BLANK ROME LLP MICHAEL JOSEPH (Pro Hac Vice JOSEPH …securities.stanford.edu/filings-documents/1032/...2 Blank Rome LLP Watergate, 600 New Hampshire Av enue, NW, Washington, DC, 20037

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BLANK ROME LLP MICHAEL JOSEPH (Pro Hac Vice) JOSEPH O. CLICK (Pro Hac Vice) KERRY BRAINARD (Pro Hac Vice) 600 New Hampshire Avenue, N.W. Washington, D.C. 20037 Phone: 202-772-5800 Facsimile: 202-772-5858 BINGHAM MCCUTCHEN LLP DALE E. BARNES (SBN 99273) Three Embarcadero Center San Francisco, CA 94111-4067 Telephone: (415) 393-2000 Facsimile: (415) 393 2286 Attorneys for Defendants

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

In re IMPAX LABORATORIES, INC. SECURITIES LITIGATION

This Document Relates To: ALL ACTIONS.

) ) ) ) ) ) ) )

Master File No. C-04-4802-JW CLASS ACTION DEFENDANTS’ REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS THE FIRST AMENDED CONSOLIDATED CLASS ACTION COMPLAINT Date: October 31, 2005 Time: 9:00 a.m. Place: Courtroom 8, 4th Floor Judge: Hon. James Ware

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Defendants Impax Laboratories, Inc., Barry Edwards, Charles Hsiao, Larry Hsu, Cornel

Spiegler, David Doll and David Edwards respectfully request that the Court take judicial notice

of each of the following documents pursuant to Federal Rule of Evidence 201 (“Rule 201”):

DOCUMENTS FILED WITH THE SEC:

1. The Strategic Alliance Agreement between Teva Pharmaceuticals Curacao N.V. and

Impax Laboratories, Inc. (“Impax”) dated June 27, 2001 included as Exhibit 10.55 to the

Form 10-QSB for the quarterly period ending June 30, 2001, filed with the Securities and

Exchange Commission (“SEC”) on July 31, 2001. A true and correct copy of this

document is attached hereto as Exhibit A.

2. Impax’s Form 10-Q for the quarter ending March 31, 2004, filed with the SEC on May

10, 2004. A true and correct copy of this document is attached hereto as Exhibit B.

3. Impax’s Form 10-Q for the quarter ending June 30, 2004, filed with the SEC on August

9, 2004. A true and correct copy of this document is attached hereto as Exhibit C.

4. Impax’s Amended Form 10-Q for the quarter ending March 31, 2004, filed with the SEC

on November 16, 2004. A true and correct copy of this document is attached hereto as

Exhibit D.

5. Impax’s Amended Form 10-Q for the quarter ending June 30, 2004, filed with the SEC

on November 17, 2004. A true and correct copy of this document is attached hereto as

Exhibit E.

6. Impax’s Form 10-Q for the quarter ending September 30, 2004, filed with the SEC on

November 16, 2004. A true and correct copy of this document is attached hereto as

Exhibit F.

7. Cornel Spieger’s Amended Form 4 for the period ending June 7, 2004, filed with the SEC

on June 18, 2004. A true and correct copy of this document is attached hereto as Exhibit

G.

8. Charles Hsiao’s Amended Schedule 13D filed with the SEC on June 15, 2004. A true

and correct copy of this document is attached hereto as Exhibit H.

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9. Larry Hsu’s Amended Schedule 13D filed with the SEC on June 15, 2004. A true and

correct copy of this document is attached hereto as Exhibit I.

10. David J. Edwards’ Form 4 for the period ending May 12, 2004 filed with the SEC on

May 14, 2004. A true and correct copy of this document is attached hereto as Exhibit J.

11. David S. Doll’s Amended Form 4 for the period ending June 7, 2004 filed with the SEC

on June 17, 2004. A true and correct copy of this document is attached hereto as Exhibit

K.

12. Barry R. Edwards’ Amended Form 4 for the period ending June 7, 2004 filed with the

SEC on June 17, 2004. A true and correct copy of this document is attached hereto as

Exhibit L.

13. Impax’s Press Release Form 8-K filed with the SEC on June 27, 2005, without exhibits.

A true and correct copy of this document is attached hereto as Exhibit M.

14. Andrx Corporation’s Form 10-Q for the quarter ending September 30, 2004, filed with

the SEC on November 3, 2004. A true and correct copy of this document is attached

hereto as Exhibit N.

HISTORICAL STOCK PRICE

15. The historical quote of the stock price for Impax for the period of May 5, 2004 and

December 1, 2004. A true and correct copy of this document is attached hereto as

Exhibit O.

RELATED PLEADINGS IN THIS MATTER

16. The First Amended Consolidated Complaint for violations of the securities laws, In re

Impax Laboratories, Inc. Sec. Litig., Master File No. C-04-4802-JW, filed with the Court

on September 9, 2005. A true and correct copy of this document is attached hereto as

Exhibit P.

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PRESS RELEASES REFERRED TO IN THE COMPLAINT

17. Impax Press Release dated November 3, 2004. A true and correct copy of this document

is attached hereto as Exhibit Q.

18. Impax Press Release dated November 9, 2004. A true and correct copy of this document

is attached hereto as Exhibit R.

19. Impax Press Release dated August 3, 2005, attached to Impax’s Form 8-K filed with the

SEC on August 3, 2005. A true and correct copy of this document is attached hereto as

Exhibit S.

20. Andrx Corporation Press Release dated November 3, 2004, attached to Andrx’s Form 8-

K filed with the SEC on November 3, 2004. A true and correct copy is attached hereto as

Exhibit T.

21. Eon Labs’s Press Release dated January 14, 2004. A true and correct copy of this

document is attached hereto as Exhibit U.

22. Eon Labs’s Press Release dated January 15, 2004. A true and correct copy of this

document is attached hereto as Exhibit V.

23. Eon Labs’s Press Release dated February 4, 200. A true and correct copy of this

document is attached hereto as Exhibit W.

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DISCUSSION

These documents are proper subjects of judicial notice. The Court may take judicial

notice of and consider on a motion to dismiss documents filed with the SEC. See Janas v.

McCracken (In re Silicon Graphics Sec. Litig.), 183 F.3d 970, 983 (9th Cir. 1999); In re Nuko

Info. Sys. Sec. Litig., 199 F.R.D. 338, 341 (N.D. Cal. 2000). The above-referenced disclosure

statements, attached hereto as Exhibits A through N, constitute “relevant public disclosure

documents filed with the Securities Exchange Commission[.]” Ronconi v. Larkin, No. C-97-

1319, 1998 U.S. Dist. LEXIS 6364, *2 (N.D.Cal. May 1, 1998). Because it would be “highly

impractical and inconsistent with Fed. R. Evid. 201 to preclude a district court from considering

such documents when faced with a motion to dismiss a securities action based on allegations of

material misrepresentations or omissions,” this Court may take judicial notice of the SEC Forms

8-K, 10-QSB, 10-Q, 10-Q/A, 13D and 4 for purposes of this motion. Lovelace v. Software

Spectrum, Inc., 78 F.3d 1015, 1018 n.1 (5th Cir. 1996) (citation omitted); accord Fla. State Bd.

of Admin. v. Green Tree Fin. Corp., 270 F.3d 645, 663 (8th Cir. 2001).

The Court may also consider “the full text of documents cited by the plaintiffs” in the

Consolidated Complaint. Ronconi, 1998 U.S. Dist. LEXIS 6364, at *2; Silicon Graphics, 183

F.3d at 986. Thus, the Court may take judicial notice of the full text of the Form 8-Ks and press

releases referenced or quoted in the Complaint. In re Gilead Sciences Sec. Litig., 2005 WL

181885 at *3 (N.D. Cal. Jan. 26 2005); Wiestschner v. Monterey Pasta Co., 294 F. Supp. 2d,

1102, 1108-09 (N.D. Cal. 2003). In addition, the Court may take judicial notice of stock prices

in ruling on a motion to dismiss. In re 3Com Sec. Litig., 199 WL 1039715 at *4 (N.D. Cal. July

8, 1999); Ravens v. Iftikar, 174 F.R.D. 651, 661 (N.D. Cal. 1997) (noting that the Court may, on

its own motion, take judicial notice of historical stock prices).

Although virtually all of the documents referred to in the Memorandum of Points &

Authorities in Support of Defendants’ Motion to Dismiss are quoted or cited in the Complaint,

documents upon which the Complaint is based can be considered irrespective of whether

plaintiff has chosen to cite or quote from them. In re Metricom Secs. Litig., 2004 U.S. Dist.

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LEXIS 7834, *23-*24 (N.D. Cal. May 4, 2004);Wietschner, 294 F. Supp. 2d at 1109; see also In

re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (“Plaintiffs cannot

prevent a court from looking at the text[] of the documents on which its claim is based by failing

to attach or explicitly cite to them.”); see also Parrino v. FHP, Inc., 146 F.3d 699, 705-06 (9th

Cir. 1998).

Therefore, the Court may take judicial notice of the historical stock price for Impax

attached hereto as Exhibit O, the documents relied on to determine the amount of stock and

options held by the defendants attached hereto as Exhibits G-L, as well as the press releases that

the plaintiffs cited or relied upon in the Complaint, attached hereto as Exhibits Q-W.

For the foregoing reasons, Defendants respectfully request that the Court take judicial

notice of each of the documents listed above.

Respectfully submitted,

Dated: October 7, 2005 BLANK ROME LLP BINGHAM MCCUTCHEN LLP __/s/ Michael Joseph___________________ MICHAEL JOSEPH (pro hac vice) Attorneys for Defendants

EXHIBIT A

STRATEGIC ALLIANCE AGREEMENT

between

TEVA PHARMACEUTICALS CURACAO N .V .World Trade Center Curacao , Unit T.M .I . 14 ,Piscadera Bay Curacao, Netherlands Antilles

("Teva" )

and

IMPAX LABORATORIES, INC .a corporation organized under the laws of Delaware,

30831 Huntwood Avenue, Hayward, CA 94544 ;("Impax" )

WHEREAS, Impax is engaged in the development, manufacture, sale, marketing anddistribution of pharmaceutical products and has in various stages of developmentthe pharmaceutical products listed in Annex A hereto (collectively the"Products" as defined further below) ;

WHEREAS, Teva together with its Affiliates (as defined below) is engaged in thedevelopment, manufacture, sale, marketing and distribution of pharmaceuticalproducts ;

WHEREAS, Teva and Impax desire to cooperate in co leting the development of theProducts and to register, manufacture, market, sel and distribute the Productsin the United States and, at Teva's option, Canada Israel, Mexico, the EuropeanUnion, Central America and South America (collects ely, as defined furthe r

below, the "Territory"), all in accordance with th terms and subject to theconditions set forth in this Agreement ; and

WHEREAS, in connection with the above-referenced cooperative effort and inaccordance with the terms and subject to the conditions set forth below, (a)Impax, with the financial support of Teva provided for herein, shall develop,manufacture, and package the Products and seek regulatory approval of theProducts for the United States, and (b) Teva, with the technical support ofImpax provided for herein, shall market, sell and distribute the Products in theTerritory and, to the extent applicable, manufactu a and/or seek regulatoryapproval of the Products for the Optional Territory (as defined below) .

NOW THEREFORE, intending to be legally bound hereby and in consideration of themutual representations, warranties and covenants set forth herein and other goodand valuable consideration, the receipt and sufficiency of which are herebyacknowledged, IT IS HEREBY AGREED BY THE PARTIES A FOLLOWS :

INTERPRETATION AND DEFINITIONS

1 .1 The preamble to this Agreement forms an integral part hereof .

1 .2 Sections headings in this Agreement are intended solely forconvenience of reference and shall be given no effect in theinterpretation of this Agreement .

1 .3 All annexes to this Agreement, signed by both Parties, whetherattached at the time of signature hereof or at any timethereafter, shall be construed as an integral part of thisAgreement .

1 .4 For the purposes of this Agreement, the following words andphrases shall bear the respective meanings assigned to thembelow (and cognate expressions shall bear correspondingmeanings) :

1 .4 .1 "Affiliates" - shall mean with respect to anyParty, any Person that is controlled by, controls,or is under common control with that Party . Forthis purpose, "control" of a corporation or otherbusiness entity shall mean direct or indirectbeneficial ownership of more than fifty percent(504) of the voting interest in, or more than fiftypercent (50%) in the equity of, or the right toappoint more than fifty percent (50%) of thedirectors or management of such corporation orother business entity .

1 .4 .2 "ANDA" - shall mean an Abbreviated New DrugApplication filed with the FDA pursuant to itsrules and regulations .

1 .4 .3 "Applicable Law" - shall mean the applicable laws,rules, regulations, guidelines and requirementsrelated to the development, registration,manufacture, importation, Marketing, sale anddistribution of the Products in the Territory .

1 .4 .4 "Approval(s)" - shall mean any and all approvals,licenses, registrations or authorizations of theapplicable Regulatory Authority necessary for theMarketing of the Products and reimbursement, ifapplicable, in the relevant country of theTerritory .

1 .4 .5 "API" - shall mean the bulk unformulated drugsubstances used in the manufacture of each of theProducts .

1 .4 .6 "Calendar Quarter" - shall mean a three (3)consecutive month period ending on March 31, June30, September 30 or December 31 .

1 .4 .7 "Canada" - shall mean Canada and its territories ,districts and possessions .

1 .4 .8 "cGMP" - shall mean current good manufacturingpractices as required by the rules and regulation sof the FDA or such similar requirements of non-U.S .Regulatory Authorities, as applicable to th emanufacture, packaging, handling, storage andcontrol of the Products in the Territory .

1 .4 .9 "Competing Product" - shall mean on aProduct-by-Product basis any finishe dpharmaceutical product for sale in the prescriptio ndrug marketplace that contains the same activ eingredients in the same dosage form and strength a sthe subject Product .

1 .4 .10 "Confidential Information" - shall mean al linformation, data and/or know-how disclosed b yeither Party to the other Party in writing (or i fdisclosed orally, visually and/or in anothe rnon-written form, identified as confidential at th etime of disclosure, and summarized in reasonabl edetail in writing as to its general content withi nthirty (30) days after original disclosure )concerning the Products or concerning th etechnology, marketing strategies or business of th edisclosing Party (whether disclosed prior to o rsubsequent to the Effective Date) . Confidentia lInformation shall not include information, data o rknow-how that the receiving Party can show :

(a) was in the public domain at the time of th edisclosure by the disclosing Party, o rthereafter becomes part of the public domai nwithout any fault of the receiving Party ;

(b) rightfully was in its possession prior t othe disclosure by the disclosing Party ;

(c) was lawfully obtained from a third party ,who had the right to make such disclosure sas evidenced by written records ; or

(d) was developed by it independently of suchdisclosure as evidenced by written records .

1 .4 .11 "Cost of Materials" - shall mean on aProduct-by-Product basis the actual direct cost fo rinactive and active materials required for th emanufacture of the particular Product (which fo rpurposes of clarity shall not include handling,inspection or any other indirect charges) .

1 .4 .12 "Designated Share Price" - shall mean, with respectto the applicable Teva investment or stock paymentto Teva pursuant to Section 10, the average closingsale price for the Impax Common Stock measured overthe ten (10) trading days ending two (2) days priorto the date on which the Impax Common Stock i sacquired by Teva or its Affiliate .

1 .4 .13 "Effective Date" - shall mean the date on whic hthis Agreement is signed by the latter of th eParties to sign this Agreement .

1 .4 .14 "EU" - shall mean those countries set forth inAnnex F .

1 .4 .15 "FDA" - shall mean the United States Food and DrugAdministration and all agencies under its direc tcontrol or any successor organization .

1 .4 .16 "First to File Exclusivity" - shall mean, to theextent applicable, up to six (6) months o fmarketing exclusivity in the U .S . from the FDAunder and pursuant to 21 U .S .C . Section355(j)(5)(B)(iv) of the Federal Food, Drug an dCosmetic Act, as amended .

1 .4 .17 "Force Majeure Events" - shall have the meaning set

forth in Section 25 .1 .

1 .4 .18 "Impax Common Stock" - shall mean Impax commonstock, $0 .01 par value .

1 .4 .19 "IMS Data" - shall mean total prescription dat afrom IMS Health National Prescription Audit Plu s(TM), Complete Package - (retail, mail order, LTC ,prescriber specialty report) .

1 .4 .20 "Impax Margin" - shall mean on a Product-by-Produc tbasis for each country in the Territory, an amoun tequal to + percent (+%) of the Profit ; provided ,however, for the Tier 2 Products in the U .S . suchamount shall be equal to + percent (+%) of theProfit .

1 .4 .21 "Intellectual Rights Legal Expenses" - shall mea nall fees, out of pockets costs and expense s(including, without limitation, all attorneys fee sand settlement costs), third party damages ,verdicts and/or awards incurred by either Part yand/or their respective Affiliates in connectio nwith the defense and/or arising out of a judgmen tor settlement of an Intellectual Rights Suit .

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+ Confidential portions omitted and filed separately with the Commission .

1 .4 .22 "Intellectual Rights Suit" - shall mean anylitigation instituted by a third party relating toa claim or claims of infringement of patents orother intellectual property rights against Tevaand/or an Affiliate of Teva and/or their respectivedirectors and/or officers and/or employees and/orconsultants, and/or against Impax or an Affiliateof Impax and/or their respective directors and/orofficers and/or employees and/or consultants duringor prior to the Term, related to or arising fromthe filing of Regulatory Documentation for anyProduct( s) and/or the manufacturing, Marketing, useor offer for sale of any Product(s) . AnIntellectual Rights Suit shall also include adeclaratory judgment action as referenced inSection 17 .

1 .4 .23 "Launch Date" - shall mean on a Product-by-Productbasis the date on which Teva makes its firstcommercial sale of a particular Product to anunrelated third party in an arms-length transactionin a particular country in the Territory, and Impaxhas supplied to Teva full launch quantities of suchProduct for such country pursuant to Teva'sforecast .

1 .4 .24 "Manufacturing Costs" - shall mean on aProduct-by-Product basis, the total of all actualdirect manufacturing (including packaging material)costs allocable to the manufacture of theparticular Products for each country in theTerritory, as determined in accordance with U .S .QAAP, not to exceed, however, (i) for each Tier 1Product, the amounts set forth in Annex B, plus theCost of Materials ; and (ii) for each Tier 2 Productand Tier 3 Product, the amounts to be agreed uponby the Parties and added to Annex B promptlyfollowing the filing of each ANDA for each Tier 2Product and Tier 3 Product, plus the Cost ofMaterials .

1 .4 .25 "Market" - shall mean to promote, distribute,market, advertise and/or sell .

1 .4 .26 "Net Sales" - shall mean, on a Product-by-Productbasis, the gross amount invoiced for each of theProducts sold by Teva or Teva's Affiliates on anarms-length basis in each country in the Territory,less the sum of : (a) trade, quantity and/or cashdiscounts, allowances, rebates, retroactive priceadjustments, free goods, bad debts, cash incentivepayments (e .g . slotting allowance), andchargebacks ; (b) credits or refunds for rejected,outdated or returned Product ; (c) any tax, duty orother government charge upon or related to thesale, delivery or use of that Product ; (d) cost ofshort dated Product, which is destroyed by Teva orits Affiliates ; (e) three percent (3t) as acontribution towards selling, administrative andother similar expenses of Teva ; and (f) otherspecifically identifiable amounts included in theProduct's gross sales that will have been orultimately will be credited and are substantiallysimilar to those listed above ; in each casedetermined in accordance with U.S . GAAP .

1 .4 .27 "Optional Products" - shall have the meaning setforth in Section 4 .1 .

1 .4 .28 "Optional Territory" - shall mean Canada, Israel ,Mexico and each of the countries in the EU, Centra lAmerica and South America .

1 .4 .29 "OTC Product(s)" - shall mean the finishedpharmaceutical products listed in Annex A for thenon-prescription drug marketplace .

1 .4 .30 "Party", "Parties" - shall mean Teva and/or Impax ,as applicable .

1 .4 .31 "Person" - shall mean any individual, partnership ,association, corporation, limited liabilit ycompany, trust, or other legal person or entity .

1 .4 .32 "Product(s)" - shall mean the finishe dpharmaceutical products listed in Annex A for theprescription drug marketplace developed by or forImpax or any of its Affiliates, including the fiv e(5) Tier 1 Products ("Tier 1 Products"), the thre e

(3) Tier 2 Products ("Tier 2 Products") the three(3) additional Products to be agreed upon by th eParties ("Tier 3 Products"), and subject to Section4 hereof the Optional Products listed in Annex G .

1 .4 .33 "Profit" - shall mean, with respect to each

Product, calculated separately for each country i nthe Territory, an amount equal to Net Sales les sthe applicable Manufacturing Costs .

1 .4 .34 "Regulatory Authority" - shall mean any and al lgovernmental bodies, organizations and agencie swhose approval is necessary to develop ,manufacture, import, use, and/or Market th eProducts in the relevant country of the Territory .

1 .4 .35 "Regulatory Documentation" - shall mean al lsubmissions to Regulatory Authorities, includin gclinical studies, tests, and biostudies relating tothe Products, including, without limitation, al lANDAs, 505(b)(2) applications, and DMFs, as well a sall correspondence with Regulatory Authoritie s(registration and licenses, regulatory drug lists ,advertising and promotion documents), adverse even tfiles, complaint files, manufacturing records andinspection reports .

1 .4 .36 "Regulatory Expenses " - shall mean all costs andexpenses in connection with preparing, submitting,obtaining and maintaining Approvals of the subjectProducts .

1 .4 .37 "Revised Impax Margin" - shall mean, on aProduct-by-Product basis, an amount equal to theproduct obtained by multiplying (a) a fraction, thenumerator of which is the subject Product sales inthe subject country in the Territory by Teva andits Affiliates, based upon the IMS Data for thethree (3) month period immediately preceding theTransaction Event, and the denominator of which isthe sum of the numerator plus the applicableCompeting Product sales in the subject country inthe Territory based upon the IMS Data for the three(3) month period immediately preceding theTransaction Event, by (b) the Impax Margin ;provided, however, that if such three (3) monthsales data is not available for either the Productor the Competing Product, then the Revised ImpaxMargin shall be deemed to be + percent (+%) of theProfit unless and until the Parties otherwise agreein good faith, taking into account the principlesunderlying the above formula and the relativecommercial potential of each such Product andCompeting Product . For the purposes of calculatingthe Revised Impax Margin, Net Sales, ManufacturingCosts, and Profit for a Competing Product, shall becalculated in the same manner as Net Sales,Manufacturing Costs, and Profit are calculated fora Product hereunder .

1 .4 .38 "Specifications" - shall mean, for a particularProduct, the agreed specifications, methods andprocesses of the Product as contained in theapplicable Approval for that Product .

1 .4 .39 "Supply Term" - shall mean, on a Product-by-Productbasis for each country in the Territory, an initialperiod of ten (10) years from the Launch Date ofthat Product in the particular country in theTerritory and any extension periods pursuant toSection 21 .1, unless terminated prior to such dateas expressly provided for in this Agreement .

1 .4 .40 "Term" - shall mean the duration of this Agreementstarting on the Effective Date and continuing untilthe end of the last to expire of the Supply Terms,unless terminated prior to such date pursuant toSection 21 .


1 .4 .41 "Territory" - shall mean the U .S . and, subject toSection 3, the Optional Territory .

1 .4 .42 "Transaction Event" - shall mean any merger,acquisition, business combination or transaction ofany kind pursuant to which Teva or any of itsAffiliates acquires or obtains the right to MarketCompeting Products in any countries in theTerritory .

1 .4 .43 "U .S ." - shall mean the United States of Americaand its territories, districts and possessions .

1 .4 .44 "U.S . GAAP' - shall mean generally accepte daccounting principles in the U .S ., consistentlyapplied .

GRANT OF RIGHTS

2 .1 Impax, for itself and its Affiliates, grants to Teva and itsAffiliates in accordance with the terms and conditions of thisAgreement, the exclusive right (even as to Impax and itsAffiliates), under applicable Approvals and all other existingor future rights owned or controlled by Impax or itsAffiliates, to Market the Products in the Territory throughoutthe respective Supply Terms . The effective date of such grantfor (a) each of the Tier 1 Products for the U .S . shall be thedate that the Loan is reduced by the Milestone Amountcorresponding to the Launch Date Milestone Event for suchProduct as set forth in Annex C or Annex D, as applicable, orthe date the Loan is reduced by fifty percent (50t) of suchMilestone Amount pursuant to Section 10 .1 (b), as applicable,and (b) for the Tier 2 Products and Tier 3 Products,collectively, for the U .S ., on the first Launch Date of anyTier 2 Product or Tier 3 Product in the U .S . and (c) for theProducts for the Optional Territory as provided in Section3 .1 . Teva accepts the grant of such exclusive Marketing rightsfrom Impax .

2 .2 Except as otherwise expressly provided in this Agreement andsubject to the provisions of Section 8, Impax and itsAffiliates shall, during the period from the Effective Date tothe expiration of the Supply Term for each of the Products ,(a) manufacture and supply to Teva and its Affiliates all oftheir requirements for the Products in the Territory, and (b)supply the Products for the Territory exclusively and only toTeva and Teva's Affiliates in accordance with the terms ofthis Agreement .

2 .3 Teva and its Affiliates shall, during the period from theEffective Date to the expiration of the Supply Term for eachof the Products, obtain all quantities of the Products itrequires for Marketing the Products in the Territory fromImpax, except as otherwise specifically permitted by the termsof this Agreement .

2 .4 Neither Impax nor its Affiliates shall, directly orindirectly, during the period from the Effective Date to theexpiration of the Supply Term for each of the Products, Marketsuch Product or cause or permit such Product to be Marketed inor for the subject countries in the Territory, except asotherwise specifically permitted by the terms of thisAgreement .

2 .5 Neither Impax nor its Affiliates shall, directly orindirectly, during the period from the Effective Date to theexpiration of the Supply Term for each of the Products,register, develop, manufacture, supply or market any competingProduct to such Product for any countries in the Territory,except as otherwise may be specifically permitted by the termsof this Agreement .

2 .6 Neither Teva nor its Affiliates shall, directly or indirectly,during the Supply Term for each of the Products, Market anyCompeting Product to such Product in the subject countries ofthe Territory in which the applicable Product is Marketed byTeva and/or its Affiliates hereunder, except as otherwise maybe specifically permitted by the terms of this Agreement .

2 .7 Teva shall within thirty (30) days of the completion of aTransaction Event provide Impax with written notice of same (a"Transaction Event Notice") . Notwithstanding the provisions ofSection 2 .6, Teva shall have one (1) year from the date ofsuch Transaction Event to determine, in its sole discretion,whether or not Teva or any of its Affiliates wish to Market inany countries in the Territory the Competing Product and if sowith or without the subject Product . From and after the dateof written notice to Impax communicating such decision, Tevashall pay Impax the Revised Impax Margin rather than the ImpaxMargin with respect to the sale of such Competing Productand/or Product in the subject countries in the Territory ;provided, however, if final Approval for the subject Producthas not been obtained in the given country then neither theImpax Margin nor the Revised Impax Margin shall be payable toImpax, and provided further that if the final Approval for thesubject Product has been obtained in the given country andfinal Approval for the Competing Product has not beenobtained, then the Impax Margin (and not the Revised ImpaxMargin) shall continue to be paid until such Approval for theCompeting Product has been obtained .

2 .8 In the event Teva or its Affiliate decides to Market in thesubject countries in the Territory only the Competing Productpursuant to Section 2 .7, then the grant hereunder to Tevapursuant to section 2 .1 to Market such applicable Product forthe subject countries of the Territory shall terminate andimmediately revert back to Impax . Teva and Impax shall withinthirty (30) days of Teva's decision to Market only theCompeting Product make a good faith determination of thefinancial consideration payable to Teva for such reversiongiving due regard to the financial contributions made by Tevahereunder (including, without limitation, the Loan hereunderand forgiveness of portions thereof) . If the Parties areunable to agree upon such consideration and terms of paymentwithin such thirty (30) days the dispute shall be resolved byarbitration pursuant to Section 32 .

2 .9 In the event Teva or its Affiliate decides to Market in theU.S . only the Competing Product of an applicable Tier 1Product pursuant to Section 2 .7, then, for purposes ofdetermining whether or not the relevant milestone events forsuch Tier 1 Product have been met (assuming such milestoneevents have not already been met on or before the date of theTransaction Event), the respective Loan amount for suchmilestones will be forgiven if Impax has achieved finalApproval (instead of meeting the Launch Date for suchmilestone) in the U .S . for the subject Tier 1 Product no laterthan the dates set forth in Annex C or Annex D, as applicable,for the given Launch Date .

2 .10 In the event Teva or its Affiliate decides to Market both theCompeting Product and the applicable Product pursuant toSection 2 .7, Impax shall not be obligated to fill any purchaseorder for such Product for the subject countries of theTerritory in excess of one hundred and thirty percent (1301)of the amount last forecasted for the Calendar Quarterimmediately preceding the date Teva or its Affiliatescommences Marketing the Competing Product in such countries .

2 .11 Except as may otherwise be provided for under the provisionsof this Agreement, Teva shall use its commercially reasonablebest efforts to Market the Products in and for the Territoryin order to maximize Profits .

2 .12 Impax and its Affiliates shall not, directly or indirectly,during the Term disclose to any third party any data , know-howor information used or useful to develop, register ormanufacture the Products , if such third party may or has theability to use such data, know-how or information to directlyor indirectly Market a Competing Product in or for theTerritory .

2 .13 Impax shall provide to Teva within thirty ( 30) days of theEffective Date and , thereafter , as soon as available, alltechnical information , data and know -how in Impax ' s possessionor under its control with respect to the Products useful ornecessary for Teva or its nominee to set up a facility for thecommercial manufacture of the Products ( the "Technical

Package ") in accordance with and subject to the provisions ofthis Agreement . Teva shall maintain the Technical Packagesubject to the confidentiality restrictions set forth inSection 20 .

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2 .14 Teva and Impax, through the Working Committee referenced inSection 6, below, shall in good faith negotiate and agree uponthe Tier 3 Products within ninety (90) days of the EffectiveDate or such longer period of time as may be necessary and asmutually agreed upon by the Parties (the "Tier 3 Period") .During the Tier 3 Period or until three (3) Tier 3 Productshave been agreed upon whichever shall first occur, neitherImpax nor any of its Affiliates shall directly or indirectlygrant to any third party the right to Market any product inthe Territory without first disclosing that product to Tevaand if Teva so desires, then the Parties shall designate thatproduct as a Tier 3 Product subject to the terms of thisAgreement .

2 .15 . Notwithstanding anything contained herein to the contrary, inthe event that Impax or any of its Affiliates shall directlyor indirectly develop, register, manufacture and/or Market anyOTC Products in the Territory the Parties shall in each suchcase equally share any revenues, royalties or otherconsideration received, directly or indirectly, by Impax orany of its Affiliates on account of such activity in excess ofthe first Five Hundred Thousand Dollars ($500,000) received,directly or indirectly, by Impax and its Affiliates for allOTC Products in the aggregate less, to the extent Impax shallmanufacture the subject OTC Product(s), documentedconsideration paid to Impax to cover direct manufacturingcosts of such OTC Products .

2 .16 If any product containing the same active ingredients in thesame dosage form and strength as any of the Products isapproved by the FDA for sale by any third party to thenon-prescription drug marketplace prior to Impax achieving theMilestone Amount corresponding to the Launch Date MilestoneEvent set forth in Annex C or Annex D, as applicable, for thecorresponding Product or within six (6) months after Impaxachieves such milestone, then Teva shall have a credit in anamount equal to fifty percent (50%) of all milestone amountscorresponding to the subject Product to apply against thepayment of its share of any Regulatory Expenses andIntellectual Rights Legal Expenses for any of the Productshereunder .

2 .17 If any product containing the same active ingredients in thesame dosage form and strength as any of the Products isapproved by the FDA for sale by any third party to thenon-prescription drug marketplace after six (6) months andprior to twelve (12) months following the achievement by Impaxof the Milestone Amount corresponding to the Launch DateMilestone Event set forth in Annex C or Annex D, asapplicable, for the corresponding Product, then Teva shallhave a credit in an amount equal to twenty five percent (25%)of all milestone amounts corresponding to the subject Productto apply against the payment of its share of any RegulatoryExpenses and Intellectual Rights Legal Expenses for any of the

Products hereunder .

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OPTIONAL TERRITORY

3 .1 Teva shall have the option on a Product-by-Product basis toadd any or all of the Optional Territory to this Agreement bydelivering a notice in writing to Impax within twelve (12)months following the Effective Date . During such twelve (12)month period neither Impax nor any of its Affiliates shalldirectly or indirectly negotiate with or grant any rights toany of the Products to any third parties in or for theOptional Territory. In the event that Teva exercises suchoption, Impax shall have six (6) months following Teva'swritten notification of exercise to choose on acountry-by-country basis with respect to the countriesselected by Teva to either (a) manufacture and supply Teva'sand its Affiliates' requirements and grant Teva and itsAffiliates the exclusive right to Market the Product(s)designated by Teva in the subject countries, or (b) grant Tevaa non-exclusive right to manufacture, register and Market theProduct(s) designated by Teva in the subject countries . In theevent Impax chooses option (a), above, the Parties shall shareequally all future Regulatory Expenses and Intellectual RightsLegal Expenses, attributable to such Product(s) in suchcountries in the Territory, and Impax shall receive the ImpaxMargin for the applicable Product(s) . In the event Impaxchooses option (b), above, Teva and/or its nominee shall havethe right at its option to carry out in its discretion and atits cost and expense all future activities to obtain Approvalsattributable to such Products in such countries of theTerritory and manufacture such Product(s) for such countriesin the Territory . In such case, the applicable Approvals shallbe in Teva's name and Teva shall be the sole owner thereof,and Impax shall receive an amount equal to + percent (+%) ofNet Sales of the applicable Product(s) in the subjectcountries (the "Optional Territory Fee") . Impax shall bedeemed to have chosen option (b), above, if Teva fails toreceive written notification from Impax within the applicablesix (6) month period .

3 .2 In the event option 3 .1 (a) is exercised by Impax, the termsand conditions of this Agreement respecting the U .S . shallapply to such Products for the subject countries with thefollowing modifications : (in addition and subject to the aboveprovisions in Section 3 .1 (a)) .

3 .2 .1 Teva shall prepare each Approval for each of theselected Products and use its commercially reasonablebeat efforts to file such Approval and to obtainApproval of each of the Products in the subjectcountries from the Regulatory Authorities as promptlyas possible .

3 .2 .2 Teva shall use its commercially reasonable beatefforts to conduct all tests and studies reasonablyrequired to enable Teva to apply for, obtain andmaintain Approval for each of the Products in thesubject countries .


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3 .2 .3 Impax shall grant Teva reasonable and unrestrictedaccess , without any charges, costs or expense, to anyand all relevant documentation, data, information,tests , studies or know-how related to the Products,including without limitation, any RegulatoryDocumentation, in its possession or under itscontrol, and provide free of charge any and allassistance that Teva may reasonable request in orderfor Teva to perform its obligations under thisAgreement .

3 .2 .4 Teva shall be primarily responsible for allcommunications with the Regulatory Authorities in thesubject countries relating to the Approval of theProducts in the subject countries ; provided, however,Teva and Impax shall collaborate in determining theappropriate strategy for obtaining and maintainingApproval of the Products in the subject countries andTeva shall promptly provide to Impax copies of allfilings, documents and correspondence directed tosuch Regulatory Authorities and related to theProducts in draft form for comment by Impax and,provided further, that Teva shall in good faith givedue regard to reasonable comments , suggestions andinput from Impax . Teva shall promptly provide toImpax copies of all documents and correspondencereceived by Teva from the Regulatory Authorities thatare related to obtaining and maintaining Approval ofthe Products, and Teva shall allow Impax to attend inall meetings with same .

3 .2 .5 The Approvals shall be filed in Impax's name andImpax shall be the sole owner of such Approvals andRegulatory Documentation in connection therewith tothe extent permitted by Applicable Law and subject tothe grant hereunder to Teva . If not permitted theApprovals shall be filed in Teva's or its nominee'sname .

3 .2 .6 Teva shall assume direction and control of anyIntellectual Rights Suit for the Tier 1 Products inthe manner provided for the Tier 2 Products and Tier3 Products as set forth in Section 15 .5 . Settlementof payments with respect to such expenses shall beeffected within thirty (30) days following eachCalendar Quarter and payment made to the Partyentitled .

3 .2 .7 Teva shall have the right to appoint a third party ona country-by-country and/or Product-by-Product basisto register and/or Market the Products in th eOptional Territory . Teva shall provide written noticeto Impax of any such appointment .

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3 .2 .8 The Profit for the applicable Products in the subjectcountries shall be reduced by Teva's and/or itsnominee's direct Marketing expenses .

3 .2 .9 Subject to Section 3 .2 .6, the provisions of Section

15 .5 and 15 .6 hereof shall apply to all Teva selectedProducts in the subject countries .

3 .2 .10 With respect to any Transaction Events that haveoccurred prior to such exercise by Impax, Teva shallhave the right to issue a Transaction Event Noticewithin sixty (60) days of Impax's exercise of option(a) .

3 .3 In the event option 3 .1 (b) is exercised by Impax, (a) none ofthe provisions of this Agreement, except Sections 1, 2 .15,

3 .1, 3 .3, 4 .1, 9, 11 .4, 11 .6, 11 .8, 12, 13, 14 and 20 - 33shall apply to Teva and/or Impax or their respectiveAffiliates for the subject countries ; and (b) Impax shallgrant Teva reasonable and unrestricted access without chargeto any and all relevant documentation, data, information,tests, studies, or know how related to such Products,including without limitation, the Regulatory Documentation, inits possession or under its control, and provide free ofcharge any and all assistance that Teva may reasonably requestin order for Teva to prepare, file, obtain and maintain theApprovals for the subject countries, and to manufacture theProducts for the subject countries .

