfate 10mg/240mg 24-hour Extended
Release Tablets, and Omeprazole 40mg Delayed Release Capsules and final
approvals for our Omeprazole 10mg and 20mg Delayed Release Capsules resulting in
the reversal of the accrued interest in the fourth quarter of 2002 and no future
interest will accrue. 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; these milestones, if achieved, will
represent the culmination of a separate earnings process. 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. 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. If we repay all or a portion of the loan in
cash, additional sources of liquidity will be pursued, as discussed in Note 1.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

Leases

Since November 1, 2002, the Company leases approximately 14,400 square feet of
office space at 1502 Crocker Avenue, Hayward, California, through December 31,
2005; the annual rent (including operating expenses) is approximately $135,000.
Rent expense for the years ended December 31, 2002, 2001 and 2000 was $56,000,
$463,000, and $165,000, respectively. The Company recognizes rent expense on a
straight-line basis over the lease period.

F-18

The Company also leases certain equipment under various non-cancelable operating
leases with various expiration dates through 2007. Future minimum lease payments
under the non-cancelable operating leases are as follows (in thousands):

Year Ended
December 31
2003 $ 243
2004 223
2005 211
2006 20
2007 2
------
Total minimum lease payments $ 699
======

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

We currently have no relationships with variable interest entities as defined in
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" as of
December 31, 2002.

Patent Litigation

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

NOTE 14 - MANDATORY 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, 2002 and December 31, 2001, respectively, and are classified as
Mandatory 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.

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

- 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;
- 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;

F-19

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

- 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

- 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.

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

NOTE 15 - 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
770,000 $2.01 to $4.00 per share
23,000 $4.01 to $6.00 per share
---------
2,548,266
=========

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 fair 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. Bear Stearns Small Cap Value exercised its warrants in 2002.

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;
$578,000, $472,000 and $446,000 of the unearned compensation was amortized to
expense during the years ended December 31, 2002, 2001, and 2000,

F-20

respectively. During 2002, the Company granted options to three consultants to
purchase common stock at market price. As a result of the grant, the Company
recorded approximately $86,000 of unearned compensation and expensed
approximately $63,000 during the year ended December 31, 2002. The Company
amortizes unearned compensation over the vesting period of the underlying
option.

NOTE 16 - EMPLOYEE BENEFIT PLANS

401-(K) Defined Contribution Plan

The Company sponsors a 401-(K) defined contribution plan covering all employees.
Contributions made by the Company are determined annually by the Board of
Directors. There were approximately $195,000, $40,000, and $36,000 in matching
contributions under this plan for the year ended December 31, 2002, 2001, and
2000, respectively.

Employee Stock Purchase Plan

In February 2001, the Board of Directors of the Company approved the 2001
Non-Qualified Employee Stock Purchase Plan ("ESPP"). Under this Plan, the
Company registered 500,000 shares of common stock under a Form S-8 Registration
Statement. The purpose of this Plan is to enhance employee interest in the
success and progress of the Company by encouraging employee ownership of common
stock of the Company. The Plan provides the opportunity to purchase the
Company's common stock at a 15% discount to the market price through payroll
deductions or lump-sum cash investments. During 2002, 15,990 shares of common
stock were sold by the Company to its employees under this Plan for net proceeds
of $89,741.

Deferred Compensation Plan

In February 2002, the Board of Directors of the Company approved the Executive
Non-Qualified Deferred Compensation Plan (the "Plan") effective August 15, 2002
covering any executive-level employee of the Company as designated by the Board
of Directors. There were approximately $54,000 in matching contributions under
this plan for the year ended December 31, 2002. The Plan has cash surrender
value of $97,552 and a deferred compensation liability of $104,519 as of
December 31, 2002.

NOTE 17 - 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.
425,738 and 563,010 options were outstanding at December 31, 2002 and 2001,
respectively.

1999 Equity Incentive Plan (Pre-Merger)

In April 1999, the Company adopted the 1999 Equity Incentive Plan (the "1999
Pre-Merger Plan"). The 1999 Pre-Merger Plan reserves for issuance of 1,000,000
shares (pre-recapitalization) of common stock for issuance pursuant to stock
option grants, stock grants and restricted stock purchase agreements. As a
result of the merger, each outstanding and unexercised option to purchase shares
of common stock was converted into new options by multiplying these options by
3.3358. Therefore, at December 31, 1999, 249,300 outstanding and unexercised
options under the 1999 Pre-Merger Plan were converted into 831,615 new options.
765,658 and 801,298 options were outstanding at December 31, 2002 and 2001,
respectively.

F-21

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. 311,800
and 313,800 options were outstanding at December 31, 2002 and 2001,
respectively.

Impax Laboratories, Inc. 1999 Equity Incentive Plan

The Company's 1999 Equity Incentive Plan was adopted by IMPAX's Board of
Directors in December 1999, for the purpose of offering equity-based
compensation incentives to eligible personnel with a view toward promoting the
long-term financial success of the Company and enhancing stockholder value. In
October 2000, the Company's stockholders approved the increase in the aggregate
number of shares of common stock that may be issued pursuant to the Company's
1999 Equity Incentive Plan from 2,400,000 to 5,000,000. 3,069,829 and 1,606,961
options were outstanding at December 31, 2002 and 2001, respectively.

Impax Laboratories, Inc. 2002 Equity Incentive Plan

The 2002 Equity Incentive Plan was adopted by the Company's Stockholders at the
May 6, 2002 Annual Meeting for the purpose of attracting, retaining and
motivating key personnel with a view toward promoting the long-term financial
success of the Company and enhancing stockholder value. The aggregate number of
shares of common stock that may be issued pursuant to the 2002 Equity Incentive
Plan is 4,000,000 shares. At December 31, 2002, 3,947,000 shares were
outstanding.

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:

2002 2001 2000
-------------------------- ------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------- ------------- ----------- ----------- ------------- ------------

Options Outstanding at January 1 3,285,069 $ 3.88 3,187,330 $ 2.56 2,589,622 $ 1.62

Granted 1,679,934 $ 6.56 593,000 $ 9.81 859,501 $ 5.31

Exercised (192,293) $ 1.08 (364,728) $ 1.56 (179,529) $ 1.71

Cancelled (147,185) $ 9.00 (130,533) $ 5.35 (82,264) $ 3.59
----------- ------------- ----------- ----------- ------------- ------------
Options outstanding at December 31 4,625,525 $ 4.85 3,285,069 $ 3.88 3,187,330 $ 2.56
--------- --------- ---------
Options exercisable at December 31 1,754,538 1,195,366 924,322
--------- --------- ---------
Options available for grant at December 31 4,138,789 1,674,538 2,137,036
--------- --------- ---------

The following table summarizes information concerning outstanding and
exercisable options at December 31, 2002:

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

$0.30 -$ 0.75 857,816 5.61 $ 0.75 707,840 $ 0.75
$0.82 -$ 2.06 357,080 6.08 $ 0.90 273,685 $ 0.92
$2.19 -$ 5.63 1,618,995 7.92 $ 4.79 706,896 $ 4.10
$6.50 -$ 11.95 1,791,634 9.03 $ 7.83 66,117 $ 9.42
-------------------- -------------- ------------------- ------------- -------------- ---------------
$0.30 -$ 11.95 4,625,525 7.69 $ 4.85 1,754,538 $ 2.46
==================== ============== =================== ============= ============== ===============

F-22

NOTE 18 - RESTRUCTURING CHARGES

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 following
amounts were written-off as restructuring charges and unusual items in August
2000:

- Intangibles: $2,037,000. As a result of a decision to discontinue
nineteen products, the assets associated with these products were
assessed (on a held for disposal basis) for impairment in accordance
with SFAS 121. As there were no future cash flows and no anticipated
buyers, the write-off represents the net book value of the intangibles
associated with the products discontinued. None of these intangibles
were sold. Two of the previously discontinued products were
re-introduced approximately twelve months later. Intangibles associated
with these two products had a net book value of $0 at the date they
were discontinued and, accordingly, were not part of the $2,037,000
intangibles write-off in August 2000.

- Inventory: $957,000. This represents the book value of inventory for
the products discontinued; this inventory was destroyed in 2000.

- Equipment: $652,000. This represents the difference between the net
book value and the market value to be obtained by selling such
equipment in the used equipment market. Substantially all the equipment
has been disposed of as of December 31, 2002.

NOTE 19 - SUBSEQUENT EVENTS

On January 30, 2003, IMPAX was granted by the FDA final approval to the
Company's ANDA for a generic version of Rilutek (Riluzole 50mg) tablets. Aventis
markets Rilutek for the treatment of amyotrophic lateral sclerosis (ALS), also
known as Lou Gehrig's disease.