OPTIONAL PRODUCT

4 .1 Teva shall have the option to add the products listed in AnnexG (the "Optional Products") to this Agreement as Tier 1Products upon issuance of written notice to Impax at any timefrom the Effective Date until February 1, 2002 . In the event

of such election, the terms and conditions of this Agreementrespecting Tier 1 Products shall apply in the same manner tothe Optional Products with the following modifications :

(a) Impax shall provide to Teva the Technical Packagewith respect to the optional Products within thirty(30) days following receipt of Teva's written noticepursuant to this Section 4 .1 .

(b) Teva shall have six (6) months following the writtennotification to Impax pursuant to this Section 4 .1 toadd the Optional Products to any or all of theOptional Territory in accordance with the terms andconditions set forth in Sections 3 .1 - 3 .3 .

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4 .2 In the event Teva does not exercise the option under Section4 .1 to add the Optional Products to this Agreement, it shallhave the right to extend the option period, upon writtennotice of extension given to Impax prior to February 1, 2002,until ten (10) business days following the last tentativeApproval by the FDA for all Optional Products . If Teva extendsthe option period and subsequently does not exercise thisoption with respect to the Optional Products in the U .S ., andthereafter during the Term, Markets in the U .S . a productcontaining the same active ingredients in the same dosage formand strength as any of the Optional Products, Teva shall payto Impax consideration for such extension to be agreed upon bythe Parties in good faith .

4 .3 In the event that Teva does not add the Optional Products tothis Agreement pursuant to Section 4 .1 or 4 .2, then, the

milestones in Annex C shall be amended as provided in Annex D,and Impax shall repay to Teva on January 15, 2004 pursuant to

the provisions of Section 10 .1 Five Million U .S . Dollars (U .S .$5,000,000) in addition to any other amounts owed to Teva ifImpax fails to meet any of the milestones set forth in Annex

D .

REGULATORY APPROVAL

5 .1 Impax shall prepare each ANDA for each of the Products and useits commercially reasonable best efforts to file such ANDAsand to obtain Approval of each of the Products in the U .S .

from the FDA as promptly as possible .

5 .2 Impax shall use its commercially reasonable best efforts toconduct all tests and studies reasonably required to enableImpax to apply for, obtain and maintain Approval for each ofthe Products in the U .S .

5 .3 Impax shall be primarily responsible for all communicationswith the FDA relating to the Approval of the Products in theU .S . ; provided, however, Teva and Impax shall collaborate indetermining the appropriate strategy for obtaining an d

maintaining Approval of the Products in the U .S . and Impax

shall promptly provide to Teva copies of all RegulatoryDocumentation and all other filings, documents andcorrespondence directed to the FDA and related to the Productsin draft form for comment by Teva and, provided further, thatImpax shall in good faith give due regard to the reasonablecomments, suggestions and input from Teva . Impax shallpromptly provide to Teva copies of all RegulatoryDocumentation and all other documents and correspondencereceived by Impax from the FDA that are related to obtainingand maintaining Approval of the Products, and Impax shallallow Teva to attend all meetings with the FDA .

5 .4 The ANDAs shall be filed in Impax's name and Impax shall bethe sole owner of such Approvals and Regulatory Documentationin connection therewith, subject to Teva's rights hereunder .

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5 .5 Impax shall grant Teva reasonable and unrestricted access,without any charges, costs or expense , to any and all relevantdocumentation , data , information, tests , studies or know-howrelated to the Products , including without limitation, theANDA and/or other Regulatory Documentation, in its possessionor under its control , and provide free of charge any and allassistance that Teva may reasonably request in order for Tevato perform its obligations under this Agreement .

5 .6 Teva or its Affiliates shall be responsible for filing each ofthe Products , and thereafter processing such filings withappropriate federal , state or private formularies in theTerritory .

5 .7 Each Party shall perform , or cause to be performed, itsactivities in furtherance of the provisions of this Section 5in a good scientific manner , in compliance in all materialrespects with all requirements of Applicable Law, and in anefficient and expeditious manner .

5 .8 Impax and Teva shall share equally all reasonableout-of -pocket Regulatory Expenses incurred by either Partyand/or their respective Affiliates , after the Effective Datefor the Territory ; provided , however , Impax shall bear allRegulatory Expenses for Tier 1 Products for the U .S . andfifty-five percent ( 55%) of Regulatory Expenses for Tier 2Products for the U .S . Settlement of payments with respect toRegulatory Expenses shall be effected within thirty (30) daysfollowing the end of each month and payment made to the Partyentitled .

5 .9 Teva shall pay to Impax Three Hundred Thousand U .S . Dollars

(U .S . $300 , 000) within thirty ( 30) days following theEffective Date for regulatory expenses incurred by Impax priorto the Effective Date for development of the Tier 2 Products .

WORKING COMMITTEE

Within thirty (30) days of the Effective Date, each of Teva and Impaxshall appoint three (3) appropriately qualified representatives to aworking committee to coordinate the selection and identification of theTier 3 Products, to facilitate the exchange of information relating tothe development of the Products, to monitor the costs and activitiesrelated to the development and manufacture of the Products, and tooversee the renovation and construction of the new Impax manufacturingfacilities in Hayward, California (the "Working Committee") . In eachinstance such activities shall not extend beyond the scope of thisAgreement relating to the Products in the Territory .

SUPPLY

7 .1 Subject to Teva's compliance with Section 8, Impax shall us e

its commercially reasonable best efforts to supply on a timelybasis all of Teva's and its Affiliates' requirements for theProducts for the Territory .

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7 .2 Without limiting the provisions of Section 8 .2, Impax shalluse its commercially reasonable best efforts to ensure that ithas an adequate supply of API and other ingredients requiredfor the manufacture of the Products in order to meet at leastone hundred and twenty percent (1201) of Teva's and itsAffiliates' forecasted requirements for the Products for theTerritory . In furtherance of the foregoing obligation, Impaxhereby acknowledges that Teva (including its Affiliates) isand shall remain throughout the Supply Term a preferredcustomer and as such shall have priority over all otherparties (including Impax and its Affiliates) with regard tothe supply of API and Products .

7 .3 Without limiting any of its obligations under this Agreement,in the event that for any reason Impax may have aninsufficient supply of API and other required ingredients tomeet its obligations under Section 7 .1, Impax shall use itscommercially reasonable best efforts to obtain a third partysource for such API and other required ingredients inconsultation with Teva through the Working Committee .

7 .4 Impax shall supply the Products to Teva and its Affiliates infinished final dosage form and fully packaged .

7 .5 Subject to the provisions of Section 8, Teva, its Affiliatesand/or a third party reasonably acceptable to both Partiesshall have the right, at Teva's sole option, to manufactureany of the Products in the event of the inability of Impax to

meet Teva 's and/or its Affiliates' requirements for suchProducts for any reason including, but not limited to, forcemajeure, provided, however, that Impax shall have failed tocure such inability within sixty (60) days of written notice

from Teva . In the event Teva and/or its Affiliate and/or suchthird party, as applicable, shall elect to manufacture any ofthe Products : (a) Impax agrees that upon receipt of the

above- referenced notice and expiration of the sixty (60) daycure period, to the extent not otherwise contained in theTechnical Package , it shall promptly furnish free of chargeall technical information, data and know-how, includingwithout limitation, any Regulatory Documentation, and providesuch cooperation (including the reasonable availability ofImpax personnel) as reasonably required to enable Teva, itsAffiliate and/or such third party, as applicable, to

effectively manufacture and supply Teva's and its Affiliates'requirements of the Products for the applicable countries ofthe Territory ; (b) the Impax Margin or Revised Impax Margin

(as the case may be) for such Products shall be reduced byfifty percent (50%) (in half) ; and (c) Teva shall receive a

credit against any payments thereafter due or outstanding toImpax under this Agreement for any and all reasonableout-of-pocket costs incurred by Teva and/or its Affiliates,and/or paid by Teva to Impax, in connection with or resultingfrom the foregoing manufacturing activities and/or transfer(including, without limitation, for any required tests orstudies and for any expenses incurred by Teva and/or itsAffiliates pursuant to Section 7 .10 in connection with theapplicable Products) .

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7 .6 Impax shall use its commercially reasonable best efforts inaccordance with its standard manufacturing practices to reduceits Manufacturing Costs of each of the Products throughout therespective Supply Term in order to maximize Profit . In theevent that any of Impax's Manufacturing Costs excluding Costof Materials for any of the Products equal or exceedseventy-five percent (75%) of the amounts set forth in AnnexB, the Parties shall negotiate on a Product-by-Product basisin good faith a way to reduce such Manufacturing Costs,including, without limitation, by transferring the manufactureof the Products to Teva, its Affiliates and/or a third party,and the sharing of costs associated with such transfer .

7 .7 If Teva believes that all or any part of any lot of Product itobtains from Impax has not been manufactured in accordancewith the requirements of this Agreement, including, withoutlimitation, with the Specifications, Impax's representationsand warranties hereunder or any other defect in the Product,or that there is a shortage of Product, then Teva willpromptly notify Impax in writing setting forth in reasonabledetail the alleged nonconformity, defect or shortage . Subjectto the provisions of Section 7 .9, Teva agrees to notify Impaxof any nonconformity, defect or shortage of any shipment ofProduct that Teva discovers by its standard receivingprocedures within thirty (30) days after Teva's receipt of theProduct from Impax . Upon receipt of such notification ofnonconformance, defect or shortage, Impax will have fifteen(15) days to inspect the affected Product and make areasonable assessment of the alleged nonconformance, defect or

shortage . If the Parties agree that there is a nonconformance,defect or shortage, Impax, at its sole cost and expense, shallpromptly replace any nonconforming or defective Product ormake up the shortage, to be shipped at Impax's cost .Nonconforming or defective Product will be returned to Impaxat its expense .

7 .8 Any dispute between the Parties concerning the rejection ofall or any part of a shipment of Product (including, withoutlimitation, any Latent Defects) which the parties are unableto resolve within a sixty (60) day period will be submitted toan agreed upon qualified independent laboratory for testingusing test methods set forth in the Approval for the Productand/or any other mutually agreed upon test methods . Impax will

use its best efforts to replace promptly any shipment orportion of a shipment under dispute until the dispute is

resolved . The replacement Product and the cost of thelaboratory will be at Impax's cost if the laboratory findsthat the lot in question is non-conforming to Specificationsor otherwise defective . The costs of the independent

laboratory will be paid by Teva if the lot in question isfound by the laboratory to be conforming and compliant . The

findings of the laboratory shall be final and binding upon theParties, and shall not be subject to appeal or review by anythird party .

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7 .9 The Parties acknowledge that it is possible for Product tohave manufacturing defects that are not discoverable uponreasonable physical inspection or testing (referred to as"Latent Defect" or "Latent Defects") . Latent Defects mayinclude, by way of illustration and not definition orlimitation, defects not present in preshipment samples, lossof stability, separation, discoloration or other manufacturingdefects . Impax is responsible for all Latent Defects that areattributable to the production of the Product by or on behalfof Impax or failure of such Product to otherwise comply withthe provisions of this Agreement (including withoutlimitation, Impax's representations and warranties hereunder) .

As soon as Impax discovers or becomes aware of a Latent Defectin any Product it produced and shipped, it will immediatelynotify Teva of the lot(s) involved and Impax will replace thatProduct in the manner described in Sections 7 .7 and 7 .8,

above .

7 .10 In order to ensure continuous supply of the Products and to

maximize sales and profits, commencing six (6) monthsfollowing the Effective Date, at Teva's option, on aProduct-by-Product and country-by-country basis, the Partiesshall use their commercially reasonable best efforts tosupplement for each of the Products the ANDAs submitted withthe FDA as of the Effective Date, as well as any Approvals(including ANDAs) to be submitted with the FDA or any non-U .S .

Regulatory Authority thereafter in order to permit Teva and/orits Affiliate or a third party reasonably acceptable to bothParties, to manufacture and/or package the Products for the

Territory. Subject to Impax providing an estimate ofanticipated expenses, and except as otherwise provided in

Section 7 .5 and 7 .6, above Teva shall pay all expenses

associated with the foregoing, such expenses consisting of

pre-approved reasonable out-of-pocket expenses of Impax,

supply of API at cost to Impax, and a per diem charge of One

Thousand U.S . Dollars (U .S . $1,000) for each employee of

Impax, assisting at Teva's request, with supplementing theANDAs .

FORECASTS AND ORDERS

8 .1 Within one hundred and eighty (180) days prior to theanticipated Launch Date for each of the Products for eachcountry in the Territory, Teva shall provide to Impax anonbinding written forecast of estimated quantities of Productthat Teva and its Affiliates anticipate ordering from Impaxduring the twelve (12) month period commencing with the Launch

Date for such country . Teva shall update such forecast on aCalendar Quarter rolling basis, for the twelve (12) monthperiod commencing ninety (90) days from each such update . Teva

shall communicate any changes to its forecast as soon as thechanges are known by Teva . Teva shall use its commerciallyreasonable best efforts to ensure the accuracy of itsforecasts . The first quarter of each such updated forecast

shall be deemed a firm purchase order .

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8 .2 Each firm purchase order shall set forth the quantities ofProducts ordered, dates for delivery of the Products, thecountry for which the Products are designated, the place ofdelivery and reasonable instructions for shipping . Impax shallsupply to Teva and its Affiliates' the quantity of Products onthe delivery dates and at the delivery destination statedtherein] provided, however, Impax shall not be obligated butshall be required to use its commercially reasonable bestefforts to fill any purchase order to the extent of quantitiesexceeding one hundred and twenty percent (120%) of the amountlast forecasted for the applicable calendar Quarter except asotherwise provided in Section 2 .10 .

8 .3 Any terms and conditions of an invoice, acknowledgement orsimilar document provided by Impax for Products, or, any termsand conditions of purchase orders provided by Teva forProducts, which are inconsistent with or in addition to theterms of this Agreement shall be null and void .

TRADEMARK(S)

Teva and its Affiliates shall have the right, in their respective solediscretion and at their expense, to select and to register any of theirtrademarks, as they wish to employ in connection with the Marketing ofany of the Products in any of the countries in the Territory and toMarket Product using such trademarks . Teva or its Affiliate shall ownall right, title and interest in and to all such trademarks, and Impaxhereby agrees it shall have no right, title or interest in same .

10 CONSIDERATION AND LOAN

10 .1 Teva shall, within five (5) business days of the EffectiveDate, loan to Impax the sum of Twenty Two Million U .S . Dollars(U .S . $22,000,000) (the "Loan") towards the development of theProducts and the establishment of the production facilitiesand infrastructure necessary to meet Teva's and/or itsAffiliates' Product requirements hereunder. Impax herebyundertakes and agrees that it shall expend not less thanTwenty Two Million U.S . Dollars (U .S . $22,000,000) towards theconstruction of the production facilities located in HaywardCalifornia, including the facility located on San AntonioStreet (the "New Facility") and the development of theProducts . The Loan shall be evidenced by Impax's promissorynote in the form annexed hereto at Annex H (the "Note") .Without limiting any other rights and remedies available toTeva under this Agreement, the Note, at law or in equity, fromand after the occurrence of an Event of Default as defined inSection 10 .7 Teva shall have the right to declare the Loanimmediately due and payable by delivering written notice tosuch effect to Impax. Impax shall repay the then outstandingbalance of the Loan to Teva, in cash, within thirty (30) daysof its receipt of such notice . In the event Impax achieves themilestones set forth in Annex C or Annex D, as applicable, ona timely basis, then the outstanding balance of the Loan shallbe reduced by the corresponding amounts designated for eachsuch achieved milestone (each such amount is referred toherein as the "Milestone Amount") . If, on the other hand,Impax fails to meet any of the milestones set forth in Annex Cor Annex D, as applicable, by the respective dates set forthfor each such milestone (including as a result of an earlytermination of this Agreement), then Teva shall have theoption, on a Product-by-Product basis with respect to theapplicable milestone, to either :

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(a) require Impax to repay to Teva that portion of theLoan equal to the applicable Milestone Amount ; or

(b) require Impax to repay to Teva that portion of theLoan equal to fifty percent (50%) of the applicableMilestone Amount .

Repayment by Impax of the amounts under subparagraphs (a) and(b), above, and Section 4 .3, if applicable, shall be made toTeva not later than January 15, 2004, and shall be paid, atthe option of Impax, in cash or (subject to Section 10 .5) inImpax Common Stock at the Designated Share Price .

10 .2 In the event Teva chooses option 10 .1(a), above, then thegrant to Teva with respect to the Marketing of the subjectProduct for the U .S . shall be deemed nonexclusive an deffective as of such exercise, and the provisions of Sections2 .3 - 2 .11 and such other provisions of this Agreementrespecting Competing Products of the subject Products shall nolonger apply to Teva and/or Impax or their respectiveAffiliates with respect to such Products for the U .S . ;provided, however, in any event, Impax shall remain obligatedto supply Teva's and/or its Affiliates' requirements of theapplicable Product on a most-favored basis .

10 .3 Subject to the provisions of the Stock Purchase Agreement,being executed by the Parties concurrently herewith, and

Section 10 .5, Teva shall, on each of September 15, 2001,December 15, 2001, March 15, 2002 and June 15, 2002, purchasefrom Impax such number of shares of Impax Common Stock at theDesignated Share Price as equals Three Million Seven Hundred

and Fifty Thousand U .S . Dollars (U .S . $3,750,000) .

10 .4 Upon the first Launch Date of any Tier 2 or Tier 3 Product in

the U .S ., Teva shall sell back to Impax for an aggregatepurchase price of One U .S . Dollar (U .S . $1 .00) such number of

shares of Impax Common Stock that equals sixteen and twothirds percent (16 2/3%) of the aggregate shares of ImpaxCommon Stock purchased by Teva from Impax pursuant to Section

10 .3 .

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10 .5 Notwithstanding anything contained in Sections 10 .1 or 10 .3 tothe contrary, in no event shall Teva be obligated to purchase(or accept as repayment of the Loan pursuant to Section 10 .1)

such number of shares of Impax Common Stock that at the timeof transfer to Teva or its Affiliate would, in the aggregate,

exceed nineteen point nine percent (19 .9%) of the then issuedand outstanding shares of Impax Common Stock . If any suchtransfer would result in Teva and its Affiliates owning more

than nineteen point nine percent (19 .9%) of the outstandingImpax Common Stock then, at Teva' s request, such excessamounts shall be paid by Impax to Teva in cash .

10 .6 Throughout the period that the Loan, or any portion thereof,is outstanding, Impax hereby covenants and agrees it will not,nor will it permit any of its Affiliates to :

(a) Liquidate, windup or dissolve .

(b) Assume , endorse , be or become liable for or guaranteeany indebtedness of any Person excluding however, theendorsement of negotiable instruments for deposit orcollection in the ordinary course of business .

(c) Declare or pay any dividends on its capital stock(other than dividends payable solely in shares ofImpax Common Stock), or purchase, redeem, retire orotherwise acquire any of its capital stock at anytime outstanding except as provided in Section 10 .4,except any Affiliate wholly owned by Impax maydeclare and pay dividends to Impax .

(d) Materially alter the nature of its business .

(e) Directly or indirectly purchase, acquire or lease anyproperty from, or sell, transfer or lease anyproperty to, or enter into any other transaction,with any Affiliate of Impax or any party related tothe management of Impax except the assignment ofImpax's right to purchase the New Facility toAffiliates (subject to Teva's rights pursuant toSection 10 .11) at prices and on terms not lessfavorable to it than those which would have beenobtained in an arm's-length transaction with anon-affiliated third party .

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10 .7 Subject to any applicable grace, notice and cure periodprovided for herein the occurrence and the continuance of anyof the following events is referred to herein as an "Event ofDefault" :

(a) If Impax shall fail to pay, when due, any portion ofthe Loan or interest thereon ; or

(b) Any representation or warranty made by Impax hereinor in the Stock Purchase Agreement or RegistrationRights Agreement shall prove to have been false inany material respect on or as of the date made ; or

(c) This Agreement or the Stock Purchase Agreement or theRegistration Rights Agreement is terminated by Tevaas a result of a breach, default, misrepresentationor other act or omission by Impax giving rise to theright of termination by Teva hereunder or thereunder,respectively .

10 .8 The purchase of Impax Common Stock by Teva or the repayment ofall or a portion of the Loan by Impax in shares of ImpaxCommon Stock pursuant to this Section 10 shall be conditionedupon the execution by the Parties of a Stock PurchaseAgreement and Registration Rights Agreement in the formattached as Annex E .

10 .9 The Loan shall bear interest at the annual rate of eightpercent (8t) accruing from the date of grant (the "InterestObligation") . The Interest Obligation shall be due and payableon January 15, 2004 or such earlier date that the outstandingbalance of the Loan is due (without right of set-off,deduction or other withholding), to the extent there remainsany outstanding balance on the Loan pursuant to this Section10, and only with respect to such portion of the Loan that hadnot been forgiven as of such date . Notwithstanding theforegoing, Teva agrees to forgive the Interest Obligation inthe event and upon the date that Impax has obtained tentativeor final Approvals for any three of the Products .

10 .10 By no later than December 31, 2001, as additional security forthe repayment of the Loan, Impax shall grant to Teva amortgage on the New Facility subordinate to a senior lien ofup to Three Million U .S . Dollars ($3,000,000) in form andsubstance reasonably satisfactory to Teva, or such othercollateral as may be reasonably satisfactory to Teva .

11 PRICES, TERMS, CONDITIONS, TITLE AND RIS K

11 .1 Impax shall deliver each order of Products to Teva and itsAffiliates CIP (as per Incoterms 2000) to a location to bedesignated by Teva or its Affiliates .

11 .2 Impax will invoice Teva when Product is shipped to Teva at anamount equal to the applicable Manufacturing Cost . Teva shallsubject to Sections 7 .7, 7 .8 and 7 .9 pay for such Productthirty (30) days from the date of receipt of the applicableshipment .

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11 .3 within thirty (30) days following each Calendar Quarter duringthe Supply Term, Teva shall compute and report to Impax in amutually acceptable format the Net Sales and Profit for eachProduct in each country in the Territory during that CalendarQuarter and Teva shall pay to Impax the Impax Margin, RevisedImpax Margin, or Optional Territory Fee, as the case may be,for each Product for that Calendar Quarter as reflected in thereport . In addition, within seven (7) business days after theend of each month, Teva shall provide to Impax information(which could be good faith estimates if final data is notavailable) as to the amount of Net Sales, Profit, and numberof units sold of each Product during that month .

11 .4 Teva shall have the sole and exclusive right to determine allterms and conditions of sale of the Products to its customers .

11 .5 Subject to Teva having received full launch quantities of theapplicable Product based upon Teva's forecast, Teva shal llaunch each Product on a country-by-country basis withinfifteen (15) days of final Approval of each Product ; provided,however, that if either Party has a written opinion of patentcounsel reasonably acceptable to the other Party that launchwould result in a significant risk of damages for infringementof third party intellectual property rights, then the Partiesshall agree upon a later launch for such Product in thesubject country in the Territory or, alternatively, Teva maycompel launch of the Product in such country in the Territory .If Teva so compels a launch of a Product in any country in theTerritory, then it shall indemnify, defend and hold harmlessImpax for any damages and expenses of an Intellectual RightsSuit to the extent directly related to the patents set forthin the above-referenced Impax patent opinion and to the extentcaused by the launch of the Product and not attributable inwhole or in part to any untrue representation or warranty ofImpax or breach of a covenant made by Impax hereunder .Further, in such case, (a) during the period commencing withthe applicable Launch Date and ending on the earlier of six(6) months or the date the Parties receive a finalnon-appealable court decision with respect to the applicableIntellectual Rights Suit, if any, the Impax margin shall bedeemed to be + percent (+%) and Revised Impax Margin, ifapplicable, shall be reduced by thirty percent (30%) and (b)any expenses and/or damages paid by Teva in connection withany Intellectual Rights Suit related to the applicableProduct, or the above indemnity, shall be set-off, credited orreimbursed against any amounts paid or payable to Impaxhereunder related to such Product (including, withoutlimitation, Impax Margin, Revised Impax Margin, and OptionalTerritory Fee) .


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11 .6 Teva and its Affiliates shall permit an independent certifiedpublic accounting firm selected by Impax , and reasonablyacceptable to Teva , to have access, during normal businesshours and upon reasonable prior notice (not more often thanonce in any calendar year ), to those books and recordsmaintained by Teva necessary for Impax to verify the accuracyof Teva ' s calculation of any Net Sales, Profit , RegulatoryExpenses , Impax Margin , Revised Impax Margin and/or OptionalTerritory Fee hereunder for any period ending not more thanfive ( 5) years prior to the date of such request . All suchinformation shall be retained on a confidential basis by theaccounting firm , and such accounting firm ' s use of suchinformation shall be limited to the aforementionedverification .

11 .7 Impax and its Affiliates shall permit an independent certifiedpublic accounting firm selected by Teva, and reasonablyacceptable to Impax, to have access , during normal businesshours and upon reasonable prior notice (not more often thanonce in any calendar year), to those books and recordsmaintained by Impax necessary for Teva to verify the accuracyof Impax's calculation of any Manufacturing Costs, RegulatoryExpenses and/or Intellectual Rights Legal Expenses hereunderfor any period ending not more than five (5) years prior tothe date of such request . All such information shall beretained on a confidential basis by the accounting firm, andsuch accounting firm' s use of such information shall belimited to the aforementioned verification .

11 .8 Teva and Impax shall calculate and record Net Sales,Manufacturing Costs , Profit, Impax Margin , Revised ImpaxMargin, Optional Territory Fee, Regulatory Expenses and/orIntellectual Rights Legal Expenses in accordance with U .S .GAAP, and shall maintain all books and records related theretoin accordance with standard cost accounting policies andpractices , in accordance with U . S . GAAP for the Term plus anadditional three (3) years thereafter .

12 ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS OF IMPA X

12 .1 Impax hereby represents and/or warrants and/or undertakes to

Teva that :

12 .1 .1 it has the corporate authority to enter into thisAgreement and to perform its obligations hereunder ;

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12 .1 .2 neither the execution and delivery of thisAgreement by Impax nor its performance hereunderconflicts with or results in any violation orbreach of, or constitute (with or without duenotice or lapse of time or both) a default underany of the terms or conditions of any note, bond,mortgage, indenture, license, agreement or otherinstrument or obligation to which it or any of itsAffiliates is a party or by which it or any of itsAffiliates or any of their respective properties orassets may be bound, or to its best knowledge,violate any statute, law, rule, regulation, writ,injunction, judgment, order or decree of any court,administrative agency or governmental authoritybinding on it or any of its Affiliates or any oftheir respective properties or assets , excludingany such breaches or defaults that, individuallyand in the aggregate, would not have a materialadverse effect on its business or financialcondition ;

12 .1 .3 this Agreement is a legal, valid and bindingagreement of Impax enforceable in accordance withits terms ;

12 .1 .4 neither it nor any of its Affiliates have or will,directly or indirectly, enter into any contract orany other transaction with any third party o rAffiliate that conflicts or derogates from itsundertakings hereunder ;

12 .1 .5 all Products supplied to Teva or its Affiliatesshall : (a) meet the applicable Specifications atthe time of shipment ; (b) meet regulatoryrequirements of any relevant Regulatory Authorityin the Territory ; (c) be manufactured, packaged,tested, stored and shipped in accordance withapplicable cGMPs, the Approvals, and ApplicableLaw; (d) not be adulterated or misbranded under theUnited States Food, Drug and Cosmetic Act includingany other relevant laws and regulations of theTerritory as amended from time to time ; and (e) beproduced, packaged, tested and stored in facilitiesthat have been approved by the applicableRegulatory Authority, to the extent required byApplicable Law ;

12 .1 .6 the API does not violate, infringe, or otherwiseconflict or interfere with the intellectualproperty of any third party in the U .S . and, toImpax's best knowledge, the API does not violate,infringe, or otherwise conflict or interfere withthe intellectual property of any third party in anyother country of the Territory ;

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12 .1 .7 Impax has furnished Teva with access to a completecopy of the U .S . Regulatory Documentation for theProducts, including all material amendments andsupplements thereto ; Impax is and was, at all timesprior to the Effective Date, the lawful holder ofall rights under the Regulatory Documentation andto the best of Impax's knowledge, Impax hascomplied in all material respects with allApplicable Laws and regulations in connection withthe preparation and submission to the FDA of theRegulatory Documentation ;

12 .1 .8 neither it nor any of its Affiliates have beendebarred or is subject to debarment and will notuse in any capacity, in connection with theservices to be performed under this Agreement, anyPerson who has been debarred pursuant to Section306 of the United States Food, Drug and CosmeticAct or equivalent laws of any country in theOptional Territory selected hereunder ;

12 .1 .9 Impax's manufacturing facilities conform, and shallcontinue to conform throughout the Term, in allrespects to Applicable Law governing suchfacilities ; and

12 .1 .10 all Products supplied hereunder shall be free andclear of all security interests, liens, or otherencumbrances of any kind or character .

13 ADDITIONAL REPRESEtTATIONS , WARRANTIES AND COVENANTS OF TEVA

13 .1 Teva hereby represents and/or warrants and/or undertakes toImpax that :

13 .1 .1 it has the corporate authority to enter into thisAgreement and to perform its obligations hereunder ;

13 .1 .2 neither the execution and delivery of thi sAgreement by Teva nor its performance hereunderconflicts with or results in any violation orbreach of, or constitute (with or without duenotice or lapse of time or both) a default underany of the terms or conditions of any note, bond,mortgage, indenture, license, agreement or otherinstrument or obligation to which it is a party orby which it or any of its properties or assets maybe bound, or to its best knowledge, violate anystatute, law, rule, regulation, writ, injunction,judgment, order or decree of any court,administrative agency or governmental authoritybinding on it or any of its properties or assets,excluding any such breaches or defaults that,individually and in the aggregate, would not have amaterial adverse effect on its business orfinancial condition ;

13 .1 .3 this Agreement is a legal, valid and bindingagreement of Teva, enforceable in accordance withits terms ,

13 .1 .4 it has not and will not, directly or indirectly,enter into any contract or any other transactionwith any third party or Affiliate (excluding those,if any, respecting, the Optional Territory orOptional Products) that conflicts or derogates fromits undertakings hereunder ;

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13 .1 .5 in the event and to the extent that Teva and/or itsAffiliates shall manufacture the Products, all suc hProducts shall : (a) meet the applicabl eSpecifications at the time of shipment ; (b) meetregulatory requirements of any relevant RegulatoryAuthority in the Territory ; (c) be manufactured ,packaged, tested, stored and shipped in accordanc ewith applicable cGMPs, the Approvals, an dApplicable Law; (d) not be adulterated o rmisbranded under the United States Food, Drug andCosmetic Act or relevant laws and regulations o fCanada, as amended from time to time ; and (e) beproduced, packaged, tested and stored in facilitie sthat have been approved by the applicabl eRegulatory Authority, to the extent required byApplicable Law;

13 .1 .6 in the event and to the extent that Teva and/or it sAffiliates shall manufacture the Products, Teva' sand/or its Affiliates' manufacturing facilities fo rsuch Products shall conform in all respects t oApplicable Law governing such facilities ;

13 .1 .7 neither it nor any of its Affiliates have bee ndebarred or is subject to debarment and will no tuse in any capacity, in connection with th eservices to be performed under this Agreement, an yPerson who has been debarred pursuant to Sectio n306 of the United States Food, Drug and Cosmetic

Act or equivalent laws of any country in th eOptional Territory selected hereunder, or who i sthe subject of a conviction described in suc hsection; and

13 .1 .8 all Products that it shall Market hereunder shal lhave been Marketed and stored in accordance wit hApplicable Law .

14 INDEMNIFICATIONS AND LIABILITY

14 .1 Except as otherwise expressly provided in Section 15, Impaxshall indemnify, defend and hold Teva, its Affiliates, andtheir respective officers, directors, employees, an drepresentatives harmless from and against any and all losses,liabilities, damages, costs and expenses, including reasonableattorney's fees and disbursements, (collectively, "Damages")in connection with any and all suits, investigations, claimsor demands by third parties resulting from or arising out of :(a) any breach or alleged breach by Impax (or its Affiliates)of any representation, warranty, undertaking or covenanthereunder ; (b) events occurring prior to the Effective Dateand relating to the Products ; (c) any negligence or willfulmisconduct by Impax (or its Affiliates) ; or (d) a defectcontained in a Product manufactured by Impax, its Affiliatesor any third party on its behalf .

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14 .2 Except as otherwise expressly provided in Section 15, Tevashall indemnify, defend and hold Impax, its Affiliates, andtheir respective officers, directors, employees, andrepresentatives harmless from and against any and all Damagesin connection with any and all suits, investigations, claimsor demands by third parties resulting from or arising out of ;(a) any breach or alleged breach by Teva (or its Affiliates)of any representation, warranty, undertaking or covenanthereunder; (b) any negligence or willful misconduct by Teva(or its Affiliates) ; (c) any defect contained in a Productmanufactured by Teva, it Affiliates or any third party on itsbehalf ; or (d) any claim of trademark infringement arisingfrom the use by Teva (or its Affiliates) of any of itstrademarks in connection with the Products .

14 .3 In the event that in determining the respective obligations ofindemnification under Section 14, it is found that the faultof Impax, Teva or their respective Affiliates, contributes toany Damages relating to the Products supplied and/ordistributed or sold hereunder, then each of Impax and Tevashall be responsible for that portion of the Damages to whichits fault contributed .

14 .4 As soon as a Party becomes aware of the possibility of a claiminvolving indemnification under this Section 14, theindemnified Party shall give the indemnifying Party promptwritten notice in writing and shall permit the indemnifyingParty to have control over the defense of such claim or suit .The indemnified Party agrees to provide all reasonableinformation and assistance to the indemnifying Party in suchdefense . No such claims shall be settled other than by theParty defending the same , and then only with the consent ofthe other Party , which shall not be unreasonably withheld ordelayed ; provided , however , that the indemnified Party shallhave no obligation to consent to any settlement of any suchclaim which imposes on the indemnified Party any liability orobligation which cannot be assumed and performed in full bythe indemnifying Party .

14 .5 Except in the event of and to the extent of Damages awarded toa third party in connection with the indemnificationprovisions not forth in Sections 14 .1 and 14 .2, above, orawarded to a third party in connection with an IntellectualRights Suit, neither Teva nor Impax shall be liable to theother for special, indirect , incidental or consequentialdamages , whether in contract, warranty , negligence, tort,strict liability or otherwise, arising out of the manufacture,Marketing , distribution , sale or use of the Products .

14 .6 without limiting the respective obligations of the Partieshereunder, each Party shall maintain, throughout the Termsufficient product liability insurance coverage to satisfy itsobligations hereunder . Each Party shall cause the other Partyto be named in such policies as an additional insured and,upon request, each Party agrees to provide to the othercertificates of insurance, evidencing such insurance . Withoutderogating from the foregoing, Impax shall purchase andmaintain throughout the Term insurance provided by aninsurance company reasonably satisfactory to Teva, at its ownexpense to cover product liability in an amount not leas thanTwenty Million U .S . Dollars (U.S . $20,000,000) per occurrenceand in the aggregate on or before the launch of the first Tier1 Product (in any strength), one Hundred Million U .S . Dollars(U .S. $100,000,000) per occurrence and in the aggregate on orbefore the launch of the second Tier 1 Product (in anystrength), and One Hundred and Fifty Million U .S . Dollars(U .S. $150,000,000) per occurrence and in the aggregate as ofJanuary 1, 2004 . In addition, the deductible for any Impaxinsurance policies shall not exceed one percent (1t) of theapplicable coverage in the aggregate .

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15 PATENT LITIGATION

15 .1 Promptly following the Effective Date , the Parties shall enterinto a joint defense agreement mutually acceptable to bothParties containing customary terms and conditions for thepurpose of, among other things, preserving confidentiality andany applicable privilege attaching to information and dataexchanged by the Parties under and pursuant to this Agreement .

15 .2 Following execution of such joint defense agreement , Impax,upon receiving any written request from Teva , shall promptlyprovide Teva with reasonable access to information and dataabout, and personnel knowledgeable of the Products, theirformulation , use and process of manufacture , to enable Tevato : (a) ascertain whether the Marketing of the Products in theTerritory would infringe any existing patent or other thirdparty intellectual property rights ; (b) determine its conductin relation to any proceedings alleging infringement of apatent or other third party intellectual property right ;and/or (c) provide witnesses or documentation from Impax inconnection with any proceedings alleging infringement of apatent or other third party intellectual property right .

Tier 1 Products for the U .S .

15 .3 With regard to the Tier 1 Products in the U .S ., Impax shallhave the right to assume or continue , as applicable, thedirection and control of any Intellectual Rights Suit and thedefense of claims arising therefrom , including withoutlimitation, the selection of legal counsel ; provided , however,that once it exercises its right to assume or continuecontrol , Impax shall obtain the prior written consent of Tevaprior to ceasing to defend , settling or otherwise disposing of

such claim , said consent not to be unreasonably withheld or

delayed . Furthermore, Impax shall provide Teva with copies ofall pleadings and other litigation documents and shall consultwith Teva in connection with litigation strategy . Teva shall

fully cooperate with Impax in the defense or prosecution ofany such litigation ( regardless of which party is a namedparty to such litigation ) . Notwithstanding anything to the

contrary contained herein , with respect to any Product(s) thatare currently the subject of litigation, legal counselretained by Impax as of the Effective Date shall continue toprosecute or defend such litigation unless the Partiesmutually agree to replace such legal counsel .

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15 .4 With regard to the Tier 1 Products in the U . S ., Impax shallbear one hundred percent ( 100%) of all Intellectual RightsLegal Expenses in connection with the defense and/or arising

out of a judgment or settlement of any Intellectual RightsSuit ; provided , however, that with respect to attorney feesand associated disbursements Impax shall bear one hundredpercent (100%) of any and all such fees up to a maximum amountof Seven Million U . S . Dollars (U .S . $7,000,000) for all of theTier 1 Products in the U .S . combined , after which, the Partiesshall each bear fifty percent ( 50t) of such attorney fees andassociated disbursements . If the foregoing $ 7,000,000limitation is exceeded then Impax shall invoice Teva on amonthly basis and Teva shall reimburse Impax for Teva ' s share

of such attorney fees and associated disbursements within

thirty (30) days of receipt of such invoice .

Tier 2 and Tier 3 Products for the Territory

15 .5 With regard to the Tier 2 and Tier 3 Products in theTerritory, Teva shall have the right to assume direction and

control of any Intellectual Rights Suit and the defense ofclaims arising there from , including without limitation,

subject to the consent of Impax , not to be unreasonably

withheld, the selection of legal counsel ; provided , however,

that once it exercises its right to assume control , Teva shall

obtain the prior written consent of Impax prior to ceasing todefend, settling or otherwise disposing of such claim, saidconsent not to be unreasonably withheld or delayed .

Furthermore , Teva shall provide Impax with copies of allpleadings and other litigation documents and shall consultwith Impax in connection with litigation strategy . Impax shall

fully cooperate with Teva in the defense or prosecution of anysuch patent litigation (regardless of which Party is a namedparty to that litigation) .

15 .6 Teva and Impax shall share equally all Intellectual RightsLegal Expenses for the Tier 2 Products and Tier 3 Products forthe Territory incurred following the Effective Date ; provided,

however, with regard to the Tier 2 Products for the U .S .,

Impax shall bear fifty-five percent (55%) and Teva shall bearforty-five percent (45%) of all Intellectual Rights Legal

Expenses . Teva shall invoice Impax on a monthly basis andImpax shall reimburse Teva for Impax's share of suchIntellectual Rights Legal Expenses within thirty (30) days ofreceipt of such invoice .

15 .7 With regard to any of the Products, the provisions set forthin Sections 15 .4, 15 .5 and 15 .6, above, relating toIntellectual Rights Legal Expenses (for the U .S . and all othercountries in the Territory), shall not apply with respect tolitigation relating to any breach by Impax of itsrepresentations and warranties set forth in Section 12 .1 .6 or

12 .1 .7 of this Agreement . In such instance, and to the extentrelated thereto, Impax shall be responsible for one hundredpercent (100%) of all Intellectual Rights Legal Expenses .

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15 .8 With regard to any of the Products, each Party shall obtainthe prior written consent of the other Party prior to ceasingto defend, settling or otherwise disposing of any intellectualRights Suit or other intellectual property dispute related tothe Products . Each Party further agrees that it will notwhether in the context of litigation or otherwise relatedthereto, without the prior written consent of the other Party,enter into any agreement or arrangement with any third partywhich in any way compromises, relinquishes, waives, orotherwise affects , in whole or in part, the rights of theother Party under this Agreement in respect of the Products .

16 REGULATORY LITIGATION

If Teva and Impax mutually agree in writing to commence legalproceedings against any Regulatory Authority, including withoutlimitation, the FDA, in connection with the Product(s) in order toaccelerate the Approval and/or Launch Date of the Product(s), theParties shall each bear fifty percent (50%) of all out of pocket costsand expenses incurred by either Party in connection with thatlitigation including, without limitation, legal fees and disbursements .Impax and Teva shall cooperate with one another (regardless of whichParty is a named party to that litigation) and shall jointly direct andcontrol the litigation, including without limitation, selection oflegal counsel, decisions to settle or compromise the case or aposition, and taking any other action .

17 DECLARATORY JUDGMENT LITIGATION

If Teva and Impax mutually agree in writing to institute a declaratoryjudgment action with respect to any intellectual property rights of anythird party relating to the Products, the provisions set forth i nSection 16 shall apply mutatis mutandis to this Section 17 .

18 ADVERSE REACTIONS , COMPLAINTS AND RECALLS

18 .1 Each Party shall provide prompt notice to the other Party ofany information concerning side effects, injury, toxicity, orsensitivity reaction associated with the Products, whether ornot determined to be attributable to the Products . Further,each Party shall notify the other Party in writing within one(1) business day of the time such Party first becomes aware ofa circumstance that might necessitate expedited notificationof relevant Regulatory Authorities or significant change inthe labeling of the Product(s) . The holder of the Approvalshall be responsible for all adverse drug event reporting forthe applicable countries of the Territory for the Products andresponding to all adverse drug event reports received from laypersons and/or health care professionals respecting theProducts .

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18 .2 Copies of complaints with regard to the Products received byeither Party will be sent promptly by facsimile to the otherParty . Impax shall investigate all complaints associated withthe manufacturing of the Products and shall provide a writtensummary to Teva of all such investigations and a promptwritten response to the complainant, with a copy to Teva .

18 .3 To the extent permitted or required by law, any decision torecall, withdraw or cease distribution of any Product as aresult of a violation of the applicable Approval or anyApplicable Law, or because the Product presents a possiblesafety risk may be made by either Party after consulting withthe other Party and taking such reasonable action as theParties consider to be appropriate under the circumstances tominimize the risk to both Parties and to assure compliance bythe Parties with the requirements of the applicable Approval .Any such recall or market withdrawal shall be controlled byTeva; provided, however, that the Parties shall use their bestefforts to work together to repossess the affected Product . Ifany recall or market withdrawal of any Product is the resultof the negligence of either Party (or its Affiliate) or thebreach by either Party (of its Affiliate) of anyrepresentation, warranty, covenant or agreement under thisAgreement by that Party (or its Affiliate), including theProduct warranties, then the negligent or breaching Partyshall pay the costs of any such recall action and such costsshall not be charged to the other Party. If any such recall ormarket withdrawal of any Product is not the result ofnegligence of either Party (or its Affiliate) or the breach byeither Party (or its Affiliate) of any representation,warranty, covenant or agreement under this Agreement, then theParties shall equally share the out of pocket cost of any suchrecall or market withdrawal . For the purposes of this Section18 .3, expenses of recall shall include, without limitation,the expenses of notification and destruction or return of therecalled Product(s) and the refund to consumers of amountspaid for the recalled Product(s) .

19 AUDITS

19 .1 Teva or its Affiliates shall have the right, at its own cost,to visit any manufacturing site at which any of the Productsor API are being manufactured and/or stored, during regularbusiness hours and upon not leas than three (3) business daysprior written notice to Impax . During any such visit, Teva orits Affiliates shall have the right : (a) to inspect themanufacturing, packaging, testing, quality control, transportand/or storage facilities for such Products or API ; (b) toinspect the procedures relating to any of the activitiesreferred to in subsection (a) above ; and/or (c) to audit anybooks, records and reports pertinent to the activitiesreferred to in subsection (a) above to ensure compliance withall Applicable Laws, including without limitation, compliancewith COMP, ANDAs, and other Approvals .

19 .2 Impax or its Affiliates shall have the right , at its own cost,to visit any manufacturing site at which any of the Productsor API are being manufactured and/or stored, during regularbusiness hours and upon not less than three (3) business daysprior written notice to such manufacturer and Teva . During anysuch visit, Impax or its Affiliates shall have the right : (a)to inspect the manufacturing , packaging , testing, qualitycontrol, transport and/or storage facilities for such Productsor API ; (b) to inspect the procedures relating to any of theactivities referred to in subsection (a) above ; and/or (c) toaudit any books , records and reports pertinent to theactivities referred to in subsection (a) above to ensurecompliance with all Applicable Laws , including withoutlimitation, compliance with cGMP , ANDAs, and other Approvals .

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19 .3 Each Party shall promptly supply the other Party with a copyof any notices or reports received from any RegulatoryAuthority related to an audit or other investigation by theRegulatory Authority with respect to the API and/or Products .Each Party shall use its commercially reasonable best effortsto provide such Regulatory Authority with a prompt, accurateand complete response to any deficiencies noted, and topromptly address , and if necessary correct , any and all suchdeficiencies to the satisfaction of the Regulatory Authority .

20 CONFIDENTIALITY

20 .1 Each of the Parties agrees that : (a) it will not disclose anyConfidential Information of the other to any third party atany time during the Term without the prior written consent ofthe disclosing Party ; (b) it will not make use of anyConfidential Information of the other Party for any purposeother than for the purposes set forth in,. or in furtherance ofthe transactions contemplated by this Agreement ; and/or (c) itwill use all reasonable efforts to prevent unauthorizedpublication or disclosure by any person of such ConfidentialInformation including requiring its employees, consultants oragents to enter into similar confidentiality agreements inrelation to such Confidential Information .

20 .2 Notwithstanding the foregoing , either Party shall be permittedupon reasonable prior written notice to the other Party todisclose Confidential Information if required by law or courtorder .

20 .3 All Confidential Information in any form will be returned tothe Party who disclosed the Confidential Information withinthirty ( 30) days of the termination or expiration of thisAgreement , save for the retention of one ( 1) copy of theConfidential Information by the receiving Party as a record ofthe receiving Party's ongoing confidentiality obligationsunder this Agreement .

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20 .4 Neither Party shall use the name of the other Party in anypublicity or advertising nor, except as required by law orcourt order, publicly disclose information related to thisAgreement or the terms and conditions hereof without the priorwritten consent of the other Party .

20 .5 Each of the Parties agrees that all Confidential Informationthat it receives from the other Party and/or its Affiliates inconnection with the Products is the sole property of thedisclosing Party and shall be used by it only in accordancewith the terms and provisions of this Agreement .

20 .6 This Section 20 shall be in effect during the Term and for aperiod of five (5) years following the termination orexpiration thereof .

20 .7 The Parties acknowledge that it is their intention to limitthe disclosure of Confidential Information hereunder to theProducts and matters directly related thereto .

21 TERM AND TERMINATION

21 .1 Any Supply Term shall be extended for successive terms of two(2) years unless either Teva or Impax provides the other withwritten notice of its intention not to extend that Supply Termat least twelve (12) months before the expiration of suchinitial Supply Term or any extension thereof .

21 .2 Subject to Sections 21 .2 .1 and 21 .2 .2, this Agreement may be

terminated by either Party by written notice provided to theother Party at any time during the Term if the other Party(the "Breaching Party") is in material breach or default ofany of its obligations hereunder (including, withoutlimitation, any payment obligations) or any of itsrepresentations or warranties hereunder were untrue in a

material respect when made, as follows : (i) the terminatingParty shall send written notice of the material breach ormaterial default to the Breaching Party, and (ii) the

termination shall become effective sixty (60) days afterwritten notice thereof was provided to the Breaching Party,unless the Breaching Party has cured any such material breachor default prior to the expiration of the sixty (60) dayperiod or if such material breach or material default is notcapable of being cured within such sixty (60) day period, andthe Breaching Party has commenced activities reasonablyexpected to cure such material breach or material defaultwithin such sixty (60) day period and thereafter uses diligent

efforts to complete the cure as soon as practicable, but in noevent shall such period exceed ninety (90) days .

35

21 .2 .1 Teva's right to terminate in the event of Impax'sfailure to supply Teva's or its Affiliates'requirements for Products hereunder shall be on aProduct-by-Product basis for each of the relevantcountries of the Territory .

21 .2 .2 The failure of Impax to supply Teva's or itsAffiliates' requirements for Products hereundershall not give rise to a right of termination byTeva if following such failure, Teva, its Affiliateor a third party designated by Teva manufacturesthe Product pursuant to the provisions of Section7 .5 hereof .

21 .3 Subject to the provisions of section 22 .3 hereof, either Partymay terminate this Agreement effective upon issuance ofwritten notice if, at any time, the other Party files apetition in bankruptcy, or enters into an arrangement with itscreditors, or applies for or consents to the appointment of areceiver or trustee, or makes an assignment for the benefit ofcreditors, or suffers or permits the entry of an orderadjudicating it to be bankrupt or insolvent .

21 .4 In addition to the other provisions of this Section 21, Tevashall be entitled to terminate this Agreement with respect toany Tier 2 Product in the U .S . by providing written notice toImpax by no later than the earlier of (i) twelve (12) monthsfollowing the Effective Date , or (ii ) fifteen (15) days afteracceptance by the FDA of the ANDA for the applicable Tier 2Product( s) . Upon such termination the grant hereunder to Tevato Market such Tier 2 Products in the U .S . shall revert toImpax and , except as provided in this Section 21 . 4, Teva'sobligations hereunder with regard to such Tier 2 Productsshall terminate . To the extent applicable , Teva shall indicatein its notice if it intends to commercialize a CompetingProduct to the subject Tier 2 Product that it inte rnallydeveloped (as distinguished from a "Transaction Event") . Uponreceipt of Teva ' s written notice, Impax shall have sixty (60)days to elect to, if applicable (as a result of Teva settingforth in its notice its intention to commercialize a competingProduct), to participate in Teva ' s commercialization of suchCompeting Product ( s), in the U .S ., in which case, suchCompeting Product( s) shall be deemed to be the correspondingTier 2 Product terminated by Teva for purposes of thisAgreement . In the event Impax elects to participate in Teva'scommercialization of the Competing Product, Teva shallmanufacture the applicable Competing Product , carry out allregulatory and legal activities and Impax shall reimburse Tevatwenty-five percent ( 25%) for all past and future RegulatoryExpenses and Intellectual Rights Legal Expenses incurred byTeva and /or its Affiliates for such Competing Product ( s), andthe Impax Margin for such Competing Product ( s) payable toImpax shall be deemed to be twenty - five percent ( 25%) ofProfit . Within sixty ( 60) days following launch of theapplicable terminated Tier 2 Product (s) by Impax or Impax'sAffiliate , nominee , assignee , licensee or other similarentity, Impax shall reimburse Teva an amount equal to allRegulatory Expenses and Intellectual Rights Legal Expensespaid by Teva under this Agreement with respect to theapplicable Tier 2 Product(s) .

36

21 .5 Teva shall be entitled to terminate this Agreement, upon

thirty ( 30) days notice to Impax , in the event of an Event of

Default ( as set forth in Section 10 .7) .

21 .6 In the event that there is no launch of any of the Products inany of the countries in the Territory by July 15, 2004, Tevashall have the right , at its option , to terminate thisAgreement on ten ( 10) days notice .

22 CONSEQUENCES OF TERMINATION

22 .1 Termination of this Agreement for whatever reason shall notaffect the liabilities or obligations of the Parties hereunderin respect of matters accrued at the time of such termination,and shall be without prejudice to any other right or remediesavailable at law or in equity . (Impax acknowledges and agrees,however, that notwithstanding the immediately precedin gsentence it shall not have any other rights or remediesagainst Teva in the event of a termination pursuant to Section

21 .4, 21 .5, or 21 .6) .

22 .2 In the event of early termination of this Agreement by Tevapursuant to Section 21 .3 or 21 .5, and without derogating fromany other rights or remedies available to Teva, Impax shall,at the election of Teva exercised within thirty (30) days ofTeva's notice to Impax of termination, promptly and free ofcharge :

22 .2 .1 transfer to Teva or a Teva designee allinformation, data and know-how in its possession orcontrol necessary for the manufacture of the APIand Products ;

22 .2 .2 grant and/or transfer to Teva the right of accessor use of all Regulatory Documentation andApprovals in its possession or control for theProducts to enable Teva to manufacture and/orMarket the Products in the Territory ; and

22 .2 .3 use its best efforts to assist Teva to assure thatsuch transfers as set forth in this Section 22 .2

are effected as effectively and expeditiously aspossible .

37

22 .3 In the event this Agreement is terminated under Section 21 .3,all rights and licenses granted pursuant to this Agreementare, and shall otherwise be deemed to be, for purposes ofSection 365(n) of 11 U.S .C . se .101 et seq . (the "BankruptcyCode"), licenses of rights to "intellectual property" asdefined under Section 101(35A) of the Bankruptcy Code . TheParties agree that Teva, as a licensee of such rights underthis Agreement, shall retain and may fully exercise all of itsrights (including, without limitation, any right to enforceany exclusivity provision of this Agreement (including anyembodiment of such "intellectual property")), remedies andelections under the Bankruptcy Code . To the fullest extentpermitted by Applicable Law, the Parties further agree that,in the event of the commencement of a bankruptcy proceeding byor against Impax under the Bankruptcy Code, Teva shall beentitled to all applicable rights under Section 365 of theBankruptcy Code, including but not limited to, a completeduplicate of (or complete access to, as appropriate) any suchintellectual property and all embodiments of such intellectualproperty upon written request therefore by Teva, and such, ifnot already in its possession, shall be promptly delivered toTeva .

23 INDEPENDENT CONTRACTORS

The status of the Parties under this Agreement shall be that ofindependent contractors . Nothing is this Agreement shall be construedas establishing a partnership or joint venture relationship between theParties hereto . No Party shall have the right to enter into anyagreements on behalf of the other Party, nor shall it represent to anyperson that it has any such right or authority . All persons employed bya Party shall be employees of such Party and not of the other Party andall costs and obligations incurred by reason of any such employmentshall be for the account and expense of such Party .

24 SUCCESSORS AND ASSIGN S

The terms and provisions hereof shall inure to the benefit of, and bebinding upon, Teva, Impax and their respective successors and permittedassigns . Neither Party shall assign this Agreement or any part of it toany third party without the prior written consent of the other Party ;provided, however, that Teva may, without obtaining the consent ofImpax, assign this Agreement or delegate any of its rights orobligations hereunder to any of its Affiliates, provided that Tevaagrees to remain primarily liable for the full and timely performanceby such Affiliate of all its obligations hereunder .

25 FORCE MAJEURE

25 .1 Neither Party shall be liable for non- performance or delay inthe fulfillment of its obligations with the exception ofpayment obligations and those obligations respecting thetimely achievement of the applicable milestones, when any suchnon-performance or delay shall be occasioned by anyunforeseeable cause beyond the reasonable control of Teva orImpax, as the case may be , including without limitation, actsof God, fire, flood, earthquakes , explosions, sabotage,strikes, or labor disturbances (regardless of thereasonableness of the demands of the labor force), civilcommotion, riots, military invasions, wars , failure ofutilities, failure of carriers, or any acts , restraints,requisitions, regulations, or directives issued by a competentgovernment authority (" Force Majeure Events") .

38

25 .2 In the event that either Party is prevented from dischargingits obligations under this Agreement on account of a ForceMajeure Event , such Party shall notify the other forthwith,and shall nevertheless make every endeavor , in the utmost goodfaith, to discharge its said obligations, even if in a partialor compromised manner .

26 CURRENCY

All payments under this Agreement shall be made in U .S . Dollars and, asapplicable , the calculation of exchange rates shall be based upon theaverage over a twenty ( 20) business day period preceding the date thatpayment is due of the applicable rate of exchange as published in theWall Street Journal .

27 PUBLICITY AND DISCLOSURE OF AGREEMENT

Concurrently with the execution of this Agreement , the Parties shallagree in good faith on a form of press release which Impax may release .The Parties agree that until February 1, 2002, no future publicityrelease or announcement concerning the transactions contemplated herebyshall be issued without the advance written consent of the other Party,which consent shall not be unreasonably withheld, to the extent suchrelease or announcement includes statements concerning terms of thisAgreement and/or explicitly includes the Products or either Parties'name ( s), except to the extent such release or announcement may berequired by Applicable Law . For releases or announcements required bylaw, the Party making the release or announcement shall , before makingany such release or announcement , afford the other Party a reasonableopportunity to review and comment . Any copy of this Agreement to befiled with the Securities and Exchange Commission or any otherRegulatory Authority shall be redacted to the fullest extent permittedby Applicable Law and to the reasonable satisfaction of both Parties ;provided, however, in the event that the Securities and ExchangeCommission or Regulatory Authority, as applicable, objects to theredaction of any portion of the Agreement after the initial submission,the filing Party shall inform the other Party of the objections andshall in good faith respond to the objections in an effort to limit thedisclosure required by the Securities and Exchange Commission orRegulatory Authority, as applicable .

28 SEVERABILITY

Should any part or provision of this Agreement be held unenforceable orin conflict with applicable law, the invalid or unenforceable part or

provision shall, provided that it does not go to the essence of thisAgreement, be replaced with a revision which accomplishes, to theextent possible, the original commercial purpose of such part orprovision in a valid and enforceable manner , and the balance of thisAgreement shall remain in full force and effect and binding upon theParties hereto .

39

29 ENTIRE AGREEMENT

This Agreement (including its Annexes), together with the Note, theStock Purchase Agreement and Registration Rights Agreement constitutesthe entire agreement between the Parties with respect to its subjectmatter and supersedes all prior agreements, arrangements, dealings orwritings between the Parties . This Agreement may not be amended ormodified except in writing executed by the duly authorizedrepresentatives of both Parties .

30 WAIVER

No waiver of a breach or default hereunder shall be considered validunless in writing and signed by the Party giving such waiver, and nosuch waiver shall be deemed a waiver of any subsequent breach ordefault of the same or similar nature .

31 GOVERNING LAW

This Agreement shall be governed , interpreted and construed inaccordance with the laws of the Commonwealth of Pennsylvania , withoutregard to principles of conflicts of law . Subject to Section 32, eachof the Parties hereby irrevocably submits to the exclusive jurisdictionof the Commonwealth of Pennsylvania or United States Federal Courtsitting in the City of Philadelphia and Commonwealth of Pennsylvaniaover any action or proceeding arising out of or relating to thisAgreement , and each hereby waives the defense of any inconvenient fo rumfor the maintenance of such action or proceeding . To the extent that itmay otherwise be applicable, the Parties hereby expressly agree toexclude from the operation of this Agreement the United NationsConvention on Contracts for the Inte rnational Sale of Goods , concludedat Vienna , on 11 April 1980, as amended and as may be amended furtherfrom time to time .

32 WORKING COMMITTEE AND SECTION 2 . 8 DISPUTE RESOLUTION

Any and all disputes within the Working Committee as well as pursuantto Section 2 .8 shall be submitted to a panel of three (3) arbitratorshaving expertise in the specific area that is the subject of dispute .Teva and Impax shall each select one arbitrator . The arbitratorsselected by Teva and Impax shall select the third arbitrator . Allarbitrators shall be selected within twenty (20) days . Any arbitrationshall be held in Philadelphia, Pennsylvania at such place as may beagreed upon by the Parties . The arbitrators shall have sole discretionwith regard to the admissibility of any evidence and all other mattersrelating to the conduct of the arbitration and the arbitration shall beconducted in accordance with the American Arbitration Association . Thearbitrators shall in rendering their decision, apply the substantivelaws of the Commonwealth of Pennsylvania (regardless of its or anyother jurisdiction's choice of law principles) . The decision of thearbitrators shall be final and not appealable, except in the case offraud or bad faith on the part of the arbitrators or any Party to thearbitration proceeding in connection with the conduct of suchproceedings . The arbitrators shall determine the proportion in whichthe Parties shall pay the costs and fees of the arbitration, and eachParty shall pay its own costs (including, without limitation,reasonable attorney's fees) and expenses in connection with sucharbitration . The arbitration proceeding shall be confidential and,except as required by Applicable Law, neither Party shall make (orinstruct the arbitrators to make) any public announcement with respectto the proceedings or decision of the arbitrator without prior writtenconsent of the other Party . The existence of any dispute submitted forarbitration, and the award of the arbitrator, shall be kept inconfidence by the Parties and the arbitrators, except as required inconnection with the enforcement of such award or as otherwise requiredby Applicable Law .

40

33 NOTICES

Notices provided for under this Agreement shall be given in writing, inEnglish, by facsimile ; by first-class mail, federal express or similarservice to the mailing address or facsimile numbers set out below :

If to Teva : TEVA PHARMACEUTICALS CURACAO N .V .World Trade Center Curacao, Unit T .M .I . 14Piscadera Bay, CuracaoNetherlands AntillesAttention : General ManagerTelephone : 599-9-463-6388Facsimile : 599-9-463-6588

With a copy to : TEVA PHARMACEUTICALS USA, INC .1090 Horsham RoadNorth Wales , Pennsylvania 1945 4Attention : Vice President and General Counsel

Teva North AmericaTelephone: (215) 591-3000Facsimile: (215) 591-8813

If to Impax : IMPAX LABORATORIES, INC .3735 Castor AvenuePhiladelphia , PA 19124Attention : Barry R . Edwards, CEOTelephone : (215) 289-2220Facsimile: ( 215) 289-593 2

41

With a copy to : IMPAX LABORATORIES, INC .30831 Huntwood AvenueHaywood , California 94544Attention : Larry Hsu, President and COOTelephone (510) 471-3600Facsimile : ( 510) 471-1595

or to such other addresses or facsimile numbers as a Party shalldesignate by notice, similarly given, to the other Party . Notices shallbe deemed to have been sufficiently given and served the daytransmitted by facsimile (with confirmed transmission ) or a date five( 5) business days after the date of express mail or by mail courier .

IN WITNESS WHEREOF, each of the Parties has executed this Agreement and Annexesas of the date below .

TEVA PHARMACEUTICALS CURACAO N .V .

Signature :-----------------------

Name :

----------------------------Title: ---------------------------

Date :----------------------------

IMPAX LABORATORIES, INC .

Signature :------------------------

Name :------------------------------

Title :----------------------------

Date :------------------------------

Signature :-----------------------

Name :

----------------------------Title: ---------------------------

Date :----------------------------

Signature :------------------------

Name :------------------------------

Title :----------------------------

Date :------------------------------

42

ANNEX A

The Product s

BRAND- GENERIC STRENGTH---------------------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------Tier 1 Products + + +---------------------------------------------------------------------------------------------------------------

+ +

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

+ + +---------------------------------------------------------------------------------------------------------------

+ + +---------------------------------------------------------------------------------------------------------------

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

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

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

Tier 2 Products + + +---------------------------------------------------------------------------------------------------------------

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

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

Tier 3 Products Three additional productsto be determined by theParties as providedherein .

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

* including, without limitation, any additional brands .+ Confidential portions omitted and filed separately with the Commission .

43

ANNEX B

Tier 1 Products and Optional Products : Manufacturing Caps

Optional Optional Optional + + + + +Product Product Product + + + + +

10mg 20 mg 40mg + + +

Bottle + + + + + + + +

size$ $ $ $ $ $ $ $

Labor, OH4 QC cost + + + + + + + +

Pkg . Nat'l + + + + + + + +

Total Cost + + + + + + + +

Bottle + + + + + + + +

size

Labor,OHa Qc cost + + + + + + + +

Pkg . Nat'l + + + + + + + +

Total Cost + + + + + + + +


44

Annex C

Milestones (If Teva exercises the option for theOptional Products pursuant to Section 4 )

---------------------------------------------------------- --------------------------Milestone Event Amount Forgiven (US$)**

1 . *Tentative Approval for all of the optionalProducts, (+mg, + mg, and + mg) in the U .S . by nolater than+ .

----------------------------------------------------------2 . *Launch Date for all of the optional Products, (+ mg,

+ mg, and + mg) in the U .S within fifteen (15) daysfrom the expiration of First to File Exclusivity, butin no event later than+ .

----------------------------------------------------------3 . Launch Date for + in the U .S . no later than + .

----------------------------------------------------------4 . Launch Date for all of + mg and + Tablets in th e

U .S . within fifteen (15) days from the expirationof First to File Exclusivity, but in no event laterthan + .

----------------------------------------------------------5 . Tentative Approval for all of + mg and + mg in the

U .S . by no later than +, provided that the facilityin which Impax will manufacture such Product hasbeen approved by the FDA for commercial launch .

----------------------------------------------------------6 . Launch Date for all of + mg, and + mg in the U .S .

within fifteen (15) days from the expiration ofFirst to File Exclusivity, but in no event laterthan + .

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

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

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

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

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

* If Impax fails to meet the Tentative Approval condition but subsequently meetsthe Launch Date condition, the $+ shall nevertheless be forgiven .

** For the sake of clarification, the applicable milestone shall be achievedonly if the tentative Approval and/or Launch Date is for the prescription drugmarketplace only .


45

Annex D

Milestones ( If Teva does not exercise the option for theOptional Products pursuant to Section 4 )

---------------------------------------------------------- ----------------------------Milestone Event Amount Forgiven (US$) *

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

1 . Launch Date for + in the U .S . no later than +. +---------------------------------------------------------- ----------------------------2 . Launch Date for all of + mg and + in the U .S . +


---------------------------------------------------------- ----------------------------3 . Tentative Approval for all of + mg and + mg in the +

U.S . by no later than+, provided that the facilityin which Impax will manufacture such Product hasbeen approved by the FDA for commercial launch .

---------------------------------------------------------- ----------------------------4 . Launch Date for all of + mg, and + mg in the U .S . +


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

* For the sake of clarification, the applicable milestone shall be achieved onlyif the tentative Approval and/or Launch Date is for the prescription drugmarketplace only .


46

Annex E

Stock Purchase Agreement and Registration Rights Agreemen t

47

Annex F

EU Countries *

Austria LuxembourgBelgium Netherland sDenmark PortugalFinland SpainFrance SwedenGermany SwitzerlandGreece United KingdomIrelandItaly

* Plus any other country added to the European Union during the Term . Teva shallhave the option in the manner provided by Section 3 .1 for twelve (12) monthsfrom such date of inclusion to include any such country to the Territory .

48

Annex G

Optional Product s

-------------------- ---------------------- ----------------------Brand * Generic Strengths

-------------------- ---------------------- ------------------------------------------ ---------------------- ----------------------+ + +

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

*including, without limitation, any additional brand .


49

Annex H

The Note pursuant to Section 10 . 1

50

EXHIBIT B

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

Form 10-Q

(Mark One)

(X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 193 4

For the quarterly pe riod ended March 31, 2004

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 ( d) OF THESECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-27354

Impax Laboratories, Inc .

(Exact name of registrant as specified in its cha rter)

Delaware

(State or other jurisdiction ofincorporation or organization)

65-040331 1

(I.R.S . EmployerIdentification No .)

30831 Huntwood Avenue - Hayward, California 94544

(Address of principal executive offices) (Zip code)Registrants telephone number including area code (510) 476-200 0

Indicate by check mark whether the registrant (1) has filed all reports required to befiled 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 filesuch reports ) and (2) has been subject to such filing requirements for the past 90 days .

Yes _A_ No _

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

The number of shares outstanding of the registrant s common stock as ofApril 30. 2004 was approximately 58.028 .543 .


INDEX TO FORM 10- Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

PART I . FINANCIAL INFORMATION

PAS'iI:

PART II. OTHER INFORMATION AND SIGNATURE S

It em 1, Legal Proceedings 1$

Iteni 2 . C hanaes in Securities- Use of Proceeds and Issuer Purchases of Ecuity Securities 2.1

j(S n, i 6. Exhibits and Rcoorts on Form 8-K .'}

Siunatures z

Certifications

Rack to Contents

PART I - FINANCIAL INFORMATION

ITEM 1 . FINANCIAL STATEMENTSIMPAX LABORATORIES, INC .

BALANCE SHEETS(unaudited)

(in thousands , except share and per share data)

March 31, December 31,2004 2003

ASSETS

Current assets :Cash and cash equivalentsAccounts receivable, netInventoryPrepaid expenses and other assetsTotal current assetsRestricted cashProperty, plant and equipment, netInvestments and other assetsGoodwill, netIntangibles, net

Total assets

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:Current portion of long-term debtAccounts payableRevolving line of creditAccrued expenses and deferred revenues

Total current liabilitiesRefundable deposit from TevaLong term debtDeferred revenues and other liabilities

Total liabilities

Commitments and Contingencie sMandatorily redeemable convertible Preferred Stock :Series 2 mandatory redeemable convertible Preferred Stock,$0.01 par value 0 shares outstanding at March 31, 2004,and 75,000 shares outstanding at December 31, 2003,redeemable at $100 per share

Stockholders' equity :Common stock, $0.01 par value, 75,000,000 shares authorized and57,961,990 and 55,307,136 shares issued and outstandingat March 31, 2004, and December 31, 2003, respectivelyAdditional paid-in capitalAccumulated deficit

Total stockholders' equity

Total liabilities and stockholders' equity

$ 19,491 $ 15,50524,052 9,88530,148 28,479

1,704 1,42775,395 55,29610,000 10,00039,231 38,132

1,371 1,32527,574 27,574

283 379

$ 153,854 $ 132,706

&sp;S 1,166 $ 1,06833,590 22,783

6,953 7,64213,620 10,872

55,329 42,365- 5,000

8,489 8,8542,895 2,879

66,713 59,098

- 7,500

580 553182,062 170,104(95,501) (104,549)

87,141 66,108

S 153 ,854 S 132,706

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

1

Back to Contents

IMPAX LABORATORIES, INC.STATEMENTS OF OPERATIONS

(unaudited)(doll ars in thousands, except share and per share data)

Three Months EndedMarch 31 ,

2004 2003

Net sales S 35,822 S 11,066

Revenue from reversal of refundable deposit from Teva 2,500 -

Other revenues 531 359

Total revenues 38,853 11,42 5

Cost Of sales 18,550 8,14 7

Gross margin 20,303 3,27 8

Research and development 6,504 3,75 5

Reimbursements from Teva (11) (132 )

Research and development, net 6 ,493 3,623

Selling expenses 726 568

General and administrative expenses 3,351 2,122

Other operating income (expense), net 7 1 1

Net income (loss) from operations 9,740 (3,024)

Interest income 56 42

Interest expense (272) (231 )

Income (Loss) before provision for income taxes 9,524 (3,213)

Provision for income taxes 476 -

Net income (loss) $ 9,048 $ (3,213)

Earnings per share :Basic $ 0.16 S (0.07 )

Diluted $ 0.15 S (0.07 )

Weighted average common shares outstanding :Basic 56,978,095 4 7, 876,830

Diluted 6 1,481,932 47, 876,830

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

2

IMPAX LABORATORIES, INC.STATEMENTS OF CASH FLOWS

(unaudited)(down in thousands)

Throe Months EndedMarch 31 ,

2004 2103

Cub flows from operating activities :Net income (loss) S 9,048 S (3,213 )Adjustments to reconcile net loss to net cash used by operating activities:Depreciation and amortization 1,022 885Reversal of refundable deposit from Teva (2,500) -Non-cash compensation charge (warrants and options) - 11 9Change in assets and liabilities:Accounts receivable (14,167) 790Inventory (1,669) (2,310)Prepaid expenses and other assets

)50

Accounts payable 10,807 2,164Other liabilities 2,764 644

Net cash provided by (used in) operating activities 4,982 (871 )

Cash flows from Investing activities :Purchases of property and equipment (2,025) (698)

Net cash used in investing activities (2,025) (698)

Cash flows from financing activities:Revolving line of credit borrowings (repayments) (689) 1,826Additions to long-term debtRepayment of long-term debt

-(267)

896(163 )

Proceeds from issuance of common stock (upon exercise o fstock options and warrants and under ESPP) 1,985 1 5

Net cash provided by financing activities 1,029 2,574

Net increase in cash and cash equivalents 3,986 1,005

Cash and cash equivalents, beginning of the quarter $ 15,505 S 10,21 9

Cash and cash equivalents, end of the quarter $ 19,491 $ 11,224

Cash paid for interest $ 273 $ 232

Cash paid for income taxes $ - $ -

Supplemental disclosure of non-cash financing activities :

In January 2004, the Company issued 160,751 shares of our common stock to Teva to satisfy the remaining $2.5 million refundable deposit to Teva. Also,in January 2004, the holders of the Series 2 Preferred Stock converted their entire 75,000 preferred shares into 1,500,000 shares of common stock .


3

NOTES TO FINANCIAL STATEMENTSThree Months Ended

March 31, 2004 and March 31, 2003

Note 1 . The financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities andExchange Commission . Certain information and disclosures normally included in financial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations; however, the Company believesthat the disclosures are adequate to make the information presented not misleading . These financial statements should be read in conjunction with thefinancial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K . The results of operations for the three monthsended March 31, 2004 are not necessarily indicative of the results of operations expected for the year ending December 31, 2004 .

Impax Laborato ries , Inc . ("IMPAX, "we,"'tis," or "the Company") focuses on the development , manufacturing, and marketing of special typharmaceutical products utilizing its own formulati on expertise and drug delivery technologies . As of March 31, 2004, the Company is marketin .*thirty-three generi c pharmaceu ticals, which represent dosage varia tions of fourteen different pharmaceutical compounds , and has seventeen applicationsunder review with the Food and Drug Administra ti on (FDA), including five tentatively approved, addressing app roximately $5 .4 billion in U .S . productsales in the twelve months ended Februa ry 29 , 2004, according to NDCHealth . Thirteen of these pending filings we re filed under Paragraph IV of theHatch-Waxman Amendments . The Company has app roximately twenty-seven other products in vari ous stages of development for which applica ti ons havenot yet been filed. Th ese other products are generic versions of pharmaceutical products that had U . S. sales of approximately S 14.5 billion in the twelvemonths ended February 29, 2004 , according to NDCHealth .

Except for the three months ended March 31, 2004, we have experienced operating losses and negative cash flow from operations and our futureprofitability continues to be uncertain. As of March 31, 2004, our accumulated deficit was $95,501,000 and we had outstanding indebtedness in anaggregate principal amount of $16,608,000. To remain operational, we must, among other things :

• obtain FDA approval for our products ;

• prevail in patent infringement li tigation in which we are involved;

• successfully launch our new products ; and

comply with the many complex governmental regulati ons that deal with virtually eve ry aspect of our business activities.We expect to incur signi fi cant operat in g expenses , pa rt icularly for research and development, for the foreseeable future in order to execute our businessplan. We , therefore, anticipate that such operating expenses , as well as planned capital expenditures, will constitute a material use of our cash re sourc es.

On April 5, 2004, the Company completed a convert ible senior subordinated debentu re offe ri ng of $95 ,000,000 for net proceeds of $91 ,675,000. Theproceeds of the debentures will be used for general corporate purposes, including working capital requi re ments , manufactu ri ng of our products, and researchand development .

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

Critical Accounting Policy Related to Revenue Recognition

The Company recognizes re venue in accordance with SEC Staff Accounting Bulletin (" SAB") 101 issued by the SEC in December 1999. We re cognizerevenue from the sale of products when the shipment of p roducts is received and accepted by the customer . Provisions for esti mated discounts, rebates,chargebacks , returns and other adjustments are p rovided for in the period the related sales are recorded . In December 2003, the SAB 104 was issued by theSEC . This bulletin revises and clari fies portions of Topic 13 of the Staff Accounting Bulle ti n to be consistent with current accounting and audi ti ng guidanceand SEC rules and regulations .

Emerging Issues Task Force (EITF) No. 00-21 supplemented SAB 101 for accounting for mul tiple element arrangements. Th e Company has entered intoseveral strategic alliances that involve the delive ry of multiple products and se rvices over an extended pe riod of time . In multi ple element arrangements, theCompany must determine whether any or all of the elements of the arrangement can be separated from one another . If separation is possible , revenue isrecognized for each deliverable when the revenue re cogni tion crite ria for the specific deliverable is achieved . If separation is not possible, revenuerecogniti on is required to be spread over an extended period.

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

1) the delivered item has value to the customer on a standalone basis;

2) there is objective and reliable evidence of the fair value of the undelivered item; and

3) if the arrangement included a general right of return, or whether delivery or performance of the undelivered item is considered probable .The Company reviews all of the terms of its strategic alliances and follows the guidance from EITF No. 00-21 for multiple element arrangements.

In June 2001 , the Company entered into a Strategic Alliance Agreement with a subsidia ry of Teva for twelve contro lled-release generi c pharmaceuticalproducts. Th e agreement granted Teva exclusive U .S. prescri ption marketing ri ghts for these products for a pe riod of ten years from the date of Teva's fi rstsale of the products.

Revenues fro m product sales for these products under our strategic alliance are recognized at the time title and risk of loss transfers to Teva 's customers .During the three months ended March 31, 2004 , the Company commenced shipping its Bup ropion Hydrochloride 100 mg and 150 mg Cont rolled ReleaseTablets. Teva ships the Bupropion products to its customers and reports the results on a monthly basis. Teva provides to IMPAX a financial repo rt detailingits g ross sales less applicable chargebacks , rebates and other credits to arrive at net sales, cost of sales information and gross margins for the Bup ropionproducts. Th e information on the fin ancial report is used by IMPAX to record its monthly revenue for the Bup ropion 100 mg and 150 mg products .Additionally, the amount of revenue that IMPAX cams is based on a fixed gross margin sharing percentage .

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

Earnings Per Share

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


Numerator:Net income (loss)

Denominator :Basic weighted average common shares outstandingEffect of dilutive options and warrants

Fully diluted weighted average common shares outstandin g

Basic earnings per share

Fully diluted earnings per share

2004 2003

$ 9,048 $ (3,213 )

56,978,095 47,876,8304,503,837 -

61,481,932 47,876,830

S 0.16 S (0.07)

$ 0.15 S (0 .07)

Included in the computation of fully diluted earnings per share are outstanding stock options and warrants with an exercise price less than the averagemarket price of the common shares for the period. As of March 31, 2004 there were no stock options or warrants excluded from the fully diluted earningsper share calculation because all options and warrants exercise pri ce were less than the average market p rice of common shares.

Stock-Based Employee Compensation

The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Pri nciples 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 marketprice 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 provisionsof SFAS No . 123, "Accounting for Stock-Based Compensation" and SFAS No . 148, "Accounting for Stock- Based Compensation - Transition andDisclosure - An Amendment to FASB Statement No. 123 ."

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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 bySFAS No. 123, the Company' s income and income per share would have been decreased to the p ro forms amounts indicated below ( in thousands , exceptper share amounts) :

Three Months BodedMarch 3 1 ,

2004 2003

Net income (loss), asreported $ 9,048 $ (3,213)Add : Stock-based employee compensatio nincluded in reported net income ,net of related tax effects - -Deduct Total stock-based employe ecompensation expense determined underfair value based method for all awards,net of related tax effects (959) (862)

Pro forms net income ( loss) $ 8 , 089 $ (4,075)

Earnings per share :Basic - as reported S 0 .16 $ (0 .07)

Basic- pro forma $ 0.14 $ (0.09)

Diluted - as reported $ 0.15 $ (0.07)

Diluted - p ro forms $ 0.13 $ (0.09)

The Company calculated the fair value of each option grant on the date of the grant using Black-Scholes pricing method with the following assumptions:for the three months ended March 31, 2004 and 2003 , the dividend yield was 0'/. and 0% ; the weighted average expected option term was five years ;risk-free interest rate was 3% and 2 .69%; the stock volatility for the three months ended March 31, 2004 and 2003 was 79 .48% and 69% , respectively. Theweighted average fair value of op tions for March 31, 2004 and 2003 was $14 .12 and 51 .96, respec tively .

The Company reports both basic earnings per share, which is based on the weighted-average number of common shares outstanding, and diluted earningsper share, which is based on the weighted-average number of common shares outstanding and all dilu tive potential common shares outstanding .

Note 2. Convertible Senior Subordinated Debentures

On April 5, 2004, the Company issued and sold $95 .0 million in aggregate principal amount of its 1 .250% convertible senior subordinated debentures due2024 . The debentures were sold by the Company to Citigroup Global Markets Inc ., Wachovia Capital Markets, LLC and First Albany Capital Inc., as initialpurchasers , in a private placement exempt from registration under the Securities Act of 1933, as amended (the "Securities Act") . We have been advised bythe initial purchasers that they have resold, and/or intend in the future to resell, the debentures to "quali fi ed institutional buyers" (as defined in Rule 144Apro mulgated under the Securities Act) in transactions exempt from the registration requirements of the Securities Act in reliance on Rule 144A.

The issuance and sale of the debentures resulted in net proceeds to the Company of app roximately $91,675 ,000 . These proceeds are being used for generalcorporate purposes , including working capital requirements , manufacturing of our products and research and development.

The debentures bear interest at the rate of 1 . 250% per year. Interest on the debentures is payable on April I and October l of each year, beginning onOctober 1, 2004. The debentures are convertible by holders into shares of our common stock at a conversion p rice of $28 .08 per share (which represented a300A premium over our stock p rice at the ti me the debentures were issued). The conversion price is subject to adjustment in certain events if . ( 1) the pri ce ofour common stock reaches a specific threshold; (2) the trading price for the debentures falls below certain thresholds ; ( 3) the debentures have been calledfor redemp tion; or (4) certain corporate transactions occur.

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The debentures mature on April 1, 2024, unless earlier redeemed, repurchased or converted . Before April 5 , 2007, we may redeem some or all of thedebentures if the p rice of our common stock reaches a specifi c threshold, at a redemption pri ce that includes an additi onal payment on the redeemeddebentures equal to $230.77 per S 1,000 p rincipal amount of debentures , less the amount of any interest actually paid or accrued and unpaid on thedebentures . On and after April 5, 2007, the Company may redeem some or all of the debentures at certain specified redemp ti on prices.

Th e debentures are the Company ' s unsecured obligations and are subordinated in right of payment to all of the Company's existing and future seniorindebtedness. On April 1 , 2009 , April 1, 2014, and April 1, 2019, and under certain circumstances , holders of the debentures will have the right to require usto repurchase all or any part of their debentures at a repurchase price equal to 1009A of the principal amount of the debentures , plus accrued and unpaidinterest and liquidated damages , if any, to, but excluding the repurchase date .

In connection with the offe ring of the debentures, we are required to file a shelf registra tion statement by July 5, 2004 with the Securities and ExchangeCommission covering resales of the debentures and of the common stock issuable upon conversion of the debentures . Th e S-3 must be declared effective bythe SEC by October 4, 2004 .

Note 3 . Recent Accounting Pronouncements

In November 2002, the EITF reached a consensus on Issue No . 00-21 . "Revenue Arrangements with Multiple Deliverables ." EITF Issue No. 00-2 1T videa guidance on how to account for arrangements that involve the delivery or performance of multiple products, services, and/or rights to use assets.

e Provisions of EITF Issue No . 00-21 applies to revenue arrangements entered into in fiscal periods beginning after June 15, 2003 . We implemented theprovisions of EITF Issue No. 00-21 in revenue reco of certain strategic agreements . The Company reviews all of the terms of its strategic alliancesand follows the guidance from this Issue for all multiple element arrangements.

In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No . 148, "Accounting for Stock-Based Compensation - Transition andDisclosure, amendment of FASB Statement No . 123 ." This statement provides additional transition guidance for those entities that elect to voluntarily adoptthe provisions of SFAS No. 123, "Accounting for Stock Based Compensation." Furthermore, SFAS No. 148 mandates new disclosures in both interim andyear-end financial statements within the Company's Significant Accounting Policies footnote . The Company has elected not to adopt the recognitionProvisions of SFAS No . 123, as amended by SFAS No. 148 . However, the Company has adopted the disclosure provisions and has included thisinformation in Note I 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 ofAccounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of acontrolling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial supportfrom other parties . FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which anenterprise 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 inwhich an enterprise holds a variable interest that it acquired before February 1, 2003 . FIN 46 applies to public enterprises as of the beginning of theapplicable interim or annual period . On October 8, 2003, the FASB decided to defer FIN 46 until the first reporting period ending after December 15, 2003 .The provisions of this Interpretation did not have a mate rial impact on the Company's financial condition or results of operations .

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

In February 2004, the FASB issued revised FASB Staff Position ("FSP") pertaining to FIN 46(R) . The revised FSPs replace certain previously issued FIN46 FSP for entities to which FIN 46(R) is applicable . This revision to FIN 46 did not have a material impact on the Company's financial condition or resultsof operation.

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

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In December 2003, the FASB revised SFAS 132, "Employers ' Disclosure About Pensions and Other Post Retirement Benefits ." Th is Statement does notchange the measurement or recognition of those plans required by FASB 87, "Employers' Accoun ting for Pensions," and No . 106, "Employers ' Accountingfor Post Retirement Bene fits Other than Pensions." This Statement retains the disclosure requirements contained in FASB No . 132, "Employers' Disclosureabout Pensions and Other Post Retirement Plans ." The provisions of this Statement do not have a material impact on the Company's financial condi tion orresults of operations . During the three months ended March 31, 2004 and 2003, the employer 401-K match was $24 ,352 and $21,347, respec ti vely .

In January 2004, the FASB issued FASB Staff Posi tion FAS 106-I to provide temporary guidance concerning the Medicare Presc ription DrugImprovement and Moderniza tion Act of 2003 . The provisions of this pronouncement did not have a material impact on the Company's fi nancial conditi onor results of operati ons .

Note 4. Our gross receivables and related deductions activity for the three months ended March 31 , 2004 and 2003, and the year ended December 31,2003 was :

(1a$0008 )

Gross accounts receivableLou : Accrued rebatesLess : Accrued chargebacksLess : Other deductions

Net accounts receivable

Three Months Ended Year Ende d

March 31, Marc h 31, December 31 ,2004 2003 2003

$ 30,853 $ 8,828 S 17,091(3,010) (1,585) (2,700)(3,505 ) (1,137) (4,10 1(286) (372) (405

S 24,052 $ 5,734 S 9,885

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

Net accounts receivable balance at March 31, 2004 includes $17,028,000 due from Teva.

Chargebacks and Rebates Accrual activity for the three months ended March 31, 2004 and 2003, and the year ended December 31, 2003 was:

CHARGEBACKS ACCRUAL

(10$0001 )

Beginning BalanceAdd: Provision related to sales made in current peri odLess : Credits issued during the current pe riod

Ending Balance

(in $000.)

Beginning Balanc eAdd: Provision related to sales made in current periodLess: Credits issued during the current period

Ending Balance

Three Months Ended Year Ended

March 31, Merck 31, December 31,2004 2003 2003

$ 4,101 S 1,373 $ 1,3732,148 1,314 10,57 1(2,744) (1,550) ( 7,843 )

$ 3,505 $ 1,137 S 4,10 1


March 31, March 31, December 31,2004 2003 2003

S 2,700 S 1,525 $ 1,5251,120 1,062 6,680(810) (1,002) (5,505)

S 3,010 S 1,585 S 2,70 0

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Note S. Our inventory consists of the following:

00 $0001)

Raw materialsWork in processFinished goods

March 31, December 31,2004 2003

S 16,387 S 9,6712,011 5,30311,750 13,505

$ 30,148 $ 28,479&sp;

The Company, as most companies in the generic pharmaceutical industry, may build invento ries of certain ANDA related products that have not yetreceived FDA approval and/or sati sfactory resolution of patent in fringement litigati on, when it believes that such action is appro p riate to increase itscommercial opportunity.

As of March 31, 2004, the Company ' s total inventory of $30 , 148,000 included $4,495, 000 in invento ri es relating to products pending launch while IMPAXawaits receipt of FDA marketing approval and/or sati sfactory resolution of patent infringement litigation , as follows :

(in $000,)

Raw mate rials S 3,876Workin process -Finished goods 619

Total $ 4,495

Note 6. Intangibles consist of the following :

Estimateduseful lire March 31, December 31 ,

(in $000e) ( years) 2004 2003

Product rights and licenses 3-8 S 2,691 S 2,691

Less: Accumulated amortization (2,408) (2,312)

$ 283 $ 379

Amortization expense was $96,000 for the three months ended March 31, 2004 . Expected amortization expense for 2004 will be approximately $379,000 .

Note 7. Accrued Expenses and Deferred Revenue

March 31, December 31,(10 $0001$) 2004 2003

Sales returns S 4,980 S 4,12 1Deferred revenues 1,821 1,75 1Accrued salaries and payroll expenses 2,875 1,64 9Patent infringement and other legal expenses 1,623 1,32 7Accrued Medicaid rebates 586 61 3Accrued royalty and gross profit sharing expense 457 55 9Other accruals 1,013 46 9Accrued shelf stock protection 175 23 2Accrued professional fees 90 15 1

S 13,620 S 10,87 2

9

Note S. Returns Accrua l

On soft)


December 31 ,2003

Beginning BalanceAdd : Provision related to sales made in current periodLess : Credits issued during the current period

Ending Balance

Note 9. Commitments and Contingencies

Patent Litigation

March 31, March 31,2104 2003

4,121 S 3,100 $ 3,1001,781 132 2,276(922) (132) (1,255)

S 4,980 $ 3,100 S 4,12 1

There has been substantial litigati on in the pharmaceuti cal, biological , and biotechnology indust ri es with respect to the manufacture , use, and sale of newp roducts that are the subject of confl icting patent ri ghts . One or more patents cover most of the brand name cont ro lled-release products for which we aredeveloping generi c versions. Under the Hatch-Waxman Amendments , when a drug developer fi les an ANDA for a gene ric drug, and the developer believesthat an unexpired patent which has been listed with the FDA as covering that b rand name product will not be infringed by the developer 's product or isinvalid or unenforceable, the developer must so certify to the FDA . That ce rti fication must also be provided to the patent holder, who may challenge thedeveloper's certification of non- infringement, invalidity or unenforceabili ty by filing a suit for patent infringement within 45 days of the patent holder'sreceipt of such certificati on. If the patent holder files suit, the FDA can review and app rove the ANDA , but is prevented from granti ng final marketingapproval of the product until a final judgment in the action has been rendered , or 30 months from the date the certification was received , whichever issooner. Should a patent holder commence a lawsuit with respect to an alleged patent in fringement by us, the uncertain ties inherent in patent litigati on makethe outcome of such liti gation difficult to predict. The delay in obtaining FDA app roval to market our product candidates as a result of litigation, as well asthe expense of such litigation, whether or not we are successful , could have a material adverse effect on our results of opera tions and financial posi tion . Inaddition , there can be no assurance that any patent li tigation will be resolved prior to the 30-month pe riod . As a result, even if the FDA were to app rove aproduct upon expiration of the 30-month pe riod, we may not commence marketing that product if patent litigation is s ti ll pending.

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

As part of our patent litigation strategy, we had obtained two policies covering up to $7 million of patent infringement liability insurance from AmericanInternational Specialty Line Company ("AISLIC"), an affiliate of AIG International. This litigation insurance covered us aga inst the costs associated withpatent infringement claims made against us relating to seven of the ANDAS we filed under Paragraph IV of the Hatch-Waxman Amendments. Both policieshave reached their limit of liability. While Teva has agreed to pay 45% to 50'% of the attorneys' fees and costs (in excess of the $7 million covered by ourinsurance policies) related to the twelve products covered by our strategic alliance agreement with Teva, we will be responsible for the remaining expensesand costs for these products, and all of the costs associated with patent litigation for our other products and our future products .

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

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

FIN 4 5

In November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others." Guarantees and claims arise during the ordinary cours e of business from relationships with suppliers, customers, and strategicpartners when the Company undertakes an obligation to guarantee the performance of others through the delivery of cash or other assets if specifiedtri ggering events occur . Non-performance under a contract by the guaranteed party triggers the obligation of the Company . As of March 31, 2004, allindemnifications included in agreements as of that date are excluded from the scope of FIN No . 45 as they relate primarily to our own future performanceand do not require any contingent payments .

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As of March 31, 2004, our total contractual commitments on loans , operating leases, and royalty agreements have not materially changed since December31, 2003, as disclosed in our Report Form 10-K .

Note 10. Changes in Securities

As part of the strategic alliance agreement that we entered into with a subsidia ry of Teva Pharmaceutical Industries Ltd. (Teva) in June 2001, we received$22.0 million fr om Teva which assisted in the construction and imp rovement of our Hayward, Califo rnia facilities and the development of the twelveproducts specified in our strategic alliance agreement. The $22.0 million was reflected on the balance sheet as a refundable deposit. The refundable depositwas p rovided in the form of a loan . Pursuant to the agreement , accrued and future interest on the refundable deposit was forgiven during 2002 as a result ofour receipt of tentative or final approvals for at least three of our products . In addition, Teva forgave portions of this loan as we achieved certain milestonesrelating to the development and launch dates of the products desc ribed in our strategic alliance agreement . In addition, by requiri ng us to repay only 50% ofthe portion of the loan related to certain missed milestones , Teva chose to continue to have exclusive marketing rights for those products . At our option, wecould repay Teva any amounts we owed it as part of the loan in cash or in shams of our common stock . The price of the common stock for purposes ofrepaying any amounts owed under the loan was the average closing ale pri ce of our common stock measured over a ten-trading-day pe riod ending twodays pri or to repayment.

In September 2003, we issued 888,918 shares of common stock to Teva, paying $13 .5 million of the original $22 .0 million refundable deposit . In December2003, Teva exercised its opti on to retain marketing exclusivi ty for certain products and, accordingly , reduced the refundable deposit by $3 .5 million to $5 .0million . In Janua ry 2004 , Teva' s exercise of the marketing exclusivi ty option for certain p roducts reduced the refundable deposit to $2 .5 million. OnJanua ry 15, 2004 , we satis fied the remaining $2 .5 million refundable deposit obligation to Tevs by issuing 160, 751 shares of our common stock to Teva.These shares were issued to Teva without registration under the Securi ti es Act of 1933, as amended , in reiance upon the exemption from registrationprovided by Section 4(2) of the Securities Act of 1933 .

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

ITEM 2 . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION STo the extent any statements made in this report contain information that is not historical , these statements areforward- looking in nature and express thebeliefs, expectations or opinions of management. For example, words such as "may, " "will, " "should, " "estimates, " 'predicts" "potential, " "continue, ""strategy, " "believes, " "anticipates, " "plans, " "expects, " "Intend,, " 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 suchforward-lookingstatements. Such risks and uncertainties include, but are not limited to, IMPAX's ability to obtain sufflcient capital to fund its operations, the difficulty ofpredicting 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, test and commercialize pharmaceutical products, IMPAX's limited manufacturing capability may require it tobuild additional capacity, IMPAX's ability to develop an effective sales organization to market and sell future brand name products, IMPAX's reliance onkey strategic alliances, the uncertainty 9fpatent litigation, the availability of raw materials, the regulatory environment, decreases in healthcarereimbursements could limit IMPAX's ability to sell products or decrease its revenues, dependence on patent and other protection for innovative products,exposure to product liability claims, fluctuations in operating results, terrorist attacks , the location of its Corporate Headquarters in an earthquake zone,future dilution in ownership as a result of terms ofoutstanding and future issuances of securities, the volatility of IMPAX's stock price, controlof IMPAX isconcentrated in its directors and executive officers who own approximately 28% of its stock and other risks detailed from time to time in IMPAX's f lingswith the Securities and Exchange Commission . Forward-looking statements speak only as to the date on which they are made, and IMPAX undertakes noobligation to update publicly or revise any forward- looking statement, regardless of whether new information becomes available, future developmentsoccur, or otherwise.

Genera l

Impax Laboratories, Inc. was formed through a business combination on December 14, 1999 between Impax Pharmaceuticals, Inc ., a privately held drugdelivery company, and Global Pharmaceutical Corporation, a generic pharmaceutical company . Impax Pharmaceuticals, Inc . merged with and into Global,with Impax stockholders receiving 3.3358 shares of Global common stock for each share of Impax Pharmaceuticals, Inc . At the conclusion of the merger,Impax Pharmaceuticals, Inc. stockholders held over 70%6 of the combined company. For accounting purposes, the merger has been treated as arecapitalization of Impax Pharmaceuticals, Inc. with Impax Pharmaceuticals, Inc . deemed the acquirer of Global in a reverse acquisition. As a reverseacquisition, our historical operating results prior to the merger are those of Impax Pharmaceuticals, Inc. and only include the operating results of Globalafter the merger. In connection with the merger, the surviving company changed its name to Impax Laboratories, Inc .

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We are a technology based, specialty pharmaceutical company applying formulation and development expertise , as well as our drug delivery technology, tothe development of controlled-release and niche generics, in addition to the development of branded products . As of March 31, 2004, the Company marketsthirty- three generic pharmaceuticals, which represent dosage variations of fourteen different pharmaceutical compounds, and have seventeen applicationspending at the FDA, including five tentatively approved, that address approximately $5.4 billion in U.S . product sales for the twelve months ended February29, 2004, according to NDCHealth. Thirteen of these pending filings were made under Paragraph IV of the Hatch-Waxman Amendments . We haveapproximately twenty-seven other products in various stages of development for which applications have not yet been filed . These products are genericversions of pharmaceutical products that had U .S . sales of approximately $14 .5 billion for the twelve months ended February 29, 2004, according toNDCHealth .

Critic al Accounting Poli cy Related to Revenue Recognition

The Company recognizes revenue in accordance with SEC Staff Accoun ting Bulletin ("SAB") 101 issued by the SEC in December 1999 . We recognizerevenue from the sale of products when the shipment of p roducts is received and accepted by the customer . Provisions for esti mated discounts, rebates,chargebacks, returns and other adjustments are p rovided for in the period the related sales are recorded . In December 2003, the SAB 104 was issued by. theSEC . This bulletin revises and clari fies portions of Topic 13 of the Staff Accoun ting Bulletin to be consistent with current accounting and audi ting guianceand SEC rules and regula ti ons .

Emerging Issues Task Force (EITF) No. 00-21 supplemented SAB 101 for accounti ng for multiple element arrangements . The Company has entered intoseveral strategic alliances that involve the delive ry of multiple products and services over an extended period of time . In multiple element arrangements, theCompany must determine whether any or all of the elements of the arrangement can be separated from one another. If separation is possible, revenue isrecognized for each deliverable when the revenue recognition c ri teria for the specific deliverable is achieved. If separation is not possible , revenuerecogni tion is required to be spread over an extended period .

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

1) the delivered item has value to the customer on a standalone basis ;


3) if the arrangement included a general right of return, or whether delivery or performance of the undelivered item is considered probable.The Company reviews all of the terms of its strategic alliances and follows the guidance from EITF No. 00-21 for multiple element arrangements.

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

Revenues from product sales for these products under our strategic alliance are recognized at the time title and risk of loss transfers to Teva's customers.During the three months ended March 31, 2004, the Company commenced shipping its Bupropion Hydrochloride 100 mg and 150 mg Controlled ReleaseTablets . Teve ships the Bupropion products to its customers and reports the results on a monthly basis . Teva provides to IMPAX a financial report detailingits gross sales less applicable chargebacks, rebates and other credits to arrive at net sales, cost of sales information and gross margins for the Bupropionproducts . The information on the financial report is used by IMPAX to record its monthly revenue for the Bupropion 100 mg and 150 mg products .Additionally, the amount of revenue that IMPAX earns is based on a fixed gross margin sharing percentage.

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Under the July 2003 Exclusivity Transfer Agreement with Andrx and Teva pertaining to the Bup ro pion Hydrochloride p roducts, Andrx is entitled to certainpayments for the sales of the 150 mg strength for a 180-day period fro m the product launch date . These payments are made directly by Teva to Andrx.

Results of Operation s

Except for the three months ended March 31, 2004, we have incurred net losses in each quarter since our inception . We had an accumulated de ficit of$95,501 ,000 at March 31, 2004 .

THREE MONTHS ENDED MARCH 31, 2004 , COMPARED TO THREE MONTHS ENDED MARCH 31, 2003

Overview

The net income for the three months ended March 31, 2004, was $9,048,000 as compared to a net loss of $3 ,213,000 for the three months ended March 31,2003 .

Revenues

Revenues for the first quarter of 2004 were a record $38,853,000, up more than 240% compared with revenues of $11,425,000 in the prior year's firstquarter . The year-over-year increase for the first quarter was primarily due to shipments of our generic versions of Wellbutrin® SR (BupropionHydrochloride) 100 mg and 150 mg Controlled Release Tablets, both of which were approved by the FDA during the quarter and represented approximately61% of total re venues . During the quarter, upon approval from the FDA, we also commenced shipments of Demeclocycline Hydrochloride (Declomycin®)150 mg and 300 mg Tablets .

Th e Company generated $3,031,000 of other revenues in the 2004 pe riod, as compared to $359,000 in the 2003 period. Other revenue for the 2004 periodconsisted of $2,500,000 from Teva, which represented the reversal of a portion of the refundable deposit for its exercise of the exclusivity option for certainproducts. The balance of $531 , 000 of other revenue represents revenues recognized pursuant to strategic a greements with Schering-Plough, Wyeth, andNovertis. The following table summarizes the activi ty in net revenues for the three months ended March 31, 2004 and 2003 :

2004 2003

Product salesLess :RebatesChargebacksProduct return reserveOther credits

Net salesRevenue from reversal of refundable deposit from TevaOther Revenues

Total Revenues

S 41,552 S 14,153

(I 120)314(1 ,

(1,781) (132)(681) (579)

35,822 11,0662,500 -531 359

$ 38,853 S 11,425

The rebates, chargebacks, returns and other credits decreased for the three months ended March 31, 2004 to approximately 14% of product sales ascompared to approximately 22% for the comparable period in 2003 . This decrease was mainly due to Bupropton Hydrochloride 100 mg and 150 mgControlled Release Tablets, Loratadine, and Pseudoephedrine Sulfate (5mgtl20mg) 12-hour Extended Release Tablets which are exempt from rebates,chargebacks and other credits as per the agreements with Schering-Plough, Wyeth, and Novartis . The increase in the reserve for product returns wasprimarily due to returns for LIPRAM products . Product returns for the three months ended March 31, 2004 and 2003 were $922,000 and $132,000,respectively.

Cost of Sales

The cost of sales for the three months ended March 31, 2004, was S 18,550,000 as compared to $8,147,000 for the same period in 2003 . The overall increasein cost of sales was primarily due to the increase in cost of materials as a result of increased product sales, primarily from Bupropion Hydrochloride 100 mgand 150 mg Controlled Release Tablets .

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Gross Margin

Gross margin for the three months ended March 31, 2004 was $20,303,000 as compared to $3 ,278,000 for the same period in 2003 . The g ross marginimpro vement was prima ri ly due to higher net product sales, such as Bup ropion Hydrochlori de 100 mg and 150 mg Controlled Release Tablets andDemeclocycline Hydrochloride 150 and 300 mg Tablets and bigha revenue from strategic alliances , which include amortization of deferred revenue forup-front and milestone payments of $531,000, as compared to $359,000 in 2003 . In addition, $2,500,000 of other revenues represented the reversal of aportion of the refundable deposit from Teva under the strategic alliance agreement for its exercise of the exclusivity option for certain products .

Research and Development Expenses

The research and development expenses for the three months ended March 31 , 2004 were $6,504,000 less reimbursements of S 11,000 by a subsidiary ofTeva Pharmaceuti cal Industries , Ltd. under the Strategic Alliance Agreement signed in June 2001 , as compared to $3,755,000 less reimbursements ofS 132,000 for the same period in 2003. The higher research and development expenditures in 2004 as compared to 2003 we re attributable to higher legalexpenses related to patents and alleged patent infringement lawsuits , higher pe rsonnel costs, Active Pharmaceutical Ingredient (API) costs , clinical studies,and new product introduction costs .

Se ing Expenses

The selling expenses for the three months ended March 31, 2004 were $726,000 as compared to $568 ,000 for the same period in 2003 . The increase inselling expenses as compared to 2003 was p ri marily due to higher personnel costs .

General and Administrative Expenses

The general and administrative expenses for the three months ended March 31, 2004 were $3,351 ,000 as compared to $2,122,000 for the same pe riod in2003 . The increase in general and administrative expenses as compared to 2003 was p rimari ly due to higher pro fessional fees, insurance premiums, andpersonnel costs.

Interest Incom e

Interest income for the three months ended March 31 , 2004 was $56,000 as compared to $42,000 for the same period in 2003 , p ri mari ly due to higheraverage cash equivalents for the quarter .

Interest Expense

Interest expense for the three months ended March 31, 2004 was $272,000 as compared to $231,000 for the same period in 2003 . The interest expense for2004 relates p rimarily to the two Cathay Bank loans , and the revolving credit facility and term loan agreement with Wachovia Bank N . A . The followingtable summarizes the activity for the three months ended March 31, 2004 and 2003 :

(in $000s)Interest expense

Total interest expens e

Income Taxes

2004 2003

272 $ 23 1

S 272 $ 23 1

In March 2004, the Company provided for income taxes of $476,000, or 5% of income before taxes, as compared to SO for the 2003 period . Such incometax provision reflects the partial reversal of the deferred income tax asset valuation allowance recognized in prior years . The valuation allowance wasreduced to reflect the realization of federal and state net operating loss carryforwards that offset the current tax component of the income tax provision. AtDecember 31, 2003, the Company had a net operating loss-carryforward totaling approximately $94,600,000, which expires from 2009 through 2023 .

Net Income

The net income for the three months ended March 31, 2004, was $9,048,000 as compared to a net loss of $3,213,000 for the same period in 2003 . The netincome for the three months ended March 31, 2004 was due primarily to the introduction of the Bupropion 100 mg and 150 mg products marketed by Teva,and Demeclocycline Hydrochloride 150 and 300 mg. Tablets. In addition, the other revenues of $3,031,000 contributed to the profitability for the quarter .

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Liquidity and Capital Resources

As of March 31, 2004, we had S 19,491,000 in cash and cash equivalents . Only $200,000 of the account balances are insured by the Federal DepositoryInsurance Company (FDIC). The balance of the Company' s cash equivalents are held in U .S . Treasury securities, which are not insured by the FDIC .

We generated cash in excess of our working capital requirements for the three months ended March 31, 2004 . Our cash flows provided by operations were apositive amount of $4,982,000, as compared to a negative amount of $871,000 in the prior year . This increase was primarily related to the change,year-over-year, in net income, partially offset by increases in working capital account balances . In addition, the remaining balance of the refundabledeposit was satisfied by issuing 160,751 shares of common stock to Teva and by Teva's exercise of the exclusivity option for certain products . As of March31, 2004, to our knowledge, Teve owns 2,511,752 shares of IMPAX common stock, or approximately 4 .3% of the outstanding stock .

The net cash provided by financing activities for the three months ended March 31, 2004, was approximately $1,029,000 consisting of the $1,985,000 netproceeds from issuance of common stock upon exercise of stock options and warrants, and net repayments of $956,000 primarily from the Wachovia creditfacility.

Our capital expenditures for the three months ended March 31, 2004 were $2,025,000 as compared to $698,000 for the same period in 2003 .

In December 2003 , the Company transferred the $25 million Loan and Security Agreement fro m Congress Financial Corpora tion to Wachovia Bank, N.A .,thereby securing lower interest and less restrictive borrowing terms. The revolving loan is collateralized by eligible accounts receivable and inventory,subject to sublimits and other terms , and the term loan is collateralized by machine ry and equipment, with a 60-month amor tization. In addition, a $10million restricted cash account was established as collateral for this credit facility , to be reduced based on meeting certain cumulative positive cash flowtargets. The interest rates for the revolving loans are prime rate plus 0 .75%, or eurodollar rate plus 2 .75%, at our opti on, based on excess availability . Theterm loan has an interest rate of prime rate plus 1 .5%, or eurodollar rate plus 4%, at our option. As of March 31, 2004, we borrowed approximately$6,953,000 against the revolving credit line and $3,085,000 against the term loan. Th e borrowing availability under the revolving credit line changes dailybased on eligible accounts receivable and inventory . The revolving credit facili ty and the term loan agreement have two financial covenants : one related toAdjusted Excess Availability, and the other one related to Capital Expenditures limits. At March 31, 2004, both financial covenants were met .

We have no interest rate or deri vative financial instruments nor mate rial foreign exchange risks. We are also not party to any off-balance-sheetarrangements, other than operating leases .

We expect to incur signi ficant opera ti ng expenses, particularly research and development , for the foreseeable future in order to execute our business plan .We, therefore, anticipate that such opera ting expenses, as well as planned capital expenditures , will consti tute a materi al use of our cash resources.

On April 5, 2004, the Company completed a convertible senior subordinated debenture offe ring of $95,000,000 for net proceeds of $91,675,000. Theproceeds of the debentures will be used for general corporate purposes , including working capital requirements, manufacturing of our p roducts , and researchand development.

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

We have not paid any cash dividends on our common stock and we do not plan to pay any such cash dividends in the foreseeable future . We plan to retainany earnings for the operati on and expansion of our business. Our loan agreements and our strategic agreement with Teva p rohibit the payment of dividendswithout the other party 's consent .

Recent Accounting Pronouncement s

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

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In December 2002 , the FASB issued SFAS No . 148, "Accounti ng for Stock-Based Compensation - Transition and Disclosure , amendment of FASBStatement No . 123 ." This statement provides additi onal t ransition guidance for those en tities that elect to voluntarily adopt the p rovisions of SFAS No. 123,"Accounti ng for Stock Based Compensation ." Furthermore, SFAS No. 148 mandates new disclosures in both interim and year-end financial statementswithin the Company's Signi ficant Accounting Policies footnote. The Company has elected not to adopt the recogni tion provisions of SFAS No . 123, asamended by SFAS No . 148. However, the Company has adopted the disclosure p rovisions and has included this information in Note Ito the Company'sfinancial statements .

In January 2003 , the FASB issued FASB Interpretation No. 46 ("FIN 46'), "Consolidation of Variable Inte rest Entities ." FIN 46 clarifies the applica tion ofAccounting Research Bulleti n No. 51, "Consolidated Financial Statements," to certain entities in which equi ty investors do not have the characteris tics of acontro lling financial interest or do not have sufficient equity at risk for the en tity to finance its activities without addi tional subordinated financial supportfrom other parties . FIN 46 applies immediately to variable interest en titi es created after January31, 2003, and to variable interest entities in which anenterprise obtains as interest after that date. It applies in the first fiscal year or interim pe riod beginning after June 15, 2003, to variable interest entiti es inwhich an enterprise holds a variable interest that tt acquired before February 1, 2003 . FIN 46 applies to public enterprises as of the beginning of theapplicable interim or annual period . On October 8, 2003 , the FASB decided to defer FIN 46 undl the first reporting period ending after December 15, 2003 .The p

rovisions of this Interpretation did not have a material impact on the Company ' s financial condition or results of operations .

In December 2003 , the FASB issued FIN No . 46R, Consolidation of Vari able Interest Entities , clari fying the applicati on of Accounting Research BulletinNo. 51, Consolidated Financial Statements , to certain entities in which equity investors do not have the characte ri stics of a cont rolling financial interest ordo not have sufficient equity at risk for the enti ty to finance its activities without additional subordinated financial support. The provisions of thisInterpretation do not have a material impact on the Company ' s financial condition or results of operations.

In February 2004 , the FASB issued revised FSP pertaining to FIN 46(R). The revised FSPs replace certain previously issued FIN 46 FSP for en ti ties towhich FIN 46(R) is applicable . This re vision to FIN 46 did not have a mate rial impact on the Company's financial condition or results of operation .

In February 2004, the FASB revised SFAS 133, Accounting for Derivative Instruments and Hedging Acti vi ties for Implementati on issue E2L , AIJ, and C6 .The revisions to SFAS 133 did not have a mate rial impact on the Company ' s financial condition or results of operati on .

In December 2003, the FASB revised SFAS 132, 'Employers ' Disclosure About Pensions and Other Post Retirement Benefits ." This S tatement does notchange the measurement or recognition of those plans required by FASB 87, "Employers' Accounting for Pensions ," and No. 106, "Employers ' Accounti ngfor Post Retirement Benefits Other than Pensions ." This Statement retains the disclosure requirements contained in FASB No . 132, "Employers ' Disclosureabout Pensions and Other Post Retirement Plans." The provisions of this Statement do not have a materi al impact on the Company 's financial condi tion orresults of operations. Du ri ng the three months ended March 31, 2004 and 2003 , the employer 401-K match was $24 ,352 and $21,347 , respectively.

In January2004 , the FASB issued FASB Staff Position FAS 106 -1 to provide temporary guidance concerning the Medicare Presc ription DrugImprovement and Moderniza tion Act of 2003 . The provisions of this pro nouncement did not have a material impact on the Company ' s financial conditi onor results of ope rations .

Major Operational Highlight for the Three Months Ended March 31, 2004

• On January 28, 2004 , IMPAX Laboratori es, Inc. announced that the U . S . Food and Drug Administ ration (FDA) has granted final approval to theCompany's Abbreviated New Drug Applica tion (ANDA) for its generic version of Wellbutrin® SR (Bupropion Hydrochlo ride) 100 mgCont rolled Release Tablets and has granted tenta ti ve approval to the Company ' s generic version of Wellbutrin SR 150 mg Contro lled ReleaseTablets . GlaxoSmithKline markets Wellbutrin SR for the treatment of depression . According to NDCHealth, U.S. sales of these dosage forms ofWellbutrin SR Tablets were approximately $1 .4 billion in the twelve months ended Februa ry 29, 2004 .

• On January 29, 2004, IMPAX Laboratories , Inc. announced that the Court of Appeals for the Fede ral Circuit in Washington , D .C . upheld a lowercourt decision that ruled against certain claims by GlaxoSmithKline in regards to the Company's Abbreviated New Drug Applications (ANDAs)for Wellbutrin SR(R) (Bupropion Hydrochlori de) 100 mg and 150 mg and for Zyban(R) (Bupropion Hydrochloride) 150 mg. GlaxoSmithKlinemarkets Wellbut rin SR for the treatment of depression and Zyban for smoking cessa tion.

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On February 27, 2004, IMPAX Laboratories, Inc . announced that the U .S . Food and Drug Administration (FDA) has granted tentative appro val tothe Company's Abbreviated New Drug Application for its generic version of Allegra(R)-D (Fexofenadine Hydrochloride and PseudoephedrineHydrochloride 60mg/ 120mg) Extended Release Tablets . Aventis Pharmaceuticals markets Allegra-D for the treatment of the symptomsassociated with seasonal allergic rhinitis. According to NDCHealth, U .S . sales of Allegra-D were approximately $452 million in the twelvemonths ended February 29, 2004 .

• On March 5, 2004, IMPAX Laboratories, Inc . announced that the U.S. Food and Drug Administration (FDA) has granted final approval to theCompany's Abbreviated New Drug Application for a generic version of Claritin®-D 24-Hour (Loratedine and Pseudoephedrine Sulfate,10mg/240mg) Extended Release Tablets . Schering-Plough Corporation markets Claritin-D 24-Hour as an over-the -counter (OTC) drug for therelief of symptoms of seasonal allergic rhiniti a (hay fever). According to NDCHealth, U.S . sales of Claritin-D 24-Hour were $21 million for thetwelve months ended February 29, 2004. The Company is working with its marketing partner toward the commercial launch of this product .

• On March 8, 2004, IMPAX Laboratories, Inc . announced that the U.S . Food and Drug Administration (FDA) has granted tentative approval to theCompany's Abbreviated New Drug Application (ANDA) for its generic version of Tricor(R) (Fenofibrate) Tablets . Trim Tablets are marketed byAbbott Laboratories, Inc. to assist patients in managing their cholesterol levels. The drug is indicated for use in reducing elevated LDL cholesterol,total cholesterol, triglycerides and Apo B and increasing HDL cholesterol in pati ents with primary hypercholesterolemia or mixed lipidemia . Thedrug has also been approved as adjunctive therapy for the treatment of hypertriglyceridemia, a disorder characterized by elevated levels of verylow density lipoprotein (VLDL) in the plasma . According to NDCHealth, U .S . sales of Tricor Tablets were approximately $620 million for thetwelve months ended February 29, 2004 .

• On March 22, 2004, IMPAX Laboratories, Inc . announced that the U.S. Food and Drug Administration (FDA) has granted final marketingapproval to the Company's Abbreviated New Drug Application (ANDA) for its generic version of Wellbutrin(R) SR (Bupropion Hydrochloride)150 mg Controlled Release Tablets. The FDA had previously granted final approval for the Company's application for the 100 mg strength .GlaxoSmithKline markets Wellbutrin SR for the treatment of depression. Both products were shipped to our marketing partner, Teva.

• On March 23, 2004, IMPAX Laboratories, Inc. announced that the U.S. Food and Drug Administration (FDA) has granted final marketingapproval to the Company's Abbreviated New Drug Application (ANDA) for its generic version of Declomycin® (Demeclocycline Hydrochloride)150 and 300 mg. Tablets . ESP Pharma markets Declomycin for the treatment of various infections . According to NDCHealth, U .S . sales ofDeclomycin were approximately $24 million for the twelve months ended February 29, 2004 . IMPAX's Global Pharmaceuticals division beganmarketing the product immediately.

• On March 30, 2004, IMPAX Laboratories, Inc . announced the pricing of its private offering of $95 million agg regate principal amount of 1 .250%convertible senior subordinated debentures due 2024, to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, asamended. (For additional details, please see Note 2. )

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RIS KThe Company ' s cash and cash equivalents includes U.S . government and short term commercial paper stated at cost which approximates market value . Thepri mary objecti ve of the Company's investment ac ti vities is to preserve principal while, at the same ti me, maximize yields without signi ficantly increasingrisk . To achieve this objecti ve, the Company maintains its portfolio in a variety of high credit quality secu rities, including U .S. Government securiti es,treasu ry bills , and short-term commercial paper . One hundred percent of the Company ' s portfolio matures in less than one year . The car rying value of theportfolio app roximates the market value at March 31 , 2004 . The Company's debt instruments at March 31, 2004, are subject to fix ed and va riable interestrates and pri ncipal payments . We believe that the fair value of our fixed and variable rate long- term debt appro ximates their carrying value ofapproximately S 16.6 million at March 31 , 2004 . While changes in market interest rates may affect the fair value of our fixed and variable rate long-termdebt, 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 bematerial .

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

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ITEM 4 . CONTROLS AND PROCEDURE STh e Company, under the supervision and with the participation of our management, including our principal executive officers and our principal financialofficer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report .Based on this evaluation, our principal executive officers and our principal financial officer concluded that our disclosure controls and procedures areeffective in reaching a reasonable level of assurance that information required to be disclosed by us in the reports that we file or submit under the SecuritiesExchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time period specified in the Securities and ExchangeCommission's rules and forms . The CEO and CFO also conducted an evaluation of internal control over financial reporting ("Internal Control") todetermine whether any changes in Internal Controls occurred during the quarter that have materially affected, or which are reasonably likely to materiallyaffect, Internal Controls.

Based on this evaluation, there has been no such change during the quarter covered by this report . A control system, no matter how well conceived andoperated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met . Further, the design of a control system mustreflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs . Because of the inherent limitationsin all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Companyhave been detected. The Company conducts periodic evaluations of its internal controls to enhance, where necessary, its procedures and controls . Becauseof the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detecte d

ITEM 1 . LEGAL PROCEEDINGSPatent Litigatio n

There has been substantial litigation in the pharmaceutical , biological, and biotechnology indust ries with respect to the manufactu re, use, and sale of newproducts that ere the subject of conflictin g patent rights . One or more patents cover most of the brand name cont rolled-release products for which we aredeveloping generic versions. Under the Hatch-Waxman Amendments, when a drug developer files an ANDA for a generic drug , and the developer believesthat an unexpired patent which has been listed with die FDA as covering t at brand name product will not be infringed by the developer ' s product or isinvalid or unenforceable, the developer must so certify to the FDA . That certification must also be provided to the patent holder , who may challenge thedeveloper's certification ofnon- infringement, invalidity or unenforceability by filing a suit for patent in fringement within 45 days of the patent holder'sreceipt of such certification . If the patent holder files suit, the FDA can review and approve the ANDA, but is prevented from granting final marketingapproval of the product until a final judgment in the action has been rendered, or 30 months from the date the certification was received, whichever issooner. Should a patent holder commence a lawsuit with respect to an alleged patent infringement by us, the uncertainties inherent in tent litigation makethe 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 asthe expense of such litigation, whether or not we are successful , could have a material adverse effect on our re sults of operations and financial position . Inaddition , there can be no assurance that any patent litigation will be resolved prior to the 30-month pe riod. As a result, even if the FDA were to app rove aproduct upon expiration of the 30-month pe riod , we may not commence marke ting that product if patent litigation is still pending.

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

p The Omeprazole Cases

In May 2000, AstraZeneca AB and four of its related companies filed suit against IMPAX in the U .S. District Court in Wilmington, Delaware claiming thatIMPAX's submission of an ANDA for Omeprazole Delayed Release Capsules , 10 mg and 20 mg, constitutes infringement of six U .S . patents re lating toAstraZeneca's P ri losec product . The action seeks an order enjoining IMPAX from marketing Omeprazole Delayed Release Capsules , 10 mg and 20 mguntil Feb ruary 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 infri ngement,based upon IMPAX's amendment to its ANDA adding 40 mg strength Omeprazole Delayed Release Capsules.

AstraZeneca filed essentially the same lawsuits against nine other gene ric pharmaceutical companies (Andrx, Genpharm, Cheminor, Kremers, LEK, Eon,

Mylan, Apotex, and Zenith). Due to the number of these cases, a multidistrict li tigation proceeding, In re Omeprazole 10 m g , 20 mg, and 40 mg Delayed

Released Capsules Patent Litigation , MDL-1291, has been established to coordinate pre- tr ial proceedings. Both lawsuits filed by AstraZeneca against

IMPAX have been transferred to the multidistrict litigation.

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Early in the multidist rict litigation, the tri al court ruled that one of the six patents-in-suit was not infringed by the sale of a gene ric omeprazole product andthat certain other patents were invalid . These rulings effectively eliminated four patents from the trial of these infringement cases, although AstraZenecamay appeal these rulings as pa rt of the overall appeal process in the case .

On October 11, 2002, after a trial involving Andrx , Genpharm, Cheminor, and Kremers, the trial judge handling the mul ti district litigation ruled onAstraZeneca' s complaints that three of these four defendants (First Wave Defendants) infri nged the remaining patents- in-suit. The trial judge ruled thatthree of the Fi rst Wave defendants , Andrx , Genpharm, and Cheminor, infringed the remaining two patents asserted by AstraZeneca in its complaints, andthat those patents are valid un til 2007. In the same ruling , the trial court ruled that the remaining Firs t Wave Defendant , Kremers , did not infringe either ofthe remaining two patents . This defendant's formulation differed from the formulation used by the other First Wave Defendants in several respects . Inmid-December 2003, the U. S . Cou rt of Appeals for the Federal Circuit a ffirmed the October 2002 ruling in all respects . Subsequent peti ti ons for rehearinghave been denied.

The formulation that IMPAX would employ in manufacturing its generic equivalent of omeprazole has not been publicly announced . IMPAX's formulationhas elements that resemble those of other First Wave Defendants, but it also has elements that differ . Although the ruling by the trial court in themultidistrict litigation has a significant effect on the course of AstraZeneca's litigation a$sinst 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 theoutcome of AstraZeneca's litigation against IMPAX uncertain .

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

In December 2003, the trial court entered a new scheduling order gove rning pre-trial proceedings relating to the Second Wave Defendants , includingIMPAX . The schedule for completion of the li tigation in the Second Wave, including AstraZeneca's litigation against IMPAX , now provides that all factdiscovery (with certain exceptions) is complete. AstraZeneca ' s expert reports on issues as to which it bears the burden of proof, including issues of allegedinfringement , were produced on February 17, 2004. IMPAX' s responsive expert reports will be completed by July 12 , 2004. Any rebuttal reports byAstraZeneca will be required to be produced by August 6 , 2004. The parties have not submitted their joint schedule for expe rt depositions to the SpecialMaster and the S pecial Master has not issued an order regarding expe rt depositions. Depositions of the parties ' experts are expected to occur thereafter andto be completed by mid-December 2004 . Motions for Summary Judgment and responses must be filed and fully b ri efed by November 18, 2004. Given thedelays which have thus far occurred in the litiga tion and the number of experts already designated by the parties, it is uncertain whether the expertdepositions can be completed in the time allotted by the present schedule.

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

In August 2003 , the court issued an order dismissing four of the patents- in-suit, three with prejudice. On September 30, 2003 , as a result of the court'sdismissal, AstraZeneca se rved each of the Second Wave Defendants , including IMPAX , with an amended complaint. In October 2003 , IMPAX filed ananswer to the amended complaint in which we asse rted a new counterclaim with antitrust allega ti ons. The counterclaim will be severed, and proceedingsrelating to it will be stayed unti l after t rial of the patent infringement case .

GlaxoSmithKline (Glaxo) v. IMPAX: The Buproplon Cases

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

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IMPAX filed a Summary Judg ment Motion , based upon prosecution history estoppel grounds. The parties completed the briefing on this issue and oralargument 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 Sup reme Courtdecision in Festo v . Shoketsu Kinzoku Kogyo Kabushi Co ., et al . (which we refer to as the Festo decision ) to the pending Motion for Summa ry Judgment.IMPAX brought an additional Mo ti on for Summa ry Judgment in early August 2002 , requesting that the court apply another court's decision which limitedthe scope of the Glaxo '798 patent .

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

Previously, Olaxo had decided to settle its Bupro pion Hydrochloride 100 mg and 150 mg Extended Release Tablets li tigation with Watson Pharmaceuticalson terms that are confidential.

Aventis Pharmaceuticals Inc . . et aL v.IMPAX: The Fexofenadlue Case s

On March 25 , 2002 , Aventi s Pharmaceuticals Inc., Merrell Pharmaceuti cals Inc ., and Carderm Capital L.P . (collectively referred to as Aventis) suedIMPAX in the U .S. District Court for the District of New Jersey (Civil Action No. 02-CV- 1322) alleging that IMPAX 's proposed fexofenadine andpseudoephedrine hydrochlori de tablets , containing 60 mg of fexofenadine and 120 mg of paeudoephedrine hyd rochlo ride , infringe U.S . Patent Nos.6,039,974; 6,037,353 ; 5,738 , 872 ; 6 , 187,791 ; 5,855 ,912; and 6,113,942 . On November 7, 2002, Aventis filed an amended complaint , which added anallegation that IMPAX' s Fexofenadine and Pseudoephedrine Hydrochloride 60 mg/ 120 mg Extended Release Tablet product infringes U.S . Patent No.6,399,632 . Aventis seeks an injunc tion preventing IMPAX from marketing its Fexofenadine and Pseudoephedrine Hydrochlo ride 60 mg/120 mg ExtendedRelease Tablet product un ti l the patents-in--suit have expired, and an award of damages for any commercial manufactu re , use, or sale of IMPAX'sFexofenadine and Pseudoephednne Hydrochlo ri de 60 mg/ 120 mg Extended Release Tablet product, together with costs and a ttorneys' fees .

Fact discovery in this action is scheduled to close on October 29, 2004 . IMPAX believes that it has defenses to the claims made by Aventis based onnoninfringement and invalidi ty. No trial date has been set.

Aven tis has also filed a suit against Barr Laboratories , Inc ., Mylan Pharmaceuticals, Inc., Dr. Reddy's Pharmaceu ti cals and Teva Pharmaceuticals USA, Inc .in New Jersey asserting the same patent infringement against these defendants' proposed Fexofenadine and Pseudoephedrine or Fexofenadine p roducts. TheIMPAX case has been consolidated for trial with the Barr, Mylan, Dr. Reddy and Teva cases .

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

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

On April 11, 2002, Purdue Pharma and related companies filed a complaint in the U . S . District Court for the Southe rn District of New York alleging thatIMPAX's submission of ANDA No. 76-318 for 80 mg OxyContin Tablets infringes three patents owned by Purdue . The Purdue patents are U .S . Patent

Nos. 4, 861,598, 4,970,075 and 5 ,266,331 ; all directed to cont rolled release opi~formulations . On September 19, 2002, Purdue filed a second InfringementComplaint regarding IMPAX' s 40 mg OxyContin generic product. On October 9, 2002 , Purdue filed a third In fringement Complaint regarding IMPAX's 10mg and 20 m~ OxyContin generic products. IMPAX filed its answer and wtwterclaims in each case on October 3, 2003 . On November 25, 2003 , Purduesubmitted then reply to our counterclaims . Purdue is seeking, among other things , a court order preventing IMPAX from manufacturing , using or sellingany drug product that infringes the subject Purdue patents. IMPAX had disputed~juriadiction of the New York courts and brought an action for a DeclaratoryJudgment of Patent Invalidity in Delaware . The New York court denied IMPAX s Motion to Dismiss and the Delaware action was dismissed.

Purdue previously sued Boeh ringer Ingelheim/Roxane, Endo and Teva on the same patents . One or more of these defendants may resolve the invalidity

issues surrounding the Purdue patents prior to IMPAX' s case goes to trial. The Boehringer Ingelheim/Roxane suit is stayed. The Endo action was t ried in

June 2003 and post trial b riefs have been filed. In January 2004, the judge in the Endo action ruled that the three patents in suit, the same patents that Purdue

had asserted against IMPAX, are unenforceable because they were inequitably procured and enjoined their enforcement . There can be no assurances thatsuch ruling will not be challenged or, if sustained upon challenge , that the rulings in IMPAX's cases will be consistent with such rulings .

20

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IMPAX Y. Aventis Pharmaceuticals . Inc . The Riluzole Cas e

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

In response to IMPAX's complaint, Aventis filed counterclaims for direct infringement and inducement of infri ngement of the '814 patent. In December2002, the dist ri ct court granted Aventis ' Motion for Preliminary Injunction and enjoined IMPAX from in fringing , contributory infring m$, or inducing anyother person to infringe Claims 1, 4 or 5 of the ' 814 patent by selling, offe ring for sale, distribu ting, marketi ng or exporting from the United States anypharmaceuti cal product or compound containing riluzole or salt thereof for the treatment of ALS .

The t rial was completed on October 30, 2003 , and post-trial briefing was completed in December 2003 . IMPAX is pursuing its assertions that claims of the'814 patent are invalid in view of p ri or art and are unenforceable in view of inequitable conduct committed during the p rosecution of the patent before theUnited States Patent and Trademark Office (USPTO) .

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

If IMPAX is not ultimately successful in proving invalidity or unenforceability, there is a substantial likelihood that the court will enter a PermanentInjuncti on enjoining IMPAX from marketing Riluzole 50 mg Tablets for the treatment of ALS in the United States until the ex pira tion 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 permittedto market its Riluzole 50 mg Tablet product for the treatment of ALS in the United States .

Abbott Laboratories Y. IMPAX : The Feno ll brate Tablet Case s

In January 2003 , Abbott Laborato ri es and Fournier Industrie et Sante and a related company filed suit against IMPAX in the U .S. Distri ct Court inWilmington , Delaware claiming that IMPAX ' s submission of an ANDA for Fenofibrate Tablets , 160 mg, consti tutes infringement of two U.S. patentsowned by Fournier and exclusively licensed to Abbott, relating Abbott' s Tricor tablet product.

In March 2003 , Abbott and Fourn ier filed a second action against IMPAX in the same court making the same claims against IMPAX ' s 54 mg FenofibrateTablets . These cases were consolidated in Ap ril 2003 .

In September 2003, Abbo tt and Fournier filed a third action against IMPAX in the U.S . District Court in Wilmington , Delaware , claiming that IMPAX'ssubmission of its ANDA for 54 mg and 160 mg Fenofibrate Tablets cons ti tutes infringement of a third patent recently issued to Fou rnier and exclusivelylicensed to Abbott . This action was also consolidated with the two previously consolidated actions in December 2003 . In January 2004, Abbott and Fournierfiled a fourth action rela ti ng to IMPAX' s 54 mg and 160 mg Fenofibrate Tablets based u pon a claim of in fringement of a fourth patent. All four cases wereconsolidated in March 2004 . Discovery in the consolidated cases closes in June 2004 and the trial is currently set for June 2005 . IMPAX has responded toall four complaints by asser ti ng that its proposed generic Fenofibrate Tablet products do not infringe the patents- in-suit and by asserting that thepatents- in-suit are invalid .

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

Solvay Pharmaceuticals Y. IMPAX : The Croon Case

On April 11, 2003, Solvay Pharmaceuticals , Inc ., manufacturer of the Croon line pancreatic enzyme products, brought suit against IMPAX in the U .S.District Court for the District of Minnesota claiming that IMPAX has engaged in false advertising , unfair competition, and unfair trade practices underfederal and Minnesota law in connec ti on with the Company's marketi ng and sale of its Lipram products . The suit seeks actual and consequential dame es,

including treble damages, atto rneys' fees, injunctive relief and declaratory judgments that would prohibit the subs titution of Lipram for prescriptions of

Croon . On June 6, 2003, IMPAX filed a Moti on for Dismissal of Plaintiff's Complaint, which seeks to dismiss each count of Solvay's complaint. Oralargument on that Motion was heard on November 7, 2003 . On Janua ry 9, 2004, the U.S . District Cou rt issued a ruling on IMPAX 's Motion for Dismissal,dismissing two of the counts set forth in the Complaint, including the count which sought a declaratory judgment that Lipram may not lawfully besubstituted for prescriptions of Croon. On Janua ry 26, 2004, IMPAX filed its Answer to the Complaint and Counterclaim alleging that Solvay w rongfully

interfered with IMPAX 's business relationships . On February 17, 2004 , Solvay filed its Reply to IMPAX' s Counterclaim . On February 24, 2004, the Rule

16 Scheduling Conference was held and, on Februa ry 25, 2004, the Court issued a Scheduling Order setting the deadline for discovery on January 14, 2005,

and a trial date for July 1, 2005 . Fact discovery is currently ongoing in this case. IMPAX believes it has defenses to Solvay's allega ti ons and intends to

pu rsue these defenses vigorously.

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Aiza Corporation v . IMPAX : The Oxybutynln Case

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

On October 24, 2003, IMPAX filed a lawsuit against Alza in the U.S . District Court for the Northern District of California seeking a declaratory judgmentthat four Alza patents relating to IMPAX's filing of an ANDA for a generi c version of Ditropan XL (Oxybutynin Chloride) Tablets, 5 mg, 10 mg, and 15mg (the "Product") are invalid and/or not infringed by the commercial manufacture, use, offer for sale, sale, or importation of the IMPAX Product . OnNovember 17, 2003, AIm moved to dismiss the Company's complaint for lack of subject matter jurisdiction based on Alza' s argument that there is no canor controversy between the parties with respect to these four patents. The U.S . District Court for the Northern District of California has ordered a mediationon June 20, 2004.

: The Adderall Case

On December 29, 2003, Shire Laboratori es, Inc., a subsidiary of Shire Pharmaceuticals Group , PLC, filed a lawsuit against IMPAX in the U . S. Dist rictCourt for the District of Delaware alleging patent infringement on U.S. Patent Nos. 6,322 ,819 and 6,605,300 related to fi ling of an ANDA to market ageneric version of Adderall 30 mg capsules . IMPAX filed its answer on January 20, 2004 , denying infringement and contes ting the validity of both patents .A tentative court date has been scheduled for October 11, 2005 .

OTHER LITIGATIO N

State of California v. IMPAX

On August 7, 2003, IMPAX received an Accusa ti on from the Depart ment of Justi ce , Bureau of Narcoti c Enforcement , State of California ("BNE"), allegingthat IMPAX failed to maintain adequate con trols to safeguard precursors from theft or loss regarding our pseudoephedrine product in January 2003 . IMPAXcontested the allega ti ons in the Accusation and entered into discussions with the State of California, Department of Justice , to bring resolution to this matter.IMPAX has implemented a number of remedial measures aimed at imp roving the security and accountability of precursor substances used by IMPAX andregulated by the Califo rnia Department of Justice , Bureau of Narcotic Enforcement. In March 2004, following a theft of pseudoephedrine from IMPAX'sfacilities, the BNE filed an Amended Accusation, again alleging that IMPAX failed to maintain adequate controls to safeguard precursors from theft or lossregarding our pseudoephedrine product . IMPAX is continuing its discussions with the State of California , Department of Justice , and hopes to resolve thismatter without the need for a formal heari ng.

Other than the legal proceedings desc ribed above, we are not aware of any other material pending or threatened legal actions , p rivate or governmental,against us. However, as we file additional applications with the FDA that contain Paragraph IV Certi fica ti ons and develop new products, it is likely we willbecome involved in additional li ti gation related to those filings or products .

Insurance

As part of our patent litigation strategy, we had obtained two policies covering up to $7 million of patent infringement liability insurance from AmericanInternational Specialty Line Company ("AISLIC"), an affiliate of AIG International . This litigation insurance covered us against the costs associated withpatent infringement claims made against us relating to seven of the ANDAs we filed under Paragraph IV of the Hatch-Waxman Amendments . Both policieshad reached their limits of liability. While Teva has agreed to pay 45% to SOV. of the attorneys' fees and costs (in excess of the $7 million expected to becovered by our insurance policies for six products) related to the twelve products covered by our strategic alliance agreement with them, we will beresponsible for the remaining expenses and costs for these products, and all of the costs associated with patent litigation for our other products and ourfuture products .

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 thosecases, our policy is to record such expenses as incurred.

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

22

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES1 .250% Convertible Senior Subordinated Debentures

On April 5 , 2004, the Company issued and sold $95 .0 million in aggregate p rincipal amount of its 1 .250% convertible senior subordinated debentures due2024. The debentures were sold by the Company to Citi $roup Global Markets Inc., Wachovia Capital Markets, LLC and First Albany Capital Inc ., as initialpurchasers, in a p rivate placement exempt from registration under the Securi ties Act of 1933 , as amended (the "Securities Act") . We have been advised bythe initial purchasers that they have resold, and/or intend in the future to resell, the debentures to "qualified insti tutional buyers " (as defined in Rule 144Apromulgated under the Secur ities Act) in transac tions exempt from the registration requirements of the Securities Act in reliance on Rule 144A.

The issuance and sale of the debentures resulted in net proceeds to the Company of approximately $91,675 , 000 . These proceeds are being used for generalcorporate purposes , including working capital requirements , manufacturing of our products and research and development.

The debentures bear interest at the rate of 1 .250% per year. Interest on the debentures is payable on Ap ril 1 and October 1 of each year, beginning onOctober 1, 2004. The debentures are convertible by holders into shares of our common stock at a conversion p ri ce of $28 .08 per share (which represented a30% premium over our stock price at the ti me the debentures were issued). The conversion price is subject to adjustment in certain events if (1) the p ri ce ofour common stock reaches a specific threshold ; (2) the trading price for the debentures falls below certain thresholds ; ( 3) the debentures have been calledfor redemption; or (4) certain corporate transac tions occur.

The debentures mature on Ap ril 1, 2024, unless earlier redeemed, repurchased or converted . Before April 5, 2007 , we may redeem some or all of thedebentures if the price of our common stock reaches a speci fic threshold , at a redempti on p rice that includes an additional payment on the redeemeddebentures equal to $230 . 77 per S 1,000 pri ncipal amount of debentures , less the amount of any interest actually paid or accrued and unpaid on thedebentures . On and after Apri l 5 , 2007 , the Company may redeem some or all of the debentures at certain specified redemp tion prices .

The debentures are the Company's unsecured obli gations and are subordinated in right of payment to all of the Com pany's existing and future seniorindebtedness. On Apri l 1, 2009, April 1, 2014 , and Apri l 1, 2019, and under certain circumstances , holders of the debentures will have the right to require usto repurchase all or any part of their debentures at a repurchase price equal to 100% of the principal amount of the debentures, plus accrued and unpaidinterest and liquidated damages , if any, to, but excluding the repu rchase date.

In connection with the offe ring of the debentures, we are required to file a shelf registra tion statement with the Securi ties and Exchange Commissioncovering resales of the debentures and of the common stock issuable upon conversion of the debentures .

Strategic Alliance Agreement with Tev a

As part of the strategic alliance agreement that we entered into with a subsidia ry of Teva Pharmaceutical Industries Ltd. (Teva) in June 2001 , we received$22.0 million from Teva which assisted in the construction and improvement of our Hayward, California facili ties and the development of the twelveproducts specified in our strategic alliance agreement. The $22 .0 million was reflected on the balance sheet as a refundable deposit. The refundable depositwas provided in the form of a loan . Pursuant to the agreement , accrued and future interest on the refundable deposit was forgiven during 2002 as a result ofour receipt of tentative or final approvals for at least three of our products . In addi tion, Teva forgave portions of this loan as we achieved certain milestonesrelating to the development and launch dates of the p roducts desc ribed in our strategic alliance agreement . In addition, by requiri ng us to repay only 50% ofthe portion of the loan related to certain missed milestones , Teva chose to continue to have exclusive marke ting ri ghts for those p roducts . At our option, wecould repay Teva any amounts we owed it as part of the loan in cash or in shares of our common stock . The price of the common stock for purposes ofrepaying any amounts owed under the loan was the average closing sale p rice of our common stock measured over a ten -trading-day peri od ending two

days pri or to repayment.

In September 2003, we issued 888 ,918 shares of common stock to Teva, paying $13 .5 million of the orig inal $22.0 million refundable deposit . In December2003 , Teva exercised its opti on to retain marketi ng exclusivity for certain products and, accordingly, reduced the refundable deposit by $3 .5 million to $5 .0million . In Janua ry 2004 , Teva ' s exercise of the marketing exclusivity option for certain p roducts reduced the refundable deposit to $2 .5 million . OnJanuary 15, 2004 , we satisfied the remaining $2 .5 million refundable deposit obligation to Teve by issuing 160,751 shares of our common stock to Tevs .These shares were issued to Teva without registra tion under the Securi ti es Act of 1933, as amended , in reliance upon the exemption from registra ti onprovided by Section 4(2) of the Securities Act of 1933.

23

ITEM 6 . EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

• 4.1 Registration Rights Agreement between Impax Laboratories, Inc ., as Issuer, and Citigroup Global Markets Inc ., as representative of the- Initial Purchasers, dated as of April 5, 2004 .

• 4.2 Indenture, between Impax Laboratories, Inc. and Wachovia Bank, National Association, as Trustee, dated as of April 5, 2004 .

• 10.1 Purchase Agreement between Impax Laboratories, Inc., Citigroup Global Markets, Inc ., Wachovia Capital Markets, LLC and First- Albany Capital Inc. ( the "Initial Purchasers") dated March 30, 2004.

• 31 .1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

• 31 .2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes -Oxley Act of 2002.

• 32.1 Certifications pursuant to Section 906 of the Sarbanes -Oxley Act of 2002 .

(b) Reports

• On January 6, 2004, the Company filed a report on Form 8-K (Item 9) announcing that Chairman Charles Hsiao, Ph.D ., will be leading a newventure : Impax Technologies . Dr. Hsiao is relinquishing his position of Co-CEO but will remain as Chairman . Barry R . Edwards has beenelected as sole Chief Executive Officer effective January 1, 2004 .

• On January 28, 2004, the Company filed a report on Form 8-K (Item 9) announcing that the U .S. Food and Drug Administration (FDA) hasgranted final approval to the Company's ANDA for its gene ric version of Wellbutrin SR 100 mg Controlled Release Tablets.

• On January 29, 2004, the Company filed a report on Form 8-K (Item 9) announcing that the Court of Appeals for the Federal Circuit inWashington, D .C. upheld a lower court decision that ruled against certain claims by GlaxoSmithKline in regards to the Company's ANDAsfor Wellbutrin SR 100 mg and 150 mg, and for Zyban 150 mg .

• On February 17, 2004, the Company filed a report on Form 8-K (Items 9 and 12) announcing earnings for the quarter and the year endedDecember 31, 2003 .

• On March 5, 2004, the Company filed a report on Form 8-K (Item 9) announcing that the FDA had granted final approval to the Company'sANDA for its generic version of ClaritinV- D 24-Hour Extended Release Tablets .

• On March 22, 2004, the Company filed a report on Form 8-K (Item 9) announcing that the FDA had granted final marketing approval to theCompany's ANDA for its gene ric version of Wellbutrin® SR 150 mg Contro lled Release Tablets.

• On March 23, 2004, the Company filed a report on Form 8-K (Item 9) announcing that the FDA had granted final marketing approval to theCompany's ANDA for its gene ric version of Declomycin® 150 and 300 mg Tablets .

• On March 30, 2004, the Company filed a report on Form 8-K (Item 9) announcing its intention to offer in a pri vate placement, subject tomarket and other conditions, $75 million aggregate principal amount of convertible senior subordinated debentures, due 2024, to qualifiedinstituti onal buyers pursuant to Rule 144A under the SEC Act of 1933 , as amended . In addition , the Company granted initial purchasers anoption to purchase up to an additional $11,250,000 of the debentures.

• On March 31, 2004, the Company filed a report on Form 8-K (Item 9) announcing the pri cing of its private offe ri ng of $82 million aggregateprincipal amount of 1 .2501/6 convertible senior subordinated debentures due 2024.

24

SIGNATURES

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


By: /s/ BARRY R. EDWARD S

Chief Executive Officer(Principal Executive Officer)

May 10, 2004

By: Is/ CORNEL C. SPIEGLER May 10, 2004

Chief Financial Officer(Principal Financial and Accounti ng Officer)

25

CERTIFICATION OFCHIEF EXECUTIVE OFFICER

I, Barry R. Edwards, Chief Execu tive O fficer, certify that :

1 . I have reviewed this quarterly report on Form 10-Q for the three months ended March 31 , 2004 of Impax Laboratories, Inc .

2 . Based on my knowledge , this quarterly report does not contain any untrue statement of a material fact, or omit to state a material fact necessa ry tomake the statements made , in light of the circumstances under which such statements were made, not misleading, with respect to the periodcovered by this quarterly report.

3 . Based on my knowledge , the financial statements , and other financial informa ti on included in this quarterly rcport, fairly present , in all materi alrespects , the financial conditi on , results of operations, and cash flows of the registrant as of, and for, the peri ods presented in this quarterly repo rt .

4 . The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure cont ro ls and procedures (as defined inExchange Act Rules 13a- 14 and I Sd-14) for the registrant , and we have:

a) designed such disclosure controls and procedures to ensure that mate ri al information rela ting to the registrant, including its consolidatedsubsidiaries , is made known to us by others within those en titi es, particularly during the period in which this quarterly report is beingprepared ;

b) (intentionally omitted)

c) evaluated the effectiveness of the registrant ' s disclosure contro ls and procedures; and presented in this quarterly repo rt our conclusions aboutthe effectiveness of the disclosure controls and procedures based on our evaluation ;

d) disclosed in this report any change in the registrant ' s internal control over financial reporting that occurred during the registrant 's most recentfiscal quarter ( the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected , or is reasonably likely tomaterially affect, the registrant 's internal control over financial reporting, and ;

5 . The registrant's other certi fying officers and I have disclosed, based on our most recent evalua tion, to the registrant's auditors and the AuditCommittee of registrant ' s Board of Directors (or persons performing the equivalent func ti on):

a) all significant deficiencies in the design or operation of internal cont rols 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 cont rols;and

b) any fraud, whether or not materi al, that involves management or other employees who have a significant ro le in the registrant' s internalcont rols .

/s/ Barry R. Edwards

Barry R. EdwardsChief Executive Officer

May 10, 2004

26

CERTIFICATION OFCHIEF FINANCIAL OFFICER

1, Cornel C. Spiegler, Chief Financial Officer , certify that:

1 . 1 have reviewed this quarterly report on Form 10 -Q for the three months ended March 31, 2004 of Impax Laboratories, Inc .

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

3. Based on my knowledge, the financial statements , and other financial information included in this quarterly report, fairly present, in all materialrespects, the financial condition, results of operations , and cash flows of the registrant as of , and for, the peri ods presented in this quarterly report .

4. The registrant ' s other certifying officers and I are responsible for establishing and maintaining disclosu re controls and procedures ( as de fined inExchange Act Rules 13a-14 and 15d-14) for the registrant, and we have : 8 .

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

b) (inten tionally omi tted)

c) evaluated the effectiveness of the registrant ' s disclosure controls and procedures ; and presented in this quarterly report our conclusions aboutthe effec tiveness of the disclosure controls and p rocedures based on our evalua tion ;

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recentfiscal quarter (the registrant ' s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely tomate rially affect, the registrant's internal control over financial reporting, and;

5 . The re*istrant's other certifying officers and I have disclosed , based on our most recent evalua ti on, to the registrant's auditors and the AuditCommitt ee of registrant 's Board of Directors (or persons performing the equivalent func tion) :

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record,process, summa rize , and report financial data , and have identi fied 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 internalcontro ls .

/s/ Comel C. Spiegler

Cornel C . SpieglerChief Financial Officer

May 10, 2004

27

EXHIBIT C

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

Form 10-Q

(Mark 0-)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 193 4

For the quarterly peri od ended June 30.2004O R

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 193 4


Commission file number 0-2735 4

Impax Laboratories, Inc .

(Exact name of registrant as specified in its charter )

Delaware 65-0403311

(I .R.S . EmployerIdentification No . )

(State or other jurisdiction ofincorporation or organization)

30831 Huntwood Avenue - Hayward, Californi a

(Address of principal executive offices)

94544

(Zip code)

Registrant s telephone number including area code ( 5101476-2000Indicate 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 filingrequirements for the past 90 days.

Yes No _

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

The number of shares outstanding of the re gistrant s common stock as ofJuly 30. 2004 was approximately 58.464.926

IMPAX LABORATORIES, INC.

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

PART I. FINANCIAL INFORMATION

PAGE

Item 1 . Financial Statements :

Condensed Balance Sheets as of June 30- 2004 and December 31 . 2003 (unaudited) j

Condensed Statements of Income for the Three Months and Six Month sEnded Lune 30 .2004 and 2003 (unaudited)

Condensed Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 (unaudited)

Notes to Financial Statements (unaudited I

Management s Discussions and Analysis of Financial Condition and Results of Operations 12

Ouantiitative and Oualitative Disclosures About Market Risk 22

jj~m 4• Controls and Procedures 21

PART 11 . OTHER INFORMATION AND SIGNATURESP

Item 1 . Legal Proceedings 21

Chan es in Securities- Use of Prose s. and hs r ~rchases of Fauity Se . ,rities 21

Item 4. Submission of Matters to a Vote of Security Holders 21

jjtm 6• Exhibits and Reports on Form 8-K 22

Signatures . IQ

Certifications 31

PART I - FINANCIAL INFORMATIONITEM 1 . FINANCIAL STATEMENTS

IMPAX LABORATORIES, INC .CONDENSED BALANCE SHEETS

(unaudited)(in thousands, except share and per share data )

ASSETS

Current assets :Cash and cash equivalentsShort term investmentsAccounts receivable, netInventoryPrepaid expenses and other asset s

Total current assetsRestricted cas hProperty, plant and equipment, netInvestments and other assetsGoodwill, netIntangibles, net

Total assets

LIABILITIES AND STOCKHOLDERS EQU IT Y

Current liabilities:Current portion of long-term debtAccounts payableRevolving line of creditAccrued expenses and deferred revenues

Total current liabilitiesConvertible senior subordinated debenturesRefundable deposit from Tev aLong term debtDefer ed revenues and other liabilities

Total liabilities

Commitments and ContingenciesMandatorily redeemable convertible Preferred Stock :Series 2 mandatory redeemable convertible Preferred Stock,$0.01 par value 0 shares outstanding at June 30, 2004,and 75,000 shares outstanding at December 31, 2003,redeemable at $100 per share

146,221 59,098

- 7,500

Stockholders equity:Common stock, $0.01 par value, 90,000, 000 shares autho rized and58,463,237 and 55,307,136 shares issued and outstandin gat June 30, 2004, and December 31, 2003, respectively 584 553Additional paid-in capital 183,930 170,104Accumulated deficit (94,929) (104,349)

Total stockholdersequity 89,585 66,108

Total liabilities and stockholders equity $ 235,806 $ 132,706

June 30, December 31,2004 2043

$ 53,312 S 15,50545,244 -23,340 9,88 537,102 28,47 9

2,692 1,427

161,690 55,29 6- 10,00 0

42,511 38,13 23,844 1,32 5

27,574 27,57 4187 37 9

$ 235,806 $ 132,706

S 915 S 1,06 822,312 22,783

5,000 7,64212,719 10,872

40,946 42,36 595,000 -- 5,00 0

7,507 8,8542,768 2,87 9

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

IMPAX LABORATORIES, INC .CONDENSED STATEMENTS OF INCOME

(unaudited)(doll ars in thousands, except share and per share data)

ThreeMoathh Ended Six MoatM EndedJeae 30, Jane 30,

2004 2003 2004 2003

Net sales S 30,304 $ 13,460 S 66,126 S 24,526

Revenue from reversal of refundable deposit from Teva - - 2,500 -

Other revenues 541 607 1,072 966

Total revenues 30,845 14,067 69,698 25,492

Cost of sales 18,537 9,321 37,087 17,468

Gross margi n

Research and development

Reimbursements from Teva

Research and development, net

Patent and patent litigation expenses

Selling expenses

General and administrative expenses

Other operating income (expense), net

Net income (loss) from operations

Interest incom e

Interest expens e

Net income (loss) before provision for income taxes

Provision for income taxes

Net income (loss)

Earnings per share:Basic

Diluted

Weighted average common shares outstanding :

Basic

Diluted

12,308 4,746 32,611 8,024

5,104 3,558 9,810 7,00 6

(78) (22) (89) (154)

5,026 3,536 9,721 6,852

2,563 789 4,361 1,096

711 438 1,437 1,006

3,117 2,083 6,468 4,205

4 10 11 2 1

895 (2 ,090) 10,635 (5,114)

271 70 327 11 2

(564) (264) (836) (495)

S 602 $ (2,284) S 10,126 S (5,497)

30 - 506 -

S 572 S (2,284) $ 9,620 $ (5,497)

S 0.01 S (0.05) S 0.17 S (0.11 )

S 0.01 S (0 .05) $ 0.16 S (0.11 )

58,152 ,703 50,608,445 57,543,768 49,250,04 9

62,417,454 50,608,445 61 , 808,519 49 ,250,049


IMPAX LABORATORIES, INC.CONDENSED STATEMENTS OF CASH FLOW S

(unaudited)(dollars In thousands)

Six MoatM LadedJsae 30,

2004 2003

Cash flows from operating activities:Net income / (loss) S 9,620 S (5,497)Adjustments to reconcile net income (loss) to net cash used by operating activities:Depreciation and amortization 2,082 1,782Reversal of refundable deposit from Teva (2,500) -Non-cash compensation charge (options) 87 429Change in assets and liabilities:Accounts receivable (13,455) (2,060)Inventory (8,623) (4,564)Prepaid expenses and other assets (172) (127)Accounts payable (471) 2,853Other liabilities 1,736 (981 )

Net cash provided by (used in) operating activities (11,696) (8,165 )

Cash flows from investing activities :Purchase of short term investments (45,244) (13,920)Purchases of property and equipment (6,269) (1,125)

Net cash (used in) provided by investing activities (51,513) (15,045)

Cash flows from financing activities :Revolving line of credit borrowings (repayments) (2,642) 1,77 9Additions to long-term debt - 896Repayment of long- term debt (1,501) (412 )Proceeds from convertible debentures 95,000 -Capitali zed Financing Costs (3,612) -

Proceeds from sale of common stock - 23,32 4Reversal of Restricted Cash 10,000 -Proceeds from issuance of common stock (upon exercise ofstock options and warrants ) 3,771 27 7

Net cash provided by financing activities 101,016 25,86 4

Net increase in cash and cash equivalents 37,807 2,654

Cash and cash equivalents , beginning of the pe riod $ 15,505 $ 10,21 9

Cash and cash equivalents , end of the quarter S 53,312 S 12,873

Cash paid for interest S 266 S 497

Cash paid forincome taxes S - S -


3

NOTES TO CONDENSED FINANCIAL STATEMENTSSix Months Ended

June 30, 2004 and June 30, 2003(unaudited)

Note 1 . These condensed financial statements included he re in have been prepared by the Company pursuant to the rules and regulations of the Securi tiesand Exchange Commission . Certain informati on and disclosures normally included in financial statements prepared in accordance with accountingprinciples generally accepted in the United States of Ame rica have been condensed or omitted pursuant to such rules and regulations; however, theCompany believes that the disclosures are adequate to make the information presented not misleading. These fi nancial statements should be read inconjunction with the financial statements and the notes thereto included in the Company s latest Annual Report on Form 10-K . The results of operationsfor the six months ended J une 30, 2004 are not necessarily indicative of the results of ope rations expected for the year ending December 31, 2004 .

Impax Laboratori es, Inc. ( IMPAX, we, us, or the Company ) focuses on the development, manufacturing , and marke ti ng of specialtypharmaceuti cal products utilizing its own formulation expertise and drug delivery technologies . As of June 30, 2004, the Company is marketing thirty -threegeneric pharmaceuticals, which represent dosage variations of fourteen diffe rent pharmaceutical compounds , and has fourteen applications under reviewwith the Food and Drug Administration (FDA), including five tenta tively approved. Eleven of these pending filings were filed under Paragraph IV of theHatch -Waxman Amendments. The Company has approximately twenty-four other products in vari ous stages of development for which applications havenot yet been filed.

Except for the six months ended June 30, 2004 , we have experienced operating losses and our future p rofitability continues to be uncertain . We have alsoexperienced negati ve cash flow from operations . As of June 30, 2004 , our accumulated deficit was $94,929 ,000 and we had outstanding indebtedness in anaggregate principal amount of S 108,422,000. To remain operational , we must, among other things:

• obtain FDA approvals for our products ;• prevail in patent infringement litigation in which we are involved ;• successfully launch our new products; and

comply with the many complex gove rnmental regulations that deal with virtually every aspect of our business ac tiviti es.We expect to incur significant operat in g expenses , particularly for research and development , for the fo re seeable future in order to execute our businessplan. We, therefore, an ticipate that such operating expenses, as well as planned capital expenditures for the next twelve months , of $18 to $22 million,primarily in plant capacity expansion, will constitute a mate rial use of our cash resources .

To date, the Company has primarily funded its resea rch and development and other operating ac tivities through equity , debt financings and strategicalliances .

Critical Accounting Policy Related to Revenue Recogni ti on

The Company recognizes revenue in accordance with SEC Staff Accoun ting Bulle ti n (SAB ) 101 issued by the SEC in December 1999. We recognizerevenue from the sale of products when the shipment of products is received and accepted by the customer . P rovisions for esti mated discounts, rebates,chargebacks, retu rns and other adjustments are provided for in the period the related sales are recorded . In December 2003 , the SAB 104 was issued by theSEC . This bulletin clarifies portions of Topic 13 of the Staff Accoun ting Bulletin to be consistent with current accoun ting and audi ting guidance and SECrules and regulations, and revises accounting guidance contained in SAB 101 related to mul tiple element revenue arrangements of Emerging Issues TaskForce ( EITF) No. 00-21 superseded as a result of the issuance .

Emerging Issues Task Force (EITF) No. 00-21 supplemented SAB 101 for accounting for multi ple element arrangements . The Company has entered intoseveral s trategic alliances that involve the delivery of multiple p roducts and services over an extended period of ti me . In multi ple element arrangements, theCompany must determine whether any or all of the elements of the arrangement can be separated from one another. If separation is possible, revenue isrecognized for each deliverable when the revenue recognition criteria for the specific deliverable is achieved . If separation is not possible, revenuerecognition is required to be spread over an extended pe riod.

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

1) the delivered item has value to the customer on a standalone basin;4

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3) if the arrangement included a general right of return, or whether delive ry or performance of the undelivered item is considered p robable.The Company reviews all of the terms of its strategic alliances and follows the guidance from SAB 104 and EITF No. 00-21 for multiple elementarrangements. Upfront and milestone payments from these strategic alliances are deferred and recognized over the life of the agreements as the Compan yfulfills its contractual obligation to manufacture and supplies products during this pe riod. In addi tion, in some agreements, the Company receives andrecords royalty revenue based on a percentage of the strategic partners total sales to their customers of the products supp lied by IMPAX .

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

Revenues from product sales for these products under our strategic alliance are recognized at the time ti tle and risk of loss transfers to Teva s customers.During the six months ended June 30 , 2004, the Company commenced shipping its Bup ropion Hydrochlori de 100 mg and 150 mg Controlled ReleaseTablets. Teva ships the Bupropion products to its customers and reports the results on a monthly basis. Teva provides to IMPAX a financial report detailingits gross sales less applicable char gebacks , rebates and other credits to arrive at net sales , cost of sales informati on and gross margins for the Bupropionproducts. The informati on on the financial report is used by IMPAX to record its monthly revenue for the Bupropion products . Additionally , the amount ofrevenue that IMPAX ears is based on a fixed gross margin sharing percentage.

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

Earnings Per Share (EPS)

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

Three Months Ended Six Mont hs EndedJune M , Jose 30,

2001 2003 2001 no

Numerator :Net income(loss) S 572 S (2,284) $ 9,620 $ (5,497)

Denominator:Basic weighted average common shares outstanding 58,152,703 50,608,445 57,543,768 49,250,049

Effect of dilutive options and warrants 4,264,750 - 4,264,750

Fully diluted weighted average common shares outstanding 62,417,453 50,608,445 61,808,518 49,250,049

Basic earnings per share $ 0.01 $ (0.05) $ 0 .17 $ (0.11)

Fully diluted earnings per share $ 0.01 $ (0.05) $ 0.16 S (0.11)

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

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

5

Th e effect of approximately 3 .4 million shares related to the assumed conversion of the S95 million convertible senior subordinated debentures has beenexcluded from the computation of diluted earnings per share for the three and six months ended June 30, 2004 as none of the conditions that would permitconversion have been satisfied.

Stock-Based Employee Compensation

The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board (APB)Opinion No . 25, Accounting for Stock Issued to Employees . Compensation cost for stock options, if any, is measured as the excess of the quoted marketprice 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 provisionsof SFAS No . 123, Accounting for Stock-Based Compensation and SFAS No . 148, Accounting for Stock-Based Compensation - Transition andDisclosure - An Amendment to FASB Statement No . 123 .

Had compensation cost for the Company s Plans been determined based on the fair value at the grant dates for the awards under a method prescribed bySFAS No. 123, the Company a income and earnings per share would have been decreased to the pro forma amounts indicated below (in thousands, exceptper share amounts):

Three Month Ended Six Month EndedJose 30, June 34,

2004 2003 2004 2003

Net income (loss), as reported S 572 S (2,284) $ 9,620 S (5,497)Add: Stock-based employee compensation included i nreported net income, net of related tax effects 87 -- 87 -

Deduct: Total stock-based employee compensationexpense determined under fair value based method for al lawards , net of related tax effects (1,990) (946) (2,999) ( 1,808)

Pro forma net income (loss) $ (1,331) $ (3,230) $ 6,708 $ (7,305)

Earnings per share :Basic - as reported $ 0.01 $ (0.05) $ 0.17 $ (0.11 )

Basic - pro forma $ (0.02) S (0.06) $ 0.12 S (0.15)

Diluted- as reported s 0.01 $ (0.05) $ 0.16 S (0.11)

Diluted-pro forma $ (0.02) S (0.06) S 0.11 $ (0.15)

The Company calculated the fair value of each option grant on the date of the grant using Black -Scholes pri cing method with the following assumptions :for the six months ended June 30, 2004 and 2003 , the dividend yield was 0% and 0% ; the weighted average expected option term was five years; risk-freeinterest rate was 3.5% and 2.8% ; the stock volatility for the six months ended June 30, 2004 and 2003 was 78% and 69%, respectively. The weightedaverage fair value of options for June 30, 2004 and 2003 was $14.17 and $2 .87 , respecti vely.

The Company reports both basic earn ings per share , which is based on the weighted-average number of common shares outstanding, and diluted earningsper share, which is based on the weighted- average number of common shares outstanding and all dilutive potential common shares outstanding .

Note 2. Convertible Senior Subordinated Debenture s

On Apri l 5, 2004 , the Company issued and sold 595.0 mil lion in gate principal amount of its 1 .250% convertible senior subordinated debentures due2024 . The debentures we re sold by the Company to Citigroup Global Markets Inc ., Wachovia Capital Markets, LLC and First Albany Capital Inc., as initialpurchasers, in a pri vate placement exempt from registration under the Securities Act of 1933, as amended (the Securities Act ) . We have been advised bythe initial purchasers that they have resold , and/or intend in the future to resell, the debentu re s to q ualified institutional buyers (as defined in Rule 144Ap romulgated under the Securities Act) in transactions exempt from the registration requirements of the Securities Act in reliance on Rule 144A.

6

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

The debentures bear interest at the rate of 1 .250% per year . Interest on the debentures is payable on April I and October 1 of each year , be#inning onOctober 1, 2004 . The debentures are convertible by holders into shares of our common stock at a conversion price of $28.08 per share (which are subject toadjustment upon certain events , but represented a 30% premium over our stock p rice at the time the debentures were issued). The debentures are convertibleby holders into shares of our common stock if. (1) the price of our common stock reaches a specific threshold; (2) the trading price for the debentures fallsbelow certain thresholds; (3) the debentures have been called for redemption; or (4) certain corporate transac tions occur.

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

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

In June 2004, the FASB discussed EITF 04-08, The Effect of Contingently Conver tible Debt on Diluted Earnings Per Share. The EITF task force hasproposed that companies count the shares that could be issued upon conversion of secu riti es like the Company s debentures when calculating fully dilutedper share earnings . Had EITF 04-08 been effective as of June 30, 2004, the Company s income and earn ings per share would have been as indicatedbelow:

Three Months Ended Six Months Ended

June 30, Jose 30,

Numerator:Net income (loss) plus interest expense

Denominator:Basic weighted average common shares outstanding

Effect of dilutive options and warrants

Fully diluted weighted average common shares outstanding

Convertible debenture shares as converted

Fully diluted weighted average common shares outstanding includ ingconverted shares pro-forms

Basic earnings per share

Fully diluted earnings per share

21104 2003 2004 2003

$ 869 S (2,284) $ 9,917 S (5,497)

58,152,703 50,608,445 57,543,768 49,250,049

4,264,750 - 4,264,750 -

62,417,453 50,608,445 61,808,518 49,250,04 9

3,383,191 - 3,383,191 -

65,800,644 - 65,191,709 -

$ 0.01 S (0 .05) $ 0.17 $ (0.11 )

$ 0.01 $ (0.05) $ 0.16 S (0.11 )

Fully diluted earnings per share include converted shares - pro forma $ 0.01 N/A S 0.15 N/A

In connection with the offering of the debentures , we filed a shelf registration statement on June 14, 2004 with the Securities and Exchange Commission(SEC) covering resales of the debentures and of the common stock issuable upon conversion of the debentures . If the registration statement on Form S-3 isnot declared effective by the SEC by October 4, 2004, then the interest rate payable on the debentures will be subject to increase .

7

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Note 3 . Recent Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46 ), Consolidation of Va riable Interest Entities . FIN 46 clarifies the applicationof Accoun ting Research Bulle ti n No . 51, Consolidated Financial Statements , to certain entities in which equity investors do not have the characteris ticsof a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financialsupport from other parties . FIN 46 applies immediately to vari able interest entities created after January 31 , 2003, and to variable interest enti ties in which

Zenrprise obtains an interest after that date . It applies in the fiat fiscal year or interim period beginning after June 15, 2003, to variable interest entities i n

ch an enterprise holds a variable interest that it acquired before Febn 1, 2003 . FIN 46 applies to public enterprises as of the beginning of theapplicable interim or annual period. On October 8, 2003 , the FASB decide to defer FIN 46 until the first reporting period ending after December 15, 2003 .The provisions of this Interpretation did not have a material impact on the Company a financial condition or results of operations .

In December 2003, the FASB issued FIN No. 46R, Consolidation of Variable Interest Entities , clarifying the application of Accounting Research Bulle tinNo. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a cont rolling financial interest ordo not have sufficient equity at risk for the entity to finance its activities without addi tional subordinated financial support . The p rovisions of thisInterpretati on do not have a material impact on the Company s financial condi tion or results of operations.

In December 2003 , the FASB revised SFAS 132, Employers Disclosure About Pensions and Other Post Retirement Bene fits . This Statement does notchange the measurement or recogn ition of those plans required by FASB 87, Employers Accounting for Pensions , and No . 106, EmployersAccounting for Post Retirement Benefits Other than Pensions . This Statement retains the disclosure requirements contained in FASB No . 132,Employers Disclosure about Pensions and Other Post Retirement Plans. The p rovisions of this Statement do not have a material impact on the

Company s financial condi ti on or results of operations . During the six months ended June 30 , 2004 and 2003, the emp loyer 401-K match was $218,000and $150,000, respectively .

In February 2004 , the FASB issued revised FASB Staff Positions ( FSP ) pertaining to FIN 46(R) . The revised FSPs replace certain previously issued FIN46 FSP for entities to which FIN 46(R) is applicable . This revision to FIN 46 did not have a material impact on the Company s financ ial condi tion orresults of operatio n.

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

In June 2004, the FASB discussed EITF 04-08, The Effect of Con ti ngently Convertible Debt on Diluted Ea rnings Per Share . The EITF task force hasproposed that companies count the shares that could be issued upon convers ion of securities like the Company s debentures when calcula ting fully dilutedper share earnings. This EITF is not yet effective. However, we disclosed in Note 2 the poten tial effect of this EITF on the Company s fully diluted EPScalcula tion.

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

St: Moatb Ended Year Ended

(in $0003) June 36, June 30, December 31 ,2004 2003 2603

Gross accounts receivable $ 31,744 $ 12,329 $ 17,091Less: Accrued rebates (3,632) (2,165) (2,700)

Less : Accrued chargebacks (4,543) (1,200) (4,101 )

Less: Other deductions (229) (380) (405)

Net accounts receivable $ 23,340 $ 8,584 S 9,885

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

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

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

CHARD .BA - . ACCRUAL

Six Moottu Ended Y ear Ended

(in $000s) J60038. Just 36, DMU&IM31,2001 2903 2003

Beginning Balance $ 4,101 S 1,373 S 1,373Add: Provision related to sales made in current period 5 ,962 3,354 10,571Less : Credits issued during the current period (5,520) (3,527) (7,843)

Ending Balance S 4,543 $ 1,200 $ 4,101

Six Month Ended Year Ended

(in $0008 ) June 30, June 30, Deeese er 3l,2104 2003 2003

Beginning Balance S 2,700 S 1,525 S 1,525Add Provision related to sales made in current peri od 3,326 2,803 6,680Less: Credits issued during the current period (2,394) (2,163) (5,505)

Ending Balance S 3,632 S 2,165 S 2,700

Note S . Our invento ry consists of the following:

(in $000s) Juae 3Y , December 31,2"d 2003

Raw mate rials &.&&&&&&&&&&&&&&&&&. . .. S 22,247 S 9,671Work in process &&&&&dc&&&&&&&&& ..&&.. 4,256 5,303Finished goods &&&&&&&&&&&&&&&&&& .. 10,599 13,505

$ 37,102 S 28,479

The Company, as most co ies in the generic pharmaceutical industry, may build inventories of certain ANDA related products that have not yetreceived FDA approval or satisfactory resolu tion of patent infringement litigation, when it believes that such action is appropriate to increase itscommercial opportunity.

As of June 30, 2004, the Company s total inventory of $37,102,000 included $5,343,000 it inventories relating to products pending launch while IMPAXawaits receipt of FDA marketing approval and/or satisfactory resolution of patent infringement litigation, as follows:

(in S000s)Raw materialsWork in process

Finished goods

S 5,343

Total S 5,343

9

Note 6. Intangibles consist of the following:

(in $000s)

Estimated Jul.. 3a, December 31,affil aft 2YM 2003

(years )

Product rights and licenses &&&&&&&&&&&. .. . 3-8 S 2,691 $ 2,691

Leas: Accumulated amortization &&&&&&&&& . . .. (2,504) (2,312)

$ 187 S 379

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

Note 7. Accrued Expenses and Deferred Revenu e

(in $000 s) Juno 30, December 31 ,2004 2003

Sales returns $ 5,187 $ 4,121Deferred revenues 1,905 1,75 1Accrued salaries and payroll expenses 2,037 1,649Legal and pro fessional fees 1,314 1,47 8Accrued Medicaid rebates 550 61 3Accrued royalty and gross profit shari ng expense 462 55 9Accrued shelf stock protection 281 23 2Accrued interest 310 -Accrued taxes 524 -Other accruals 149 46 9

$ 12,719 S 10,872

Note 8. Returns Accrual

(in S000s)

Beginning BalanceAdd: Provision related to sales made in current pe riodLess : Credits issued duri ng the current period

Ending Balance

Note 9. Commitments and Contingencies

Patent Litigation

Six Months Ended

Jaoe 30, June 30,2004 2003

$ 4,121 S 3,1002,802 320

(1,736) (320)

$ 5,187 $ 3,100

Year Ended

December 3 1 .2003

S 3,1002,276(1,255 )

$ 4,121

Th ere has been substantial litigation in the pharmaceuti cal , biological , and biotechnology industries with respect to the manufacture , use, and sale of newproducts that are the subject of con flicting patent rights . One or more patents cover most of the brand name cont rolled-release products for which we aredeveloping gene ric versions . Under the Hatch-Waxman Amendments, when a drug developer files an ANDA for a generic drug, and the developer believesthat an unexpired patent which has been listed with the FDA as covering that brand nanx product will not be infr inged by the developer a product or isinvalid or unenforceable , the developer must so certify to the FDA . Th at certification must also be provided to the patent holder, who may challenge. thedevelopers certification of non-infringement , invalidity or unenfarceabilty by filing a suit for patent in frin(pement within 45 days of the patent holer sreceipt of such certification. If the patent holder files suit, the FDA can review and approve the ANDA, but is prevented from granting final marketingapproval of the product un til a final judgment in the action has been rendered , or 30 months from the date the certification was received, whichever issooner. Should a patent holder commence a lawsuit with respect to an alleged patent in fringement by us, the uncertainties inherent in test litigation makethe outcome of such litigation difficult to predict. The delay in obtaining FDA approval to market our product candidates as a result of litiga

tion, as well u

the expense of such litigation, whether or not we are successflil, could have a material adverse effect on our results of opera tions and financial position. Inaddition, there can be no assurance that any patent li ti gation will be resolved prior to the 30-month period. As a result, even if the FDA were to approve aproduct upon expiration of the 30-month period, we may not commence marketing that product if patent litigation is sti ll pending .

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Lawsuits have been filed against us in connec tion with fourteen of our Paragraph IV filings . The outcome of such litigation is difficult to p redict because ofthe uncertainties inherent in patent litigation.

As part of our patent litigation strategy, we obtained two policies covering up to $7 million of patent infringement liability insurance from Americaninternational Special ty Line Company (AISLIC ), an affiliate of AIG intemationa1. This li tigation insurance covered us against the costs associated withp atent infringement claims made agamat ua relating to seven of the ANDAa we filed under Paragraph IV of the Hatch-Waxman Amendments . Both policieshave reached their limit of liability . While Teva has agreed to pay 45% to 50% of the atto rneys fees and costs (in excess of the $7 million covered by ourinsurance policies) related to the twelve products covered by out strafe g~c alliance agreement with Teva , we will be responsible for the remaining expensesand cosh for these products , and all of the costs associated with patent litigation for our other products and our future products.

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

Although the outcome and costs of the asserted and unasse rted claims is difficult to predict because of the uncertainties inherent in patent li tigati on,management does not expect the Company s ul ti mate liability for such matters to have a mate rial adverse effect on its financial condition, results ofopera tions, or cash flows .

FIN 45

in November 2002, the FASB issued FIN No . 45, Guarantors Accoun ting and Disclosure Requirements for Guarantees , Including Indirect Guarantees ofIndebtedness of Others. Guarantees and claims arise during the ordina ry course of business from relationships with suppliers, customers, and strategicpartners when the Company undertakes an obligation to guarantee the performance of other through the delivery of cash or other assets if specifiedtriggering events occur. Non-performance under a contract by the guaranteed party trigger the obligation of the Company . As of June 30, 2004, allindemnifications included in agreements as of that date are excluded from the scope of FIN No . 45 as they relate primarily to our own future performanceand do not require any contingent payments .

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

Note 10 . Loan Agreements with PIDA and DRP A

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

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

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

• The cash collateral requirement of $10,000,000 was removed.• The Adjusted Excess Availability Covenant was removed.• IMPAX will maintain at Wachovia Bank cash and investments in an amount not less than $25,000,000 .• If the amount of cash and investments decline below $25,000,000, then the Cash Collateral requirement of S 10 ,000,000 and Adjusted Excess

Availability Covenant will be re-establishe d• If the Company reports negative free cash flow in any quarter , then reserves in the amount of the negative free cash flow will be reported on the

Borrowing Base.• The maximum aggregate Capital Ex pe nditures during any fiscal year in the amount of $8 ,000,000 was amended to permit a maximum cumulative

aggregated amount of $45 ,000,000 for fiscal years 2004 and 2005 .Note 12. Income Taxes

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

Note 13. Subsequent Events

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

ITEM 2. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThis report contains forward- looking statements within the meaning ofSection 27A of the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. Forward- looking statements include statements about our business strategies, our expected financialposition and operating results. the projected size of our markets and ourifnancingplans and similar matters. The words believe, expect. Intend,anticipate, plan, may, will, could, should, estimate, potential, opportunity, future, project, forecast, and simila r

expressions, as they relate to us, our management and our industry are intended to ldent forward-looking statements. We have based theseforward- looking statements largely on our current expectations and projections about juture events and financial trends affecting the financial condition ofour business. Thereforward-looking statements involve known and unknown risks and uncertainties. Our actual results could differ materially from theresults discussed in theforward-looking statements. You should not place undue relian ce on ourforward-looking statements. Further, anyforward- looking statement speaks only as of the date on which it Is made, and we undertake no obligation to update or revise any forward-lookingstatementsfor any reason, whether as a result of new information, future developments or otherwise.

Many factors could cause or contribute to a material changefrom the results discussed in theforward- looking statements. Such factors include, in noparticular order:

• our ability to successfully develop and commercialize additional products;• changes in the degree of competition/or our products;• the difficulty of predicting U.S. Food and Drug Administration (FDA) and other regulatory authority approvals;• our reliance on strategic alliances and the success of such strategic alliances;• the inability to acquire sufficient supplies of raw materials ;• litigation and/or threats of litigation ;• changes in our growth rates or the growth rates of our competitors;• legislative and FDA actions with respect to the government regulation of pharmaceutical products ;• public concern as to the safety of our products• changes in health care policy in the United States ;• conditions in the fuwncial markets in general or in general economic conditions;• our inability to raise additional capital when needed,,• the impact of competition from brand-name companies that sell their own generic products or successfully extend the exclusivity period of their

branded pro ducts;• the di culty in predicting the timing and outcome of legal proceedings , including patent -related matters such as patent infringement cases and

patent challenge settlements;• court and FDA decisions on exclusivity periods under the Hatch- Waxman Amendments ;• our dependence on revenuesfrom significant customers;• our dependence on revenuesfrom signifcant products; and• the increasing cost of insurance and the availability of product liability insurance coverage.

General

Impax Laborato ries , Inc . was formed through a business combina tion on December 14, 1999 between Impax Pharmaceuticals , Inc., a pri vately held drugdelivery company, and Global Pharmaceutical Corporation, a generi c pharmaceutical company . Impax Pharmaceuticals, Inc. merged with and into Global,with Impax stockholders receiving 3.3358 shares of Global common stock for each share of Impax Pharmaceu ticals , Inc . At the conclusion of the merger,Impax Pharmaceuticals, Inc. stockholders held over 70% of the combined company. For accounti ng purposes, the merger has been treated as arecapitalizati on of Impax Pharmaceuticals , Inc . with Impax Pharmaceuticals , Inc. deemed the acquirer of Global in a reverse acquisition. As a reverseacquisi tion, our histori cal operating results prior to the merger are those of Impax Pharmaceuticals , Inc. and only include the opera ti ng results of Globalafter the merger. In connec ti on with the merger, the surviving company changed its name to Impax Laboratories, Inc .

We are a technology based , specialty pharmaceutical company applying formulation and development expertise , as well as our drug delive ry technology, tothe development of controlled-release and niche generics , i n addition to the development of branded p roducts . As of June 30, 2004 , the Company ismarketing thirty-three generic pharmaceuticals , which represent dosage varia tions of fourteen different pharmaceutical compounds, and has fou rteenapplications under review with the Food and Drug Administration (FDA), including five tentatively approved , addressing approximately $5 .2 billion in U .S .prod es in the twelve months ended April 30, 2004 , according to NDCHealth. Eleven of these pending filings were filed under Paragraph IV of theHatch-Waxman Amendments . The Company has approximately twenty-four other products in various stages of development for which applications havenot yet been filed . These other products are generic ve

rs

ions of pharmaceutical products that had U.S . sales of approximately $14.6 billion in the twelvemonths ended April 30 , 2004, according to NDCHealth

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Critical Accounting Policies

The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin ( SAB) 101 issued by the SEC in December 1999. We recognizerevenue from the sale of products when the shipment of products is received and accepted by the customer. P rovisions for estimated discounts, rebates,chargebacks , returns and other adjustments are provided for in the peri od the related sales are recorded . In December 2003, the SAB 104 was issued by theSEC. This bulletin clarifies portions of Topic 13 of the Staff Accounting Bulleti n to be consistent with current accoun ting and auditing guidance and SECrules and regulations and revises accounting guidance contained in SAB 101 related to multiple element revenue arrangements of Emerging Issues TaskForce (EITF) No. 00-21 superseded as a result of the issuance .

Emerging Issues Task Force (EITF) No . 00-21 supplemented SAB 101 for accounting for multiple element arrangements. The Company has entered intoseveral strategic alliances that involve the delivery ofmultiple Products and se rvices over an extended pe riod of time . In multiple element arrangements, theCompany must determine whether any or all of the elements of the arrangement can be separated from one another . If separation is possible, revenue isrecognized for each deliverable when the revenue recognition criteria for the speci fic deliverable is achieved. If separation is not possible , revenuerecogni tion is required to be spread over an extended period.

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

1) the delivered item has value to the customer on a standalone basis;2) there is objective and reliable evidence of the fair value of the undelivered item ; and3) if the arrangement included a general right of retu rn, or whether delivery or performance of the undelivered item is considered p robable.

The Company reviews all of the terms of its strategic alliances and follows the guidance from SAB 104 AND EITF No. 00-21 for multi ple elementarrangements. Up front and mi lestone payments from these strategic allianc es are deferred and recognized over the life of the agreements as the Companyfulfills its contractual obligation to manufacture and supplies products during this period. In additi on , in some agreements, the Company receives andrecords royalty revenue based on a percentage of the strategic partners total sales to their customers of the p roducts supplied by IMPAX .

In June 2001 , the Company entered into a Strategic Alliance Aunt with a subsidia ry of Teva for twelve controlled-release generic p harmaceuticalproducts. The agreement granted Teva exclusive U.S. prescription marketing rights for these products for a period of ten years from the date of Teva s firstsale of the products .

Returns Reserv e

The Company estimates future product returns at the time of ask . Product returns by wholesalers p rincipally relate to the return of expired products . Forproduct return rese rves , we consider volume and mix of p roduct in the marketplace, historical return rates, and the competitive environment, all of whichrequire us to use estimates and assumptions . IMPAX introduces a number of new products each year . As a result , the Company has been able to monitorhistori cal return rates for new products . Based on our histo rical data, since we are in one business segment, we have found that gene ric pharmaceu ti calproduct returns are alike and that new product returns have similar characteristics to existing products . Usually , new products are AB rated (products thatdemonstrated bioequivalence with innovator products), have 24 month expiration dating, and are marketed to the same customers, i .e., wholesalers,warehousing chains, distributors , etc . The AB rated products are substitutable by the pharmacist for the innovator products . The non-AB rated products,such as the LIPRAM product family , generally, may not be substituted by the pharmacist as they are therapeutic alternatives, not generic substitutes . Anychange to a pati ent ' s prescription to an alternati ve product requires the patient a physician approval for the substitution. We are monitoring returns byproduct and, where applicable , we establish specific product retu rn reserves and/or adjust our estimates of the future return rates based on va rious businessand compe titive assumptions.

Th e sales return rese rve is calculated using an historical lag nod that is, the time between when the product is sold and when it is ul timately returned asdetermined from the Company a system generated lag pen od report and return rates, adjusted by es timates of the future return rates based on variousassumptions which may include changes to internal policies and procedures, changes in business prac ti ces and commercial terms with customers,competitive positi on of each product, amount of inventory in the pipeline, the introduction of new products , and changes in market sales informa ti on .

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Our returned goods policy requires prior authorization for the return , with corresponding credits being issued at the original invoice prices, less amountspreviously granted to the customer for rebates and chargebacka . Products eligible for return must be expired and returned within one year following theexpiration date of the product . Prior to 2002, we required returns of p roducts within six months of expiration date . Because of the lengths of the lag periodand volatili

ty

that may occur from quarter to quarter, we arc currently using a rolling 22-month calculation to estimate our product return rate .

The Company believes that its es ti mated returns reserves were adequate at each balance sheet data since they were formed based on the informa tion thatwas known and available , which were sup ported by the Company s historical experience when similar events occurred in the past , and management soverall knowledge of and experi ence in the generic pharmaceuti cal industry. In esti mati ng its retu rns rese rve, the Company looks to returns after the balancesheet date , but pri or to filing its financial statements to ensure that any unusual trends are considered .

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

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

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

Inventor y

Our inventories are valued at the lower of cost or market . Costs are determined using a standard cost method, first-in, first-out (FIFO) flow of goods . Costsinclude materials, labor, quality control and production overhead . We review and adjust inventory for short-dated product and inventory commitmentsunder supply agreements based on projections of future sales and market conditions . The Company, as do most companies in the generic pharmaceuticalindustry, may build inventories of certain ANDA-related products that have not yet received FDA approval and/or satisfactory resolution of patentinfringement litigation, when it believes that such action is appropriate to increase its commercial opportunity . If our inventory is greater than estimatedshipments to our customers, there may be an inventory write-down . Therefore, the Company s management must make significant estimates relating toinventory .

Imnaired Assets

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

Goodwill

Prior to the adoption of Statement of Financial Accounting Standards (SFAS ) No. 142, Goodwill and Other Intangible Assets, we amortized goodwil lon a straight-line basis over its estimated useful life . The Company adopted the provisions of SFAS No. 142, effective January 1, 2002; no impairment wasnoted. Under the provisions of SFAS No . 142, the Company performs the annual review for impairment at the reporting unit level, which the Company hasdetermined 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 atwo-step process that begins with the estimation of the fair value of the reporting unit . The first stop screens for potential impairment and the second stepmeasures the amount of the impairment, if any . Our estimate of fair value considers publicly available information regarding the market capitalization of ourCompany, as well as (i) publicly available information regarding comparable publicly-traded companies in the generic pharmaceutical industry, (ii) thefinancial projections and future prospects of our business, including its growth opportunities and likely operational improvements, and (iii) comparable salesprices, if available.

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As part of the first step to assess potential impairment, we compare our estimate of fair value for the Company to the book value of our consolidated netassets. 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, ifany.

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 thereporting 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 thereporting 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 itsassets 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, animpairment 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 materialadverse effect on the fair value of the Company and its goodwill . If such events or changes in circumstances were deemed to have occurred, we wouldconsult with one or more valuation specialists in estimating the impact on our estimate of fair value . We believe the estimation methods are reasonable andreflective of common valuation practices. We perform our annual goodwill impairment test in the fourth quarter of each year.

Results of Operations

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

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

Overview

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

Revenue s

Revenues for the second quarter of 2004 were $30,845,000, up more than 119% compared with revenues of 514,067,000 h the prior years second quarter .The year-over-year increase for the quarter was primarily due to shipments of our generic versions of Wellbutrin® SR (Bupropion Hydrochloride) 100 mgand 150 mg Controlled Release Tablets, and Dec of mycin® (Demeclocycline Hydrochloride) ISO mg and 300 mg Tablets, which commenced during thefirst quarter of 2004; Zyban® (Bupropion Hydrochloride) and Sinemet® CR (Carbidope/Levodope) Extended Release Tablets, which commenced duringthe second quarter of 2004 ; and higher over-the-counter (OTC) product revenues . The sequential quarter decline was due to timing of product shipmentsand pipeline filling, particularly as related to the launch of Bupropion Hydrochloride in the fiat quarter . During the 2004 second quarter, IMPAX srevenues from sales of Bupropion Hydrochloride products, through our strategic alliance agreements with Teva and Andrx, were approximately $8,089,000,compared with $23,870,000 in the first quarter . In addition, in the first quarter the Company recognized revenue of $2 .5 million from Teva related to therefundable deposit under its strategic alliance agreement .

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

2004 2083

(in 000 s )Product sales $ 38,364 S 17,932Less:Rebates (2,207) (1,741 )

Chargebacks (3,814) (2,040)

Product retu rn reserve (1,021) (188)Other credits (1,018) (503 )

Net sales 30,304 13,460Other Revenues 541 607

Total Revenues S 30,845 S 14,067

IS

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

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

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

• Sale of prescription (Rx) products, such as Bupropion Hydrochloride, exclusively, through marketing partners, pursuant to strategic allianceagreements, such as Teva, called Rx Partners ; and

• Sale of Loratadine OTC products through marketing partners, pursuant to strategic alliance agreements, such as Schering, Wyeth, Novartis, andLeiner, called OTC .

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

2554 2003

(in 000 s)GlobalRx PartnersOTC

16,649 S 9,7098,628 -5,027 3,751

Total Revenues 30,304 S 13,460

The quarter-to-qua rter increase of app roximately $6.9 million in Global products were primarily due to new products introduced in 2004 and late 2003,such as Demeclocycline of app roximately $3 .6 million, Carbidop"evodopa of approximately $0 .8 mil lion, and Flavoxate of appro ximately $0 .9 million,as well as higher LIPRAM products of approximately $1 .2 million .

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

Cost of Sales

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

Gross Margin

Gross margin for the three months ended June 30, 2004 was $12,308 , 000, or app roximately 39.9% of total revenues, compared with gross margin of$4,746,000, or approximately 33 .7% of total revenues, in the prior years second quarter, and down sequen tially from $20,303,000, orappro ximately52.3'4 of total revenues in the first quarter of 2004. The year-over-year increase in the gross margin percentage was primarily due to the int roduction ofnew products since last year with higher margt ns, such as Bupropion Hydrochloride, Demeclocycline Hydrochloride, Flavoxate, and CarbidoThe decrease in the gross margin percentage from the first quarter of 2004 to the second quarter of 2004 was primarily due to changes in p t mix :higher OTC product revenues that have lower margins and lower Bupropion Hydrochloride product sales that have higher margins in the second qua rter,and the $2 , 500,000 first quarter revenue f rom Teva related to the refimdable deposit .

Research and Development Expe,ues

The research and development expenses for the three months ended June 30, 2004 were $5,104,000 less reimbursements of 578,000 by a subsidiary of TevaPharmaceutical Industries , Ltd. under the Strategic Alliance Agreement signed in June 2001, as compared to $3,558,000 less reimbursements of $22,000 forthe same period in 2003 . The research and development expenditures in 2004 as compared to 2003 were attributable to higher personnel costs , biostudies,clinical studies, and new product introduction costs (technical transfer, scale-up and validation) .

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Patent and Patent Litigation Costs

The patent and patent liti gation expenses for the three months ended June 30, 2004 , were $2,563,000 as compared to $789,000 for the name pe riod in 2003 .The year-to-year increase for the three months was primarily due to the ongoing Paragraph IV li ti gation related to our Omeprazole Capsules andFenofibrate Tablets ANDAs .

Selling Expenses

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

Generaland Administrative Expenses

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

Interest Income

Interest income for the three months ended June 30, 2004 was $271 ,000 as compared to $70 ,000 for the same period in 2003, primarily due to higheraverage cash equivalents and short-term investments generated from the net proceeds of the Company s S95 million convertible senior subordinateddebentures .

Interest Expense

Interest expense for the three months ended June 30, 2004 was $564,000 as compared to $264 ,000 for the same period in 2003 . The increase in the interestexpense for 2004 was pri marily due to the 1 . 25% interest accrued on the Company s $95 million conver tible senior subordinated debentures.

Income Taxes

In the second quarter 2004 , the Company provided for income taxes of $30,000 or 5 % of income before taxes, as compared to $0 for the 2003 pe riod . Theeffecti ve tax rate in 2004 reflects the partial reversal of the defer red income tax asset valuation allowance recognized. The valuation allowance was reducedto reflect the utilization of federal and state loss carryforwards that offset the current tax component of the income tax p rovision . We evaluate therealizability of deferred tax assets on an annual and quarterly basis or if there is a signi ficant change in circumstance that may causes change in ourjudgment about the realizabili ty of our deferred tax assets. Any valuation allowance that may be released as a result of the evaluation process could have amateri al effect on our future results of operations . At December 31, 2003 , the Company had a net operating loss-carryforward totaling appro ximately$94,600,000 , which expires from 2009 th rough 2023.

Net Income

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

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

Overview

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

Revenues

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

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

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

2804 2003

Product salesLess :

RebatesChargebacksProduct return reserveOther credits

Net salesRevenue from reversal of refundable deposit from TevaOther Revenues

79,916 $ 32,085

(3,326) ( 2,803 )(5,962) (3,354 )(2,802) (320)(1,700) (1,082 )

66,126 24,52 62,500 -1,072 96 6

Total Revenues $ 69,698 S 25,492

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

2004 2003

(in 000 s)Global S 25,835 $ 16,865Rx Partners 32,501 -OTC 7,790 7,661

Total Revenues S 66,126 $ 24,526

The increase in Global products of approximately $9 million in the first six months of 2004 as compared to the same period in 2003 was primarily due tonew products introduced in 2004 and late 2003, such as Demeclocycline of approximately $4 .9 million, Flavoxate of approximately $1 .4 million,Carbidopa/Levodopa of approximately $0 .8 million, and higher sales of previously introduced products, such as Orphenadrine, of approximately $0 .8million, and LIPRAM products of approximately $0.8 million.

Cost of Sales

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

Gross Margin

Gross margin for the six months ended June 30, 2004 was 532,611,000 , or app roximately 46.8% of total revenues , as compared to $8,024,000, orapp roximately 31 .5% of total revenues , for the same period in 2003 . The year -over-year increase in the gross margin percentage was primarily due to theintroduction of new products since last year with higher margins, such as Bupropion Hydrochloride, Demeclocycline Hydrochloride, Flavoxate, andCarbidopa/Levodopa, and the $2 , 500,000 revenue from Teva related to the refundable deposit

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Research and Development Expenses

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

Patens and Patent Litigation Expenses

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

Se ingExpenses

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

General and Administrative Expenses

The general and administrative expenses for the six months ended June 30 , 2004 were S6,468,000 as compared to $4,205,000 for the same pe riod in 2003 .Th e increase in general and administrative expenses as compared to 2003 was p rimarily due to higher pro fessional fees, insurance premiums , and pe rsonnelcosts .

Interest Income

Interest income for the six months ended June 30, 2004 was $327,000 as compared to $112 ,000 for the same pe riod in 2003, pri marily due to higher averagecash equivalents and short-term investments generated from the net proceeds of the Company s $95 minion conver tible senior subordinated debentures.

Interest Expense

Interest expense for the six months ended June 30, 2004 was $836,000 as compared to $495,000 for the same pe riod in 2003 . The increase in interestexpense for 2004 was primari ly due to the 1 . 25% interest accrued on the Company a $95 million convertible senior subordinated debentures.

Income Taxes

For the six months ended June 30 , 2004 , the Company provided for income taxes of $506 ,000 or 5% of income before taxes , as compared to SO for the 2003period. The effec tive tax rate in 2004 reflects the partia l reversal of the deferred income tax asset valua tion allowance recognized. The valuation allowancewas reduced to reflect the u tilization of federal and state loss carryforwards that offset the current tax component of the income tax p rovision. We evaluatethe realizability of deferred tax assets on an annual and quarterly basis or if there is a significant change in ci rcumstance that may cause a change in ourjudgment about the realizability of our deferred tax assets . Any valuation allowance that may be released as a result of the evalua tion process could have amaterial effect on our future results of opera tions. At December 31, 2003, the Company had a net operating loss-carryforward totaling approximatelyS94,600,000, which expires from 2009 through 2023 .

Net Income

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

Liquidity and Capital Resources

As of June 30, 2004 , we had $98,556, 000 in cash, cash equivalents and short-term investments . Only $200,000 of the account balances are insured by theFederal Depository Insurance Company (FDIC) . The balance of the Company s cash equivalents and the sho rt-term investments are hid in US . Treasurysecurities and high-grade commercial paper, which are not insured by the FDIC .

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The net cash provided by financing activities for the six months ended June 30 , 2004, was approximately $101,016 ,000, consis ting primarily of the$95,000,000 proceeds, less capitalized costs of $3,612 ,000, from the Company s convertible senior subordinated debentures offering completed in April2004 , and proceeds of $3,771 ,000 from issuance of common stock upon the exercise of options and warrants .

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

For the six months ended June 30, 2004 , significant uses of cash from operating activities included, primarily, the increase in accounts receivable balance of$13,455,000 and inventory buildup of $8,623,000, pa rtially offset by favorable cash flow from operati ons, (excluding depreciation and amor tization) of$11,702,000. During the three months ended June 30, 2004 , we repaid our partners, Teva and Andrx, approximately $11 .8 million for their porti on offinding the invento ry buildup for the Bupropion Hyd rochloride products.

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

In December 2003, the Company transferred the $25 million Loan and Security Agreement f rom Congress Financial Corpora tion to Wachovia Bank, N.A .,thereby securing lower interest and less restricti ve borrowing terms. The interest rates for the revolving loans are prime rate plus 0 .75%, or eurodollar rateplus 2 .75%, at our option, based on excess availability . The term loan has an interest rate of prime rate plus 1 .5•/., or eurodollar rate plus 4%, at our option .As of June 30, 2004 , we borrowed approximately $5,000,000 against the revolving credit line and $2,880 ,000 against the term loan. In April 2004, the $25million loan and security agreement was amended, as follows

: 1) the cash collateral requirement of S10 million was removed; (2) the adjusted excess

availability covenant was removed ; (3) the maximum permitted capital expenditure amount was aggregated to $45,000,000 for the years 2004 and 2005, and(4) as a condition of items ( 1) and (2) above , IMPAX is required to maintain a minimum cash balance at Wachovia of $25,000,000 .

We have no interest rate or de rivative financial instruments nor material foreign exchange risks. We are also not party to any of -balance-sheetarrangements, other than operating leases .

We expect to incur significant operati ng expenses, particularly research and development, for the fo reseeable future in order to execute our business plan .We, there fore, anticipate that such operating expenses , as well u planned capital expenditures for the next twelve months ranging fro m $18 to $22 million,prima rily in plant capacity expansion, will consti tute a mate rial use of our cash resources .

To date, we have primarily funded our research and development and other opera ting activities through equi ty and debt financing, and strategic alliances .

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

Recent Accounting Pronouncements

In Janua ry 2003 , the FASB issued FASB Interpretation No . 46 ( FIN 46 ), Consoli dation of Variable Interest En tities. FIN 46 clarifi es the applicationof Accounting Research Bulletin No. 51, Conso lidated Financial Statements, to certain en tities in which equity investors do not have the characte risticsof a controlling financial inte rest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financialsupport from other parti es. FIN 46 applies immediately to var iable interest entities created after Janua ry 31, 2003, and to variable interest entities in whichan enterprise obtains an interest after that date . It applies in the fiat fiscal year or interim period beginning after June 15, 2003 , to variable interest entities inwhich an enterp rise holds a variable interest that it acquired before February 1, 2003. FIN 46 applies to public enterprises as of the beginning of theapplicable inte rim or annual period. On October 8, 2003 , the FASB decided to defer FIN 46 until the fi rst reporting pe riod ending after December 15, 2003 .The provisions of this Interpretati on did not have a material impact on the Company s financial condition or results of operations.

In December 2003 , the FASB issued FIN No. 46R, Consolidation of Variable Interest En tities, cla rifying the applicati on of Accounti ng Research BulletinNo. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest ordo not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support . The provisions of thisInterpretation do not have a materi al impact on the Company a financial condi tion or results of operati ons.

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In December 2003 , the FASB revised SFAS 132, Employers Disclosure About Pensions and Other Post Re tirement Benefits. Th is Statement does notchange the measurement or recognition of those plans required by FASB 87 , Employers Accounting for Pensions, and No. 106, EmployersAccounting for Post Re ti rement Benefits Other than Pensions . This Statement retains the disclosure requir ements contained in FASB No. 132,Employers Disclosure about Pensions and Other Post Re tirement Plans. The p rovisions of this Statement do not have a material impact on the

Company s financial condition or results of operations . During the six months ended June 30, 2004 and 2003, the employer 401-K match was $218,00 0and S 150,000, respectively.

In February 2004, the FASB issued revised FSP pertaining to FIN 46(R) . The revised FSPs replace certain previously issued FIN 46 FSP for en tities towhich FIN 46(R) is applicable. Th is revision to FIN 46 did not have a material impact on the Company s financial condi tion or results of opera ti on .

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

In June 2004 , the FASB discussed EITF 04-08 , The Effect of Contingently Conve rtible Debt on Diluted Earnings Per Share . The EITF task force hasproposed that co mpanies count the shares that could be issued upon conversion of securities like the Company s debentures when calculating fully dilutedper share earnings. This EITF is not yet effective. However, we disclosed in Note 2 the poten tial effect of this EITF on the Company s fully diluted EPScalculati on .

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

• On January 28, 2004, IMPAX announced that the U . S. Food and Drug Administration (FDA) granted final approval to the Company's AbbreviatedNew Drug Application (ANDA) for its generic version of Wellbutrin® SR (Bupropion Hydrochloride ) 100 mg Controlled Release Tablets and grantedtentative approval to the Company's gene ric version of Wellbutrin SR 150 mg Controlled Release Tablets. GlaxoSmithKline markets Wellbutrin SR forthe treatment of depression . According to NDCHealth, U .S . sales of these dosage forms of Wellbutrin SR Tablets were app roximately $1 .2 billion inthe twelve months ended June 30, 2004.

• On January 29, 2004 , IMPAX announced that the Court of Appeals for the Federal Circuit in Washington, D.C. upheld a lower cou rt decision that ru ledagainst certain claims by GlaxoSmithKline in regards to the Company 's ANDA for Wellbutri n SR (Bupropion Hydrochloride) 100 mg and 150 mg andfor Zybant (Bupro pion Hydrochloride) 150 mg. GlaxoSmithKline markets Wellbutrin SR for the treatment of depression and Zyban for smokingcessation .

• On February 27, 2004, IMPAX announced that the FDA granted tentative approval to the Company's ANDA for its generic ve rs ion of Allegratll -D(Fexofenadine Hydrochloride and Pseudoephedrine Hydrochlo ride 60mg/ 120mg) Extended Release Tablets . Aven ti s Pharmaceuticals marketsAllegra-D for the treatment of the symptoms associated with seasonal al lergic rhiniti s. According to NDCHealth , U.S . sales of Allegra-D wereapproximately $438 million in the twelve months ended June 30, 2004.

• On March 5, 2004, IMPAX announced that the FDA granted final approval to the Company' s ANDA for a gene ri c version of Clariti nt-D 24-Hour(Loratadine and Pseudoephedrine Sulfate , IOmg/240mg) Extended Re le ase Tablets . Schering-Plough Corpora tion markets Claritin-D 24-Hour as anover-the-counter (OTC) drug for the relief of symptoms of seasonal allergic rhinitis (hay fever ) . According to NDCHealth, U.S . sales of Claritin-D24-Hour were $7 million for the twelve months ended June 30, 2004 .

• On March 8, 2004, IMPAX announced that the FDA granted tenta tive approval to the Company's ANDA for its gene ric version of Tricot(Fenofibrate) Tablets . Tricor Tablets are marketed by Abbott Laboratories, Inc . to assist patients in managing their cholesterol levels . The drug isindicated for use in reducing elevated LDL choleste ro l , total cholesterol, triglycerides and Apo B and increasing HDL choleste rol in patients withpri mary hypercholesterolemia or mixed lipidemia . The drug has also been approved as adjunctive therapy for the treatment of hypertriglyceridemia, adisorder characterized by elevated levels of very low density lipoprotein (VLDL) in the plasma. According to NDCHealth , U .S . sales of Tricor Tabletswere approximately $684 million for the twelve months ended June 30, 2004 .

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

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• On March 23, 2004, IMPAX announced that the FDA granted final marketing approval to the Company's ANDA for its gene ric version ofDeclomycin® (Demeclocycline Hydrochloride) 150 and 300 mg. Tablets . ESP Phartna markets Declomycin for the treatment of various infections .According to NDCHealth, U .S . sales of Declomycin were approximately $30 million for the twelve months ended June 30, 2004.

• On May 17, 2004 , IMPAX announced that the FDA granted final a pproval to the Companys ANDA for Carbidopa /Levodopa Extended ReleaseTablets, its generic version of Sinemet® CR tablets . Bristol-Myers Squibb markets Merck & Co .'s Sinemet CR exclusively in the U.S. for thetreatment of Parkinsonism. According to NDCHealth, U .S . prescription sales of Sinemet CR and the one currently marketed gene ric equivalent were$123 million in the twelve months ended June 30, 2004.

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

• On May 28, 2004, IMPAX announced that the FDA granted final marketing approval to the Company's ANDA for its generic version of Proamatine®,Midodrine Hydrochloride 2 .5 and 5 mg Tablets . Shire Pharmaceuticals Group plc markets Prosmatine for treatment of symptoma ti c orthostatichypotension. According to NDCHealth, U.S . market sales of Pro ama tine 2.5 mg and 5 mg and the two other marketed generic versions wereapproximately $48 million in the twelve months ended June 30, 2004.

• On June 18, 2004 , IMPAX announced that the FDA gran ted IMPAX a second tier 180-day exclusivity related to its pending ANDA for a gene ricversion of Glucophage XRB, Metformin HCI Extended Release Tablets , 500mg. IMPAX has selectively waived its rights to this exclusivity to TevaPharmaceuticals USA Inc . and will be sharing in the profits of Teva' s Metfonnin HCI Extended Release Tablets as p rovided for in the StrategicAlliance A g reement between IMPAX and Teva signed in June 2001 .On August 2, 2004 , the FDA granted final marketing. approval to the Company aANDA for its generi c version of Glucophage XR, Metformin HCI Extended Release Tablets, 500 mg . Bristol-Myers Squibb markets Glucophage XRfor the improvement of glycemic contro l in patients with type 2 diabetes . According to NDCHealth, U .S. market sales of Glucophage XR 500 mg andother marketed generic versions were approximately $376 million in the twelve months ended June 30, 2004 .

ITEM 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RIS KThe Company s cash and cash equiva lents includes U . S. government and short-term high-grade commercial paper stated at cost which approximatesmarket value. The pri mary objec ti ve of the Company s investment activities is to preserve principal and maximi ze yields without significantly increasingrisk. To achieve this objec tive , the Company main tains its portfolio in a variety of h~h credit quality securities , including U.S . Government securities,treasu ry bills, and short-term high-grade commercial paper . One hundred percent of the Company s portfolio matures in less than one year . The carry ingvalue of the portfolio approxima tes the market value at June 30 ,2004 . The Company s debt instruments at June 30 , 2004, are subject to fixed and variableinterest rates and pri ncipal payments. We believe that the fair value of our fixed and variab le rate long-term debt approximates their carrying value ofapproximately $108 million at June 30, 2004 . While changes in market interest rates may affect the fair value of our fix ed and variable rate long-term debt,we believe the effect , if any, of reasonably possible near-term changes in the fair value of such debt on the Company s financial statements will not bematerial.

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

ITEM 4. CONTROLS AND PROCEDURESThe Company, under the supervision and with the participation of our management, including our principal executive officer and our pri ncipal financialofficer, evaluated the effectiveness of our disclosure controls and procedures (u defined in Exchange Act Rule 13a- 15[e)), as of the end of the periodcovered by this report . Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure cont rols andprocedures are effective in reaching a reasonable level of assurance that information required to be disclosed by us in the reports that we file or submit underthe Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the ti me period specified in the Securities andExchange Commission s rules and forms . The p rincipal executive officer and principal financial officer also conducted an evaluation of inte rnal controlover financial reporting ( Internal Control) to determine whether any changes in Internal Controls occurred during the quarter that have materiall yaffected, or which are reasonably likely to mate rially affect , Inte rnal Cont rols.

Based on this evaluation , there has been no such change during the quarter cove red by this report . A control system, no matter how well conceived andoperated , can provide only reasonable , not absolute, assurance that the objectives of the control system are met . Further, the design of a contro l system mustreflect the fact that there are resou rce constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limita ti onsin all control systems, no evaluation of cont rols can p rovide absolute assurance that all cont rol issues and instances of fraud, if any, within the Companyhave been detected. The Company conducts periodic evaluations of its internal cont rols to enhance, where necessary, its procedures and controls . Becauseof the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART 11- OTHER INFORMATION

ITEM 1 . LEGAL PROCEEDING S

Patent Litigatio n

There has been substantial li tigation in the pharmaceutical , biological, and biotechnology industries with respect to the manufacture , use, and sale of newproducts that are the subject of conflic ting patent rights. One or more patents cover most of the brand name controlled-release products for which we aredeveloping gene ric versions . Under the Hatch-Waxman Amendments, when a drug developer files an ANDA for a generic drug, and the developer believesthat an unexpired patent which has been listed with the FDA as covering that brand rtame product will not be infringed by the developers product or isinvalid or unenforceable, the developer must so certify to the FDA. That certification must also be provided to the patent holder , who may challenge thedevelopers certification of non -infringement, invalidity or uncnforceabilty by filing a suit for patent infrin?ement within 45 days of the patent holder sreceipt of such cer tification. If the patent holder files suit, the FDA can review and approve the ANDA, but is prevented from granting final marketingapproval of the product until a final judgment in the action has been rendered , or 30 months from the date the certifica tion was received, whichever issooner. Should a patent holder commence a lawsuit with respect to an alleged patent infringement by us , the uncertainties inherent in patent litigation makethe outcome of such liti gation difficult to predict. The delay in obtaining FDA app roval to market our product candidates as a result of litigation, as well asthe expense of such litigati on, whether or not we are successful , could have a material adverse effect on our results of opera tions and financial position. Inaddition, there can be no assurance that any patent litigation will be resolved p rior to the 30-month pe riod. As a result, even if the FDA were to approve aproduct upon expiration of the 30-month period, we may not commence marketing that product if patent litiga tion is s till pending .

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

;The Omeprazole Casa

In May 2000, AstraZeneca AB and four of its related companies filed suit against IMPAX in the U.S. District Courtin Wilmin gton, Delaware claiming thatIMPAX s submission of an ANDA for Omeprazole Delayed Release Capsules, 10 mg and 20 mg, cons titutes infringement of six U.S . patents relating toAstraZeneca s Prilosec product . The action seeks an order enjoining IMPAX from marketing Omeprazole Delayed Release Capsules, 10 as and 20 mguntil February 4, 2014 , and reimbursement for costs and atto rn ey fees associated with this litigation .

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

AstraZeneca filed essenti ally the same lawsuits against nine other gene ric pharmaceuti cal companies (Andrx, Genpharm, Cheminor, Kremers, LEK, Eon,Mylan, Apotex, and Zenith). Due to the number of these cases, a multidistrict li ti gation proceeding , In re Omeprazole 10 mg, 20 mg , and 40 mg DelayedReleased Capsules Patent Li ti gation, MDL-1291, has been established to coordinate pre- tr ial proceedings. Both lawsuits filed by AstraZeneca againstIMPAX have been transferred to the mul ti distri ct litigati on.

Early in the multidist rict litigation, the trial court ruled that one of the six patents-in-suit was not infringed by the sale of a gene ric omeprazole product andthat certain other patents were invalid. These rulings effectively eliminated four patents from the trial of these infringement can, although AstraZenecamay appeal these rulings as part of the overall appeal process in the case .

On October 11, 2002 , after a t rial involving Andrx, Genpharm Cheminor, and Kretners, the t rial judge handling the multi district litiga ti on ruled onAstraZeneca s complaints that three of these four defendants (First Wave Defendants ) infringed the remaining patents-in-suit. The trial judge ruled thatthree of the First Wave defendants , Andrx, Genpharm, and Cheminor , infringed the rcmaininp two patents asserted by AstraZeneca in its complaints, andthat those patents are valid un til 2007 . In the same ruling, the trial court ruled that the rem aining First Wave Defendant , Kremers , did not infringe either ofthe remaining two patents . This defendants formula tion differed from the formula tion used by the other First Wave Defendants in several respects. Inmid-December 2003 , the U .S. Court of Appeals for the Federal Circuit affirmed the October 2002 ruling in all respects . Subsequent petitions for rehearinghave been denied.

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The formulation that IMPAX would employ in manufacturing its generic equivalent of omeprazole has not been publicly announced. IMPAX s formulationhas elements that resemble those of other First Wave Defendants, but it also has elements that differ. Although the ruling by the trial court in themultidistrict litigation has a significant effect on the course of AstraZeneca s litigation against IMPAX, application of the trial courts opinion is no tcertain. IMPAX believes that it has defenses to AstraZeneca s claims of infringement, but the opinion rendered by the trial court in the First Wave casesmakes the outcome of AstraZeneca s litigation against IMPAX uncertain .

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

In December 2003, the tri al court entered a new scheduling order governing pre-trial proceedings relating to the Second Wave Defendants , includingIMPAX. The schedule for comple tion of the litigation in the Second Wave , including AstraZeneca's litigation against IMPAX, now provides that all factdiscove ry (with certain ex ceptions) is complete. AstraZeneca's expert reports on issues as to which it bears the burden of proof, including issues of allegedinfringement, were produced on February 17, 2004. IMPAX's responsive expert reports were produced on July 12, 2004.

Under the December 2003 scheduling order, Astra's reply reports would have been due on August 6, 2004 , and expert deposi tions would have commencedshortly thereafter. Following receipt of IMPAX's six expert reports on July 12, 2004 , as well as 17 other reports produced by four other defendants, Astrarequested a further modificati on of the scheduling order . Astra's request for a three-month extension of the time for its reply reports was denied, but theCourt granted Astra an addi tional five-week period to respond to the defendants' rebuttal reports on non- infringement. The schedule for expert depositionsmust be re-established Nevertheless , expert depositi ons will be conducted between Se ptember 14, 2004 , when reply reports are now due , and the end of2004. Given the delays which have thus far occu rred in the litigation and the number of experts already designated by the pa rt ies, it is uncertain whether theexpe rt depositions can be completed in the time allotted by the present schedule.

Under the December 2003 schedule , Motions for Summary Judgment may not be fi led, as of right, until October 19, 2004 . IMPAX has recently requestedpermission to file an earlier mo tion for summary judgment on one aspect of the case. Other defendants have also requested permission to file early motionsfor summary judgment on other aspects of the lit igation .

IMPAX may file additional Motions for Summa ry Judgment, including other Motions for Summary Judgment of Non-Infringement, following the close ofall discovery or after October 19, 2004, whichever conies first. If the case is not resolved by summa ry judgment, the case involving IMPAX will be retu rnedto the U .S . Dist rict Court in Delaware for trial. It is likely, given the proceedings in the First Wave cases , that the case against IMPAX will be transferredback to New York for a consolidated trial before the saute judge who decided the First Wave cases . IMPAX believes, however, that any trial that might bescheduled in the case will commence in the first half of 2005 .

If IMPAX does not file a Motion for Summa ry Judgment, or if such a Motion is denied, the cou rt will schedule a date for trial. IMPAX intends tovigorously defend the action brought by AstruZeneca.

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

Aventis Pharmaceuticals Inc- at al. Y. i_MPAX: The Fexofenadine Casa

On March 25 , 2002 , Aventis Pharmaceuticals Inc., Merrell Pharmaceuticals Inc., and Carderm Capital L.P . (collectively referred to as Aventis) suedIMPAX in the U .S . District Court for the Distr i ct of New Jersey (Civil Action No . 02-CV-1322) alleging that IMPAX s proposed fexofenadine andpseudoephedrine hydrochloride tablets , containing 60 mg of fexofenadine and 120 mg of peeudoephedrine hyd rochlori de, infringe U .S . Patent Nos .6,039,974 ; 6,037,353 ; 5,738,872 ; 6 , 187,791 ; 5,855 ,912; and 6.113,942. On November 7, 2002, Aven tis filed an amended complaint , which added anallegation that IMPAX s Fexofenadine and Pseudoephedrirne Hydrochloride 60 mg1I20 mg Extended Release Tablet product in fringes U.S . Patent No .6,399,632 . Aventis seeks an injunction preventing IMPAX from marketi ng its Fexofenadine and Pseudoephedrine Hydrochloride 60 mg/120 mg ExtendedRelease Tablet product until the patents-in-suit have expired, and an award of damages for any commercial manufacture, use, or sale of IMPAX sFexofenadine and Pseudoephednne Hydroch lori de 60 mg/ I20 mg Extended Release Tablet product , together with costs and attorneys fees .

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

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

On March 25 , 2004, Aventis and AMR filed a complaint and first amended complaint against IMPAX and Ranbaxy, alleging in fringement of two additionalpatents relating to the process for making the ac tive pharmaceuti cal ingredient, fexofenadine hydrochlo ride. These patents, United States Patent Nos .5,581,011 and 5 ,750,703, are owned by AMR and exclusively licensed to Aventis .

On July 23, 2003 , IMPAX filed Summary Judgment motions for non-infringement of U.S . Patent Nos . 6,039,974, 6 , 113,942, and 5,855,912 ; and fornon-infringement and invalidity of U.S. Patent No. 5,738 ,872. Opposition, papers were filed on August 11, 2003 . Reply papers were filed on September 24,2003 . On October 24, 2003 , IMPAX filed a brief discussing the impact of the recent Festo decision on their Motions for Summa ry Judgment ofnon-infringement. Oral argument for the Summa ry Judgment Motion regarding the 912, 942, and 974 patents was heard on November 3, 2003. Oralargument for the Summary Judgment Motion regarding the 872 patent was heard on December 8, 2003 . On June 29, 2004 , the court granted theCompany s Motions for Summary Judgment ofNon-infringer ent of the 912 and 942 paints and denied the Company s Motion for SummaryJudgment of Non-infringement of the 974 patent . At the same tine, the court ordered that a ruling on the Company s motion for Summary Judgment forthe Non-infringement of the 872 patent is reserved pending a Markman hearing to be held on September 9, 2004 to assist the court in construing thepatents product-by-process claims .

Purdue Pharma L.P. at aL v IMPAX: The Oxycodone Cases

On Ap ri l 11, 2002 , Purdue Pharma and related companies filed a complaint in the U . S . District Cou rt for the Southern District of New York alleging thatIMPAX s submission of ANDA No . 76-318 for 80 mg OxyConti n Tablets infringes three patents owned by Purdue . The Purdue patents are U.S. PatentNos . 5,508 ,042, 5 , 549,912 and 5 ,656,295; all directed to cont ro lled release opioid formula ti ons. On September 19, 2002, Purdue filed a second InfringementComplaint regarding IMPAX s 40 mg OxyContin generic product . On October 9, 2002, Purdue filed a third Infringement Complaint regarding IMPAX s10 m* and 20 mg OxyContin gene ric products. IMPAX filed its answer and counterclaims in each an on October 3, 2003 . On November 25, 2003, Purduesubmitted their reply to our counterclaims. Purdue is seeking, among other things, a court order preventing IMPAX from manufacturing , using or sellingany drug product that infringes the subject Purdue patents .

Purdue previously sued Boeh ri nger Ingelheim/Roxane, Endo and Teva on the same patents . One or more of these defendants may resolve the invalidi tyissues surrounding the Purdue patents pri or to when IMPAX a case goes to trial . The Boehringer Ingelheim/Roxane suit is stayed . The Endo acti on wastried in June 2003 and post trial b ri efs have been filed In January 2004 , the judge in the Endo action ruled that the three patents in suit , the same patents thatPurdue had asserted against IMPAX , are unenforceable because they were inequitably procured and enjoined their enforcement . Purdue has appealed thatruling to the Court of Appeals for the Federal Circuit.

: The RHuzole Case

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

In response to IMPAX s complaint, Aventis filed counterclaims for direct in fringement and inducement of infringement of the 814 patent In December2002, the district court granted Aventis Motion for Preliminary Injunction and enjoined IMPAX fro m infringing , contributory infringin , or inducing anyother person to infringe Claims 1, 4 or 5 of the 814 patent by selling, offaing for sale, distributing, marketing or exporting from the United States anypharmaceu ti cal product or compound containing riluzole or salt thereof for the treatment of ALS .

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The trial was completed on October 30 , 2003 , and post-trial briefing was completed in December 2003 . IMPAX is pursuing its a ssertions that claims of the814 patent are invalid in view of prior an and are unenforceable in view of inequitable conduct committed duri ng the prosecution of the patent before the

United States Patent and Trademark Office (USPTO) .

On January 30, 2004 , the court denied IMPAX s Motion for Summary Judgment on inequitable conduct and, on February 5, 2004, the court deniedIMPAX s Motion for Summary Judgment on non- infringement of certain claims . The court has not issued its trial rulings and did not rule on the thrdpre-trial Motion for Summa ry Judgment based on invalidi ty of the patent- in-suit.

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

Abbott Laboratories v . IMP X : The Fenotlbrate Tablet Cases

In January 2003, Abbott Laboratories and Fournier Indust rie et Sante and a re lated company filed suit against IMPAX in the U.S. Distri ct Court inWilmington, Delaware claiming that IMPAX s submission of an ANDA for Fenofibrate Tablets , 160 mg, constitutes in fringement of two U .S . patentsowned by Fournier and exclusively licensed to Abbo tt, relating to Abbott s Tri cor tablet product .

In March 2003 , Abbott and Fournier filed a second action against IMPAX in the same court nuking the same claims against IMPAX s 54 mg FenofibrateTablets. These cases were consolidated in Ap ril 2003 .

In September 2003, Abbott and Fourn ier filed a third ac tion against IMPAX in the U .S . Distri ct Cou rt in Wilmington, Delaware , claiming that IMPAX ssubmission of its ANDA for 54 mg and 160 m g Fenofibrate Tablets constitutes infri ngement of a third patent recently issued to Fournier and exclusivelyli censed to Abbott. This action was also consolidated with the two consolidated actions in December 2003 . In January 2004, Abbott and Fourn ierfiled a fourth action relating to IMPAX s 54 tug and 160 mg Fenof

previouslyablets based upon a claim of infringement of a fourth patent . All four cases were

consolidated in March 2004. Fact and expert discovery in the consolidated cases closes in November 2004 and the trial is currently act for June 2005 .IMPAX has responded to all four complaints by asserting that its p roposed generic Fenofibrate Tablet products do not infri nge the patents-in-suit and byasserting that the patents-in-suit are invalid.

All four actions seek an injunction preventi ng IMPAX from marketing its Fenofibrate Tablet products un ti l the expirati on of the patents (January 9, 2018)and an award of damages for any commercial manufacture, use, or sale of IMPAX s Fenofibrate Tablet product , together with costs and attorney fees .

Solvay Pharmaceuticals v. IMPAX : The Creon Case

On April 1 1, 2003 , Solvay Pharmaceuticals , Inc., manufacturer of the Creon line pancreatic enzyme products, brought suit against IMPAX in the U .S.Distr ict Court for the District of Minnesota claiming that IMPAX has engaged in false adver tising, unfair competition, and unfair trade pra cti ces underfederal and Minnesota law in connection with the Company s marketing and sale of its Lipram products . The suit seeks actual and consequen tial damages,including treb le damages, attorneys fees, injunctive relief and declaratory judgmen ts that would prohibit the substitu tion of Lipram for presc rip ti ons ofCreon . On June 6, 2003, IMPAX fi led a Mo tion for Dismissal of Plaintiffs Complaint, which sought to dismiss each count of Solvay s complaint . OnJanuary 9, 2004 , the U .S . District Court issued a ruling on IMPAX s Mo tion for Dismissal, dismissing two of the counts set forth in the Complain t.including the count which sought a declara tory judgment that Lipram may not lawfully be substituted for prescriptt ons of Croon . On January 26, 2004,IMPAX filed its Answer to the Complaint and Counterclaim alleging that Solvay wron gfully interfered with IMPAX s business relationships . On February17, 2004 , Solvay filed its Reply to IMPAX s Counterclaim. On February 24, 2004, the Rule 16 Scheduling Conference was held and, on Februa ry 25,2004 , the Court issued a Scheduling Order set ting the deadline for discovery on Janua ry 14, 2005, and a tri al date for July 1, 2005. Fact discovery iscurrently ongoing it this case . IMPAX believes it has defenses to Solv ay a allegations and intends to pursue these defenses vigorously.

Aiza Corporation Y. IMPAX : The Ozvbutvnln Case

On September 4, 2003, Alza Corporation ( Alza) filed a lawsuit against IMPAX in the U .S. District Court for the Northern Dist rict of California allegingpatent infringement of one patent related to IMPAX s filing of an ANDA for a generic version of Ditropan XL (Oxybutynin Chloride) Tablets , 5 mg, 10tng, and 15 mg . Alza seeks an injunction , a declarati on of infringement, attorney a fees and costs . On October 24, 2003, IMPAX filed its Answer to theComplaint, which included defenses to the infringement claim , and counterclaimed for patent non-infringement and invalidi ty. Discovery is on-going andtrial is currently set for November 2005 .

26

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On October 24, 2003, IMPAX filed a lawsuit against Alza in the U .S . District Court for the Northern District of California seeking a declaratory judgmentthat four Ain patents relating to IMPAX s filing of an ANDA fora generic version of Dit ropan XL (Oxybutynin Chloride ) Tablets, 5 rttg,10 mg, and 15mg are invalid and/or not in fringed by the commercial manufacture, use, offer for sale, sale, or importati on of the IMPAX product . On November 17, 2003,Alza moved to dismiss the Company s complaint for lack of subject matter jurisdic tion based on Alts s argument that there is no case or cont roversybetween the parties with respect to these four patents . On Ap ril 19, 2004 , the Court denied Alza s moti on . On May 18 , 2004, the Court ordered the ent ry ofa stipulation of dismissal based on a covenant not to sue issued by Alza to the Company with respect to the four Alza patents in the case .

Shire Laboratories Inc. v IMPAX : The Adderall Case

On December 29, 2003 , Shire Laboratories, Inc., a subsidia ry of Shire Pharmaceuticals Group, PLC, filed a lawsuit against IMPAX in the U . S. Distri ctCou rt for the District of Delaware alleging patent in fringement on U .S . Patent Nos . 6,322, 819 and 6,605,300 related to filing of an ANDA to market ageneric ve rsion of Adderall 30 mg capsules. IMPAX filed its answer on January 20, 2004, denying infringement and contesting the validity of both patents.All discovery is expected to be completed by March 2005 . A tentative court date has been scheduled for October It, 2005.

OTHER LITIGATION

State of California Y. IMPAX

On August 7, 2003, IMPAX received an Accusa ti on from the Department of Justice, Bureau of Narcotic Enforcement, State of California ( BNE ) ,alleging that IMPAX failed to maintain adequate controls to safeguard precu rsors from theft or loss regarding our pseudoephedrine product in Janua ry 2003 .IMPAX contested the allegations in the Accusation and entered into discussions with the State of California, Depart ment of Justice, to bri ng resolution tothis matter. IMPAX has implemented a number of remedial measures aimed at imp roving the security and accountability of precursor substances used byIMPAX and re gulated by the California Department of Jus tice , Bureau of Narcotic Enforcement . In March 2004, followin g a theft of pseudoephedri ne fromIMPAX s facili ties, the BNE filed an Amended Accusation, again alleging that IMPAX failed to maintain adequate cont ro ls to safeguard precurso rs fromtheft or loss regarding our pseudoephedrine product. In May 2004, a Notice of Hea ri ng was received from BNE, which set the hearing of this matter, shouldone be necessa ry, for October 18 and October 19, 2004 . IMPAX is continuing its discussions with the State of California, Department of Justice, and hopesto resolve this matter without the need for a formal hearing.

Other than the legal proceedings described above , we are not aware of any other mate rial pending or threatened legal ac tions, private or gove rnmental,against us . However, as we file additional applications with the FDA that contain Paragraph IV certifica ti ons and develop new products, it is likely we willbecome involved in additional li tigation related to those filings or products .

Insurance

As part of our patent li tigation strategy , we had obtained two policies covering up to $7 million of patent infringement liabili ty insurance fro m AmericanInterna tional Special ty Line Company (AISLIC ),an affiliate of AIG International. Th is litigation insurance covered us against the costs associated withpatent infri ngement claims made against us re lating to seven of the ANDAs we filed under Paragraph IV of the Hatch-Waxman Amendments . Both policieshad reached their limits of liability . Whi le Teva has a~ro~ to pay 45% to 50% of the attorn eys fees and costs (in excess of the $7 million expected to becovered by our insurance policies for six products) related to the twelve products covered by our strategic alliance agreement with them, we will beresponsible for the remaining expenses and costs for these products , and all of the costs associated with patent litigation for our other products and ourfuture products .

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

Product liability claims by customers consti tute a risk to all pharmaceutical manufacturers . We currently car ry $80 million of product liability insurance forour own manufactured products . This insurance may not be adequate to cover any product liability claims to which we may become subject .

ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES

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

27

1 .250% Convertible Senior Subordinated Debentures

On Ap ril 5, 2004, the Company issued and sold $95.0 million in aggregate principal amount of its 1 .250% convertible senior subordinated debentures due2024. The debentures were sold by the Company to Citi*roup Global Markets Inc., Wachovia Capital Markets, LLC and First Albany Capital Inc., as initialpurchasers, in a private placement exempt from rc;istrati on under the Securities Act of 1933, as amended (the Securities Act ) . We have been advised bythe initi al purchasers that they have resold , and/or intend in the future to resell , the debentures to qualified institutional buyers (as defined in Rule 144Apromulgated under the Securi ties Act) in transactions exempt from the registration requirements of the Secu rities Act in reliance on Rule 144A.

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

The debentures bear interest at the rate of 1 .250% per year. Interest on the debentures is payable on April I and October 1 of each year , be*inning onOctober 1 , 2004 . The debentures are convertible by holders into shares of our common stock at a conversion price of $28.08 per share (which is subject toadjustment upon certain events , but represented a 30% premium over our stock price at the time the debentures were issued) . The debentures are convertibleby holders into shares of our common stock if (1) the p rice of our common stock reaches a specific threshold ; (2) the trading price for the debentures fallsbelow certain thresholds; (3) the debentures have been called for redemption; or (4) certain corporate transac tions occur.

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

The debentures are the Company s unsecured obliga ti ons and are subordinated in right of payment to all of the Company s existing and future seniorindebtedness. On Ap ri l 1 , 2009, April 1, 2014, and April 1, 2019, and under ce rtain circumstances, holders of the debentures will have the right to require usto repurchase all or any pa rt of their debentures at a repurchase price equal to 100% of the principal amount of the debentures, plus accrued and unpaidinterest and liquidated damages, if any, to, but excluding the repurchase date .

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

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

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

a) Ten directors were elected :

Leslie Z . Benet , Ph .D . 43,846,077 For 732,889 Withhold authorityRobert L. Burr 43,735,232 For 843,734 Withhold authorityBarry R . Edwards 44,288,225 For 290,741 Withhold authorityDavid J . Edwards 43,791,680 For 787,286 Withhold authorityNigel Fleming, Ph.D. 43,823,169 For 755,797 Withhold authorityCharles Hsiao , Ph .D. 44,186,440 For 392,526 Withhold authorityLarry Hsu, Ph.D. 44,287,092 For 291,874 Withhold authorityMichael Markbreiter 44,204,397 For 374,569 Withhold authorityOh Kim Sun 44,405,446 For 173,520 Withhold authorityPeter R. Terreri 44,402,145 For 176,821 Withhold authority

The proposed increase in the authorized shares of the Company a common stock from 75,000,000 to 90,000,000, was approved as follows :43,025,827 For 1,510,097 Against 10,041 Abstaining

28

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appointntent of Deloitte & Touche LLP as the Company s independent accountants for the fiscal year ending December 31, 2004 was ratified, asc) follows:

44,013,036 For 556,763 Against 9,167 AbstainingITEM 6. EXHIBITS AND REPORTS ON FORM 8- K

(a) Exhibits

• 3.18 - Certificate of Amendment of Restated Certificate of Incorporation of Impax Laboratories, Inc . dated as of May17, 2004 .

• 10.65 - Second Amendment to Loan and Security Agreement between Wachovia Bank and Impax Laboratories, Inc .dated June 23, 2004 .

• 10.66 - Amendment to the Development, License and Supply Agreement between Wyeth Consumer HealthcareDivision and Impax Laboratories, Inc . dated as of July 9, 2004 .

• 31.1 - Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 .

• 31.2 - Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 .

• 32.1 - Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 .(b) Reports

• On May 5, 2004, the Company furnished a report on Form 8-K (Items 9, 12) announcing earnings for the first quarter endedMarch 31, 2004 .

• On May 17, 2004, the Company filed a report on Form 8-K (Item 9) announcing that the FDA had granted final approval to theCompany's ANDA for Carbidopa/Levodopa Extended Release Tablets .

• On May 27, 2004, the Company filed a report on Form 8-K (Item 9) announcing that the FDA hadgranted final marketingapproval to the Company's ANDA for its generic version of Zyban® 150 mg Controlled Release Tablets .

• On May 28, 2004, the Company filed a report on form 8-K (Item 9) announcing that the FDA had granted final marketingapproval to the Company's ANDA for its generic vers ion of Promatine 2.5 mg and 5 mg Tablets .

29

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalfby the undersignedthereunto duly authorized.


By: /a/ BARRY R. EDWARD S August 9, 2004

Chief Executive Officer(Principal Executive Officer)

By: /s/ CORNEL C. SPIEGLER August 9, 200 4

Chief Financial Officer(Pri ncipal Financial and Accounting Officer)

30

EXHIBIT D

United States Securities and Exchange Commission

Washington, D.C . 20549

FORM 10-Q/A

Amendment No . 1

(Mark One )

(X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 193 4

For the quarterly period ended March 31, 2004----------------------------

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 193 4


Commission file number 0-2735 4

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

Delaware 65-0403311------------- -- ---------------- --------- -- --------(State or other jurisdiction of (I .R.S . Employerincorporation or organization) Identification No . )

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

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

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Ac t

of 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports) and (2) has been subject to

such filing requirements for the past 90 days .

Yes X No

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

The number of shares outstanding of the registrant's common stock as of

April 30, 2004 was approximately 58,028,54 3

-- ^--------------------- ----------------

EXPLANATORY NOTE----------------

This amendment is being filed to reflect the restatement of the Company'scondensed financial statements, as discussed in Note 11 thereto, and otherinformation related to such restated financial statements . Except for Items 1, 2and 4 of Part I, no other information included in the original report on Form10-Q is amended by this Form 10-Q/A . Items not being amended are presented forthe convenience of the reader only . This report continues to be presented as ofthe date of the original Quarterly Report on Form l0-Q and the Company has notupdated the disclosure in this report to a later date . Therefore, this amendmentshould be read together with other documents that the Company has filed with theSecurities and Exchange Commission subsequent to the filing of the originalQuarterly Report on Form l0-Q . Information in such reports and documents updatesand supersedes certain information contained in this amendment .


INDEX TO FORM 10-Q/A

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 200 4

PART 1 . FINANCIAL INFORMATION

Item 1 . financial Statements :

PRO S

Condensed Balance Sheets as of March 31, 2004 (am restated) and December 31, 2003 (unaudited) . . . . . . . . . . . . 1

Condensed Statements of Income for the Three Months laded March 31, 2004 (as restated )and 2

003(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Condensed Statements of Cash Flows for the Three Months inded March 3 1, 2004 (as restated) and2007 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Notes to Financial Statements (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Item 2 . Management's Discussions and Analysis of Financial Condition and Results of operations . . . . . . . . . . . . . . . . . . . . 12

Item 3 . Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Item 4 . Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

PART II . OTHER INFORMATION AND SIOSGTOR RS

Item 1 . Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Item 2 . Changes in Securities, Use of Proceeds, and Issuer Purchases of Iquity Securities . . . . . . . . . . . . . . . . . . . . . . . . . 24

Item i . Lxhibits and Reports on Form S-X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2S

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Certifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

i

PART I - FINANCIAL INFORMATION------------------------------

ITEM 1 . FINANCIAL STATEMENTS

IMPAX LABORATORIES, INC .CONDENSED BALANCE SHEETS

(UNAUDITED )(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA )

MARCH 31, DECEMBER 31 ,2004 200 3

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

(AS RESTATED -

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

SEE NOTE 11 )

ASSETS

Current assets :Cash and cash equivalents $ 19,491 $ 15,505Accounts receivable, net 20,533 9,88 5Inventory 30,148 28,47 9Prepaid expenses and other assets 1,70 4

---------

1,42 7

-------- -Total current assets 71,876 55,296

Restricted cash 10,000 10,000Property, plant and equipment, not 39,231 38,13 2Investments and other assets 1,371 1,32 5Goodwill, net 27,574 27,574

Intangibles, net 263 37 9

--- ---- -Total assets

. . . . . . . . .

$ 150,33 5. . . . . . . . .

-$ 132,706.. . . . . .. .

LIABILITIES AND STOCKHOLDERS- EQUITY

Current liabilities :Current portion of long-term debt $ 1 , 166 $ 1,06 8Accounts payable 33,590 22,78 3Revolving line of credit 6,953 7,642Accrued expenses and deferred revenue s 13,93 3

---------10,87 2

-------- -

Total current liabilitie s 55,642 42,36 5Refundable deposit from Teva -- 5,00 0

Long term debt 8,489 8,85 4

Deferred revenues and other liabilities 2,895---------

2,87 9-------- -

Total liabilities 67,02 6. . . . . . . . .

59,09 8. . . . . . . . .

Commitments and Contingencie sMandatorily redeemable convertible Preferred Stock : Seriss 2 mandatory

redeemable convertible Preferred Stock , $0 .01 par value 0 sharesoutstanding at March 31 , 2004 , and 75,000 shares outstanding a t

December 31, 2003, redeemable at $100 per share - ----------

7,50 0

-------- -

Stockholders , equity :Common stock, $ 0 .01 par value , 75,000 , 000 shares authorized and

57,961 , 990 and 55 , 307,136 shares issued and outstandingat March 31 , 2004 , and December 31, 2003, respectively 580 S5 3

Additional paid -in capital 182,062 170,10 4Accumulated deficit (99,333 ) ( 104,549 )

Total stockholders ' equity 83,309 66,10 8- ----- -- ------ -

Total liabilities and stockholders ' equity $ 150 , 33 5. .. . . . . . .

$ 132,70 6. . . . . . . . .


1

IMPAX LABORATORIES, INC .CONDENSE STATEMENTS OF INCOME

(UNAUDITED)(DOLLARS IN THOUSAND , EXCEPT SHARE AND PER SHARE DATA )

Net sales

Revenue from reversal of refundable deposit from Teva

Other revenue s

Total revenues

Cost of sale s

Gross margin

Research and development

Reimbursements from Teva

Research and development, net

Patent litigatio n

Selling expense s

General and administrative expenses

Other operating income ( expense), ne t

Net income (loss) from operations

Interest income

Interest expens e

Net income (loss) before provision for income

Provision for income taxe s

Net income (loss)

Earnings per share ;Basic

Diluted

weighted average common shares outstanding :Basic

Diluted

Three Months Ended

-----March 31 ,----------- - -

(As restated -see Note 11 )------------ -

2004--- ---_-_--- -

200 3

$ 31,514 $ 11,06 6

2,500 - -

--- 53 1----- -- -----_35 9

34,545 11,47 5

.. . .

..18,550

. . . . . . . .- ---

----8,14 7-------- -

15,995 3,27 8

4,984 3,54 7

---(11 )

-------- --

(132 )

_-•----- -

4,873 3,41 5

1,620 20 8

726 56 8

3,351 2,12 2

---7

-------- --1 1

-------- -

5,432 (3,024 )

56 4 2

---

(272 )

-------- --

(231 )

-------• -

5,216 (3,213 )

-- -

$...

------' -

5,216. . . . . . . .

- -

$. .

-------- -

(3,213 ). .. . . . . . .

$ 0 .09 $ (0 .07 )

$---

0 .0 8--------

$--

(0 .07 )

-------- -

56,978,095 47,876,830----------- -----------61,481,932 47,876,830----------- -----------


2

IMPAX ORATORIES, INC .CONDENSED S ATEMENTS OF CASH FLOW S

(UNAUDITED)(DOL S IN THOUSANDS)

THREE MONTHS ENDEDMARCH 31 ,

2004 2003------------------

- -- ----------- --- -----------(AS RESTATED -SEE NOTE 11 )

CASH FLOWS FROM OPERATING ACTIVITIES :

Net income (loss )Adjustments to reconcile net loss to net can

Depreciation and amortizationReversal of refundable deposit from TevaNon-cash compensation charge (warrants aChange in assets and liabilities :

Accounts receivableInventoryPrepaid expenses and other assetsAccounts payableother liabilities

Net cash provided by (used in )

CASH FLOWS FROM INVESTING ACTIVITIESsPurchases of property and equipment

Net cash used in investing activ tie s

CASH PLOWS FROM FINANCING ACTIVITIES :Revolving line of credit borrowings (repaymeAdditions to long-term debtRepayment of long-term debtProceeds from issuance of common stock (upon

stock options and warrants and under ESP

Net cash provided by financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents, beginning of the

Cash and cash equivalents, and of the quarto .

Cash paid for interest

Cash paid for income taxes

activitie s

of

$ 5,216

1,022(2,500 )

(10,648)(1,669)

(323 )10,8073,07 7

4,98 2

(2,025)

(2,025 )

(689)

(267 )

1,985

1.029

3,98 6

$ 15,505

$ 19,491

$ 273

$ (3,213)

885

11 9

790(2,310 )

502,164644

(871 )

(698)

(698 )

1,826896(163 )

15

2,574

1,00 5

$ 10,219

$ 11,224

$ 232

Supplemental disclosure of non-cas financing activities :In January 2004, the Company issue 160,751 shares of our common stock to Tevato satisfy the remaining $2 .5 mill on refundable deposit to Teva . Also, inJanuary 2004, the holders of the S ries 2 Preferred Stock converted their entire75,000 preferred shares into 1,500 000 shares of common stock .

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

used by operating activities :

options )

3

NOTES TO FINANCIAL STATEMENTSTHRHB MONTHS ENDE D

MARCH 31, 2004 AND MARCH 31, 200 3

NOTE 1 . The financial statements included herein have been prepared by theCompany pursuant to the rules and regulations of the Securities and ExchangeCommission. Certain information and disclosures normally included in financialstatements prepared in accordance with accounting principles generally acceptedin the United States of America have been condensed or omitted pursuant to suchrules and regulations ; however, the Company believes that the disclosures areadequate to make the information presented not misleading . These condensedfinancial statements should be read in conjunction with the financial statementsand the notes thereto included in the Company's latest Annual Report on Form10-K. The results of operations for the three months ended March 31, 2004 arenot necessarily indicative of the results of operations expected for the yearending December 31, 2004 .

Impax Laboratories, Inc . ("IMPAX," "we,' *us," or "the Company") focuses on thedevelopment, manufacturing, and marketing of specialty pharmaceutical productsutilizing its own formulation expertise and drug delivery technologies . As ofMarch 31, 2004, the Company is marketing thirty-three generic pharmaceuticals,which represent dosage variations of fourteen different pharmaceutica lcompounds, and has seventeen applications under review with the Food and DrugAdministration (FDA), including five tentatively approved, addressingapproximately $5 .4 billion in U .S . product sales in the twelve months endedFebruary 29, 2004, according to NDCHealth. Thirteen of these pending filingswere filed under Paragraph IV of the Hatch-Waxman Amendments . The Company hasapproximately twenty-seven other products in various stages of development forwhich applications have not yet been filed . These other products are genericversions of pharmaceutical products that had U .S . sales of approximately $14 .5billion in the twelve months ended February 29, 2004, according to NDCHealth .

Except for the three months ended March 31, 2004, we have experienced operatinglosses and negative cash flow from operations and our future profitabilitycontinues to be uncertain . As of March 31, 2004, our accumulated deficit was$99,333,000 and we had outstanding indebtedness in an aggregate principal amountof $16,608,000 . To remain operational, we must, among other things :

obtain FDA approval for our products ;prevail in patent infringement litigation in which we are involved,successfully launch our new products ; andcomply with the many complex governmental regulations that deal withvirtually every aspect of our business activities .

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

On April 5, 2004, the Company completed a convertible senior subordinateddebenture offering of $95,000,000 for net proceeds of $91,675,000 . The proceedsof the debentures will be used for general corporate purposes, including workingcapital requirements, manufacturing of our products, and research anddevelopment .

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

CRITICAL ACCOUNTING POLICY RELATED TO REVENUE RECOGNITION

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

Emerging Issues Task Force (BITE) No . 00-21 supplemented SAB 101 for accountingfor multiple element arrangements . The Company has entered into severalstrategic alliances that involve the delivery of multiple products and servicesover an extended period of time . In multiple element arrangements, the Companymust determine whether any or all of the elements of the arrangement can beseparated from one another . If separation is possible, revenue is recognized foreach deliverable when the revenue recognition criteria for the specificdeliverable is achieved . If separation is not possible, revenue recognition isrequired to be spread over an extended period .

Under BIT? No. 00-21, in an arrangement with multiple elements , the delivereditem should be considered a separate unit of accounting if all of the followingcriteria are met :

the delivered item has value to the customer on a standalone basis,there is objective and reliable evidence of the fair value of theundelivered item ; an dif the arrangement included a general right of return, or whetherdelivery or performance of the undelivered item is consideredprobable .

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

In June 2001 , the Company entered into a Strategic Alliance Agreement with esubsidiary of Teve for twelve controlled -release generic pharmaceuticalproducts . The agreement granted Teva exclusive U .S . prescription marketingrights for these products for a period of ten years from the date of Teva'sfirst sale of the products . Under the terms of this agreement, Teva has sole andexclusive right to determine all terms and conditions of sale to its customers,including pricing discounts , allowances , price adjustments , returns and rebates .

Revenues from product sales for these products under our strategic alliance arerecognized at the time title and risk of loss transfers to Teva ' s customers .During the three months ended March 31, 2004 , the Company commenced shipping itsBupropion Hydrochloride 100 mg and 150 mg Controlled Release Tablets . Teva shipsthe Bupropion products to its customers and reports the results on a monthlybasis . Teva provides to IMPAX a financial report detailing its gross sales lessapplicable chargebacks , rebates and other credits to arrive at net sales, costof sale s information and gross margins for the Bupropion products . The Companyis endeavoring to take steps under the Strategic Alliance Agreement to ensurethat all such adjustments granted by its strategic partner in the future arereported to the Company on a timely basis . These steps include , but are notlimited to, regular discussions with Teva management regarding their monthlyfinancial reports to IMPAX on our products marketed by Teve via monthlyteleconferences and quarterly meetings . These discussions will cover all theareas of revenue recognition for these products , including but not limited to,sales credits , product returns and internal control s over Teva's financialreporting to IMPAX . Our procedures will include a review of applicabledocumentation for IMPAX revenue sharing . The Audit Committee of the Company'sBoard of Directors may take additional steps as deemed necessary . Under theterms of the contract , the Company has the option to perform an annual auditwith our strategic partner . The information on the financial report is used byIMPAX to record its monthly revenue for the Bupropion 100 mg and 150 mgproducts . Effective with the three months ended March 31 , 2004 , we beganestimating returns for prescription products marketed by our strategic partners,such as Teva , called 'Rx Partners ," based on our internal returns analysis andhistorical indust ry statistics . Additionally, the amount of revenue that IMPAXearns is based on a reimbursement of manufacturing costs plus a fixed gross

margin percentage .

Under the July 2003 Exclusivity Transfer Agreement with Andrx and Tevapertaining to the Bupropion Hydrochloride products, Andrx is entitled to certainpayments for the sales of the 150 mg strength for a 190-day period from theproduct launch date . These payments are made directly by Teva to Andrx .

EARNINGS PER SHARE

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

Mt lnewnllw.l t . . . .. / .. . ...

w.s+wurY ./a w0 Mr.1. .ar. W wrt .t.rlq ;1 . 11. . ;)0.401 n."tlrt .! Ylntlw ytlr W wrr✓..

8 , 0) U,7t . N).I if ••

. . . . . . . . . . . .. . . .. . . ...Mttr umw wipe.. .+.ryt ar. .Wnt wtaWW .. ... .nt .. . .. .ue

Wle un3M Nr Wn 1 8.0 I (1 .17 1

rWlr Yl,.ar wn{.1. Mr .Mn 1 8.t/ 1 11.111

Included in the computation of fully diluted earnings per share are outstandingstock options and warrants with an exercise price less than the average marketprice of the common shares for the period . As of March 31, 2004 there were nostock options or warrants excluded from the fully diluted earnings per sharecalculation because all options and warrants exercise price were less than theaverage market price of common shares .

STOCK- BASED EMPLOYEE COMPENSATION

The Company accounts for stock-based employee compensation arrangements inaccordance 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 thedate of grant over the amount an employee must pay to acquire the stock . TheCompany has adopted the disclosure only provisions of SPAS No . 123, "Accountingfor Stock- Based Compensation" and SFAS No . 145, "Accounting for Stock-BasedCompensation - Transition and Disclosure - An Amendment to PASS Statement No .123 . "

Had compensation cost for the Company's Plans been determined based on the fairvalue at the grant dates for the awards under a method prescribed by SFAS No .123, the Company's income and income per share would have been decreased to thepro forma amounts indicated below (in thousands, except per share amounts) :


--2004------ .

200 3. . . . . . .

Net income (loss), as reported $ 5,216 $ (3,213 )Add: Stock-based employee compensationincluded in reported net income ,net of related tax effects - -

Deduct : Total stock-based employeecompensation expense determined unde rfair value based method for all awards ,net of related tax effects

--(959 )

------ -(862 )

""- - -

Pro forma net income (loss) $..

4,25 7.. . . . .

$.

(4,075 ). . . . . . .

Earnings per share :Basic - as reported $ 0 .09 $ (0 .07 )

Basic - pro forma $--

0 .0 7

-'- -- -

$-

(0 .09 )------ -

Diluted - as reported $ 0 .08 $ (0 .07 )------ -

Diluted - pro forma

- -

$. .

----- -0 .0 7

. . . . . .

-

$.

(0 .09 ). . . . . . .

The Company calculated the fair value of each option grant on the date of thegrant using Black-Scholes pricing method with the following assumptions : for the

three months ended March 31, 2004 and 2003, the dividend yield was 0% and 0% ;the weighted average expected option term was five years ; risk-free interestrate was 3% and 2 .694; the stock volatility for the three months ended March 31,3004 and 2003 was 79 .48% and 69t, respectively . The weighted average fair value

of options for March 31, 2004 and 2003 was $14 .12 and $1 .96, respectively .

The Company reports both basic earnings per share, which is based on theweighted-average number of common shares outstanding, and diluted earnings pershare, which is based on the weighted-average number of common sharesoutstanding and all dilutive potential common shares outstanding .

NOTE 2 . Convertible Senior Subordinated Debentures

On April 5, 2004, the Company issued and sold $95 .0 million in aggregate

principal amount of its 1 .250% convertible senior subordinated debentures due

2024 . The debentures were sold by the Company to Citigroup Global Markets Inc .,

Wachovia Capital Markets, LLC and First Albany Capital Inc ., as initialpurchasers, in a private placement exempt from registration under the securitiesAct of 1933, as amended (the "Securities Act") . We have been advised by the

initial purchasers that they have resold, and/or intend in the future to resell,the debentures to "qualified institutional buyers" (as defined in Rule 144Apromulgated under the Securities Act) in transactions exempt from theregistration requirements of the Securities Act in reliance on Rule 144A .

The issuance and sale of the debentures resulted in not proceeds to the Companyof approximately $91,675,000 . These proceeds are being used for generalcorporate purposes, including working capital requirements, manufacturing of ourproducts and research and development .

The debentures bear interest at the rate of 1 .2506 per year . Interest on thedebentures is payable on April 1 and October 1 of each year, beginning onOctober 1, 2004 . The debentures are convertible by holders into shares of ourcommon stock at a conversion price of $26 .06 per share (which represented a 30%premium over our stock price at the time the debentures were issued) . Theconversion price is subject to adjustment in certain events if, (1) the price ofour common stock reaches a specific threshold ; (2) the trading price for thedebentures falls below certain thresholds, (3) the debentures have been calledfor redemption, or (4) certain corporate transactions occur .

The debentures mature on April 1, 2024, unless earlier redeemed, repurchased orconverted . before April 5, 2007, we way redeem move or all of the debentures ifthe price of our common stock reaches ■ specific threshold, at a redemptionprice that includes an additional payment on the redeemed debentures equal to$230 .77 per $1,000 principal amount of debentures, less the amount of anyinterest actually paid or accrued and unpaid on the debentures . On and afterApril S, 2007, the Company may redeem some or all of the debentures at certainspecified redemption prices .

The debentures are the Company's unsecured obligations and are subordinated inright of payment to all of the Company's existing and future seniorindebtedness . On April 1, 2009, April 1, 2014, and April 1, 2019, and undercertain circumstances, holders of the debentures will have the right to requireus to repurchase all or any part of their debentures at a repurchase price equalto 1001 of the principal amount of the debentures, plus accrued and unpaidinterest and liquidated damages, if any, to, but excluding the repurchase date .

In connection with the offering of the debentures, we are required to file ashelf registration statement by July S . 2004 with the Securities and ExchangeCommission covering resales of the debentures and of the common stock issuableupon conversion of the debentures . The s-3 oust be declared effective by the SRCby October 4, 2004 .

NOTE 3 . Recent Accounting Pronouncement s

In November 2003, the RITP reached a consensus on Issue No . 00-21, 'RevenueArrangements with Multiple Deliverables ." RITP Issue No . 00-21 provides guidanceon how to account for arrangements that involve the delivery or performance ofmultiple products, services, and/or rights to use assts . The provisions of IITFIssue No . 00-21 applies to revenue arrangements entered into in fiscal periodsbeginning after June 1S, 2003 . We implemented the provisions of RITP Issue No .00-21 in revenue recognition of certain strategic agreements . The companyreviews all of the terra of its strategic alliances and follows the guidancefrom this Issue for all multiple element arrangements .

In December 2002 . the Financial Accounting Standards Board (PASS) issued SPASNo . 144, "Accounting for Stock-Rased Compensation - Transition and Disclosure,amendment of PASS Statement No . 123 ." This statement provides additionaltransition guidance for those entities that elect to voluntarily adopt theprovisions of SPAS No . 123, 'Accounting for Stock Based Compensation .'Furthermore, SFAS No . 146 mandates new disclosures in both interim and year-endfinancial statements within the Company's Significant Accounting Policiesfootnote . The Company has elected not to adopt the recognition provisions ofSPAS No . 123, as amended by SPAS No . 146 . Rowwr, the Company has adopted thedisclosure provisions and has included this information in Note 1 to theCompany's financial statements .

In January 2003, the PASS issued PASS Interpretation No . 46 ("FIN 46"),"Consolidation of Variable Interest Entities ." FIN 46 clarifies the applicationof Accounting Research Bulletin No . 5 1, "Consolidated Financial Statements,' tocertain entities in which equity Investors do not have the characteristics of acontrolling financial interest or do not have sufficient equity at risk for theentity to finance its activities without additional subordinated financialsupport from other parties . FIN 46 applies immediately to variable interestentities created after January 31, 2003, and to variable interest entities inwhich an enterprise obtains an interest after that date . It applies in the firstfiscal year or Interim period beginning after June 1 5 , 2003, to variableinterest entities in which an enterprise holds a variable interest that itacquired before February 1, 2003 . FIN 46 applies to public enterprises as of thebeginning of the applicable interim or annual period . On October I, 2003, thePASS decided to defer PIN 46 until the first reporting period ending afterDecember 1 3 , 2003 . The provisions of this Interpretation did not have a materialimpact on the Company's financial condition or results of operations .

In December 2003, the PASS issued PIN No . 46R, Consolidation of VariableInterest Entities, clarifying the application of Accounting Research BulletinNo . 51, Consolidated Financial Statements, to certain entities in which equityinvestors do not have the characteristics of a controlling financial interest ordo not have sufficient equity at risk for the entity to finance its activitieswithout additional subordinated financial support . The provisions of thisInterpretation do not have a material impact on the Company's financialcondition or results of operations .

In February 2004, the FASB issued revised FASB Staff Position ("FSP") pertainingto FIN 46(R) . The revised FSPs replace certain previously issued FIN 46 FSP forentities to which FIN 46(R) is applicable. This revision to FIN 46 did not havea material impact on the Company's financial condition or results of operation .

In February 2004, the PASS revised SPAS 133, Accounting for DerivativeInstruments and Hedging Activities for Implementation issue E2L, A1J, and C6 .The revisions to SFAS 133 did not have a material impact on the Company'sfinancial condition or results of operation .

In December 2003, the PASS revised SFAS 132, "Employers' Disclosure AboutPensions and Other Post Retirement Benefits ." This Statement does not change themeasurement or recognition of those plans required by FASB 87, "Employers'Accounting for Pensions," and No . 106, "Employers' Accounting for PostRetirement Benefits Other than Pensions ." This Statement retains the disclosurerequirements contained in PASS No . 132, "Employers' Disclosure about Pensionsand Other Post Retirement Plans." The provisions of this Statement do not have amaterial impact on the Company's financial condition or results of operations .During the three months ended March 31, 2004 and 2003, the employer 401-K matchwas $24,352 and $21,347, respectively .

In January 2004, the FASB issued FASB Staff Position FAS 106-1 to providetemporary guidance concerning the Medicare Prescription Drug Improvement andModernization Act of 2003 . The provisions of this pronouncement did not have amaterial impact on the Company's financial condition or results of operations .

NOTE 4 . Our gross receivables and related deductions activity for the threemonths ended March 31, 2004 and 2003, and the year ended December 31, 2003 was :


March 31, March 31, December 31 ,(in $000s)

2004 2003 2003

Gross accounts receivable------- -$ 27,334

------ -$ 8,828

------- -$ 17,091

Less : Accrued rebates (3,010 ) (1,585 ) ( 2,700 )Less : Accrued chargebacks ( 3,505 ) (1,137) (4,101 )Less : Other deductions (286) (372) (405 )

Net accounts receivable $ 20,533--------

$ 5,734-------

$ 9,885------- -

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

Net accounts receivable balance at March 31, 2004 includes $13,509 , 000 due from

Teva .

Chargebacks and Rebates Accrual activity for the three months ended March 31,2004 and 2003 , and the year ended December 31, 2003 was :

tin $0004)

CHARGIRAM ACCRUAL. . . . . . . . . . . . . . . . . . .

Three Months Ended Year Ended. . . . . . . . . . . . . . . . .. -----------

March 31, March 31. December 31 ,

1 .373 $ 1,3731 .314 10,571

(1 .550) (7,843)

-------- --------$ 1,137 $ 4,10 1-------- . . . . . . . .

2003 2003

BeginningBalance $ 4,101Add: Provision related to sales made in current period 1,141Lose . Credits issued during the current period (2,744)

EndingBalance $ .3,50 5

U

pimin.. . . . . . . . . . . . . .

Th.- Months 6,d.d Year mans

(in $000.) INreh 11, match 31, D .c. h.r 31 ,7004

. . . . . . . . .700 3

.. . . . . . . .700 1

. . . .. . . . . . . .

6plnninq balance 0 2,700 $ 1,120 0 1,52 1Ad d . Provision related to 0.1 .s me" In current period 1,120 1 .062 6,00 00 ..., Credit . 10Usd bring the current period (010) (1,002) (1,005 )

coding Ml ....

. . . .. . . .

$ 3,010.. . . . . . .i 1,151

. . . . . . .

$ 2,70 0

NOTE S. Our inventory consists of the following :

Narch 31, December 31 ,(in 1000*) 200

,,

. . . . . . . .2003

. .. . . . . .. . . .

now materia l. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,307 0 9 .67 1Mork In pree. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,011 3,10 3Pini .h.d good. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,710 13 . S0 6

$ 30,1 ;0 i 21,47 1

The Company, as most companies in the generic pharmaceutical industry, may buildinventories of certain ANDA related products that have not yet received FDAapproval and/or satisfactory resolution of patent infringement litigation, whenit believes that such action is appropriate to increase its commercialopportunity .

As of March 31, 2004, the Company's total inventory of $30,148,000 included$4,495,000 in inventories relating to products pending launch while IMPAX awaitsreceipt of FDA marketing approval and/or satisfactory resolution of patentinfringement litigation, as follows :

(in $0003 )Raw materials $ 3,876Work in process --Finished goods 619

Total $ 4,495

NOTE 6 . Intangibles consist of the following :

I ti-td NYreh 31, M. .. .r It .(in $000.) Mul ,if

.2004 2003

(year.) . . . . . . . . . .. . . . . . . . . . .

Product right s and lima.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 - 0 $ 2,091 $ 2,69 1

L ..., Accumulated .ortir .tion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 7,400) (2,312 )

$ 26 3.. . ... . .

0 17 9. . . .... .

Amortization expense was $96,000 for the three months ended March 31, 2004 .Expected amortization expense for 2004 will be approximately $379,000 .

NOTE 7 . ACCRUED EXPENSES AND DEFERRED REVENUE

(in $000'6 )

Sales returnsDeferred revenue sAccrued salaries and payroll expenaaaPatent infringement and other legal expensesAccrued Medicaid rebate sAccrued royalty and gross profit sharing expenseOther accrual sAccrued shelf stock reserveAccrued professional fees

March 31, December 31,2004 200 3

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

$ 5,769 $ 4,1211,621 1,7513,675 1,6491,623 1,32 7566 613457 559537 469175 23290 151

S 13,933 $ 10,672.. . .. . .. . . . . .. . .

U

NOTE S . RETURNS ACCRUAL

It . $000 .)

. . .vmu act4WL

Three Month. Boded Year ended. . . . . .. . . . . . . . . . . . . . . . . . . . . .

IYrch 11 . Mooch 21. Oscs so 11 .3 004 3 001 3 003. .. . . . . . . . . . . . . . . .

. . . . . . .. . . . .

Nginaing .0100 .. 41ng 8&248w 1 21 1.100 $ 1.100Add, Provis ion re lat ed to .a1.g no& in Current periodtoes, Credit" l .w.d during the current period

170 132 2.77{fir]]) (331) (1 .211)

i 1.70) $ 3,100 1 4,171.. .

. . . . . . . . . . . .. .

. . . . .

The returns accrual balance at March 31, 2004 includes $789,000 for productsmarketed through Rx Partners, such as Teva, as compared to zero dollars atDecember 31, 2003 .

NOTE 9 . COMMITMENTS AND CONTINGENCIES

Patent Litigation

There has been substantial litigation in the pharmaceutical , biological, andbiotechnology industries with respect to the manufacture , use, and sale of newproducts that are the subject of conflicting patent rights . One or more patentscover most of the brand name controlled-release products for which we aredeveloping generic versions . Under the Hatch -Waxman Amendments, when a drug

developer files an ANDA for a generic drug, and the developer believes that anunexpired patent which has been listed with the FDA as covering that brand nameproduct will not be infringed by the developer 's product or is invalid orunenforceable , the developer must so certify to the FDA . That certification mustalso be provided to the patent holder , who may challenge the developer'scertification of non-infringement , invalidity or unenforceebility by filing asuit for patent infringement within 45 days of the patent holder's receipt ofsuch certification . If the patent holder files suit , the FDA can review andapprove the ANDA, but is prevented from granting final marketing approval of theproduct until a final judgment in the action has been rendered, or 30 monthsfrom the date the certification was received , whichever is sooner . Should apatent holder commence a lawsuit with respect to an alleged patent infringementby us, the uncertaintie s inherent in patent litigation make the outcome of suchlitigation difficult to predict . The delay in obtaining FDA approval to marketour product candidates as a result of litigation, as well as the expense of suchlitigation , whether or not we are successful , could have a material adverseeffect on our results of operations and financial position . In addition, therecan be no assurance that any patent litigation will be resolved prior to the30-month period . As a result , even if the PDA were to approve a product uponexpiration of the 30-month period , we may not commence marketing that product ifpatent litigation is still pending .

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

As part of our patent litigation strategy, we had obtained two policies coveringup to $7 million of patent infringement liability insurance from AmericanInternational Specialty Line Company ("AISLIC" ), an affiliate of Al0International . This litigation insurance covered us against the costs associatedwith patent infringement claims made against us relating to seven of the ANDAswe filed under Paragraph IV of the Hatch -Waxman Amendments . Both policies havereached their limit of liability . while Teva has agreed to pay 45% to 50% of theattorneys ' fees and costs (in excess of the $7 million covered by our insurancepolicies ) related to the twelve products covered by our strategic allianceagreement with Teva , we will be responsible for the remaining expenses and costsfor these products , and all of the costs associated with patent litigation forour other products and our future products .

We do not believe that this type of litigation insurance will be available onacceptable terms for our current or future ANDAS . In