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

On February 24, 2003, IMPAX announced that Merck & Co. Inc. has filed a lawsuit
against the Company in the federal district court in Delaware alleging patent
infringement related to IMPAX's filing of an Abbreviated New Drug Application
(ANDA) for a generic version of Sinemet CR tablets. Sinemet CR is used to treat
patients with Parkinsonism, and is exclusively distributed in the U.S. by
Bristol-Myers Squibb Company. U.S. sales of Sinemet CR and the currently
marketed generic equivalent were approximately $154 million in the 12 months
ended December 31, 2002, according to IMS Health data. The FDA accepted for
review IMPAX's application to market a generic version of Merck's Sinemet CR in
December 2002. IMPAX's submission includes a Paragraph IV certification stating
the Company believes its product does not infringe upon Merck's listed Sinemet
CR patents.

On March 26, 2003, the United States District Court in Chicago, Illinois ruled
that our ANDA submission for a bioequivalent version of Tricor Capsules does not
infringe Abbott's patent.

NOTE 20 - SUPPLEMENTARY QUARTERLY DATA (UNAUDITED)

The following is the summary of the unaudited quarterly results of operations
for the fiscal years 2002, 2001 and 2000:

(dollars in thousands except Year 2002
share and per share data) For The Quarter Ended
---------------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------- ---------- -------------- -------------

Gross Sales:
Active Products 5,901 7,693 9,123 11,676
New NDC Lipram 753 1,065 1,524 665
Other Revenues - - 255 502
------------- ---------- -------------- -------------
Total 6,654 8,758 10,902 12,843

F-23

Less:
Rebates ( 905) ( 1,113) ( 982) ( 1,295)
Chargebacks ( 870) ( 866) ( 1,327) ( 1,769)
Returns/1/ ( 593) ( 902) ( 442) ( 544)
Other credits ( 854) ( 732) ( 613) ( 835)
------------- ---------- -------------- -------------
Net Sales 3,432 5,145 7,538 8,400
Gross margin (loss) 293 1,163 2,385 2,182
------------- ---------- -------------- -------------
Net loss $ (5,421) $ (5,938) $ (5,210) $ (3,471)

Net loss per share
(basic and diluted) $ (0.12) $ (0.13) $ (0.11) $ (0.07)

Weighted Average
Common Shares
Outstanding 46,812,977 47,306,741 47,778,512 47,867,379

/1/ It includes additional reserve amounts.

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

Gross Sales:
Active products 2,737 2,275 3,731 4,171
New NDC Lipram 520 616 717 1,352
------------- ---------- -------------- -------------
Total 3,257 2,891 4,448 5,523
Less:
Rebates (459) (268) (531) (794)
Chargebacks (316) (282) (506) (834)
Returns/1/ (448) (1,058) (1,337) ( 1,682)
Other credits (262) ( 147) ( 416) ( 188)
------------- ---------- -------------- -------------
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

/1/ It includes additional reserve amounts.

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

Gross Sales:
Active products 2,008 2,013 2,065 1,837
New NDC Lipram - - 311 664
Discontinued products/1/ 1,580 1,934 1,463 -
SAB 101 Adjustment 667 - - -
------------- ---------- -------------- -------------
Total 4,255 3,947 3,839 2,501
Less:
Rebates (325) (239) (177) (405)
Chargebacks (480) (468) (436) (276)
Returns/2/ (137) ( 90) ( 172) ( 464)
Other credits (128) ( 242) ( 277) ( 56)
------------- ---------- -------------- -------------

F-24

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)
6
Weighted Average
Common Shares
Outstanding 24,808,129 24,900,197 25,094,236 29,544,225

/1/ There were no discontinued products sold after August 2000.
/2/ Includes additional reserve amounts.

F-25

IMPAX LABORATORIES, INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(in thousands of dollars)

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

Inventory reserves:
Year ended December 31, 2002 $ 150 $ 198 $ 148 $ 200
Year ended December 31, 2001 $ 430 $ 69 $ 349 $ 150
Year ended December 31, 2000 $ 90 $ 412 $ 72 $ 430

Deferred tax valuation allowance:
Year ended December 31, 2002 $ 32,695 $ 8,883 $ - $ 41,758
Year ended December 31, 2001 $ 24,191 $ 8,504 $ - $ 32,695
Year ended December 31, 2000 $ 18,701 $ 5,490 $ - $ 24,191

S-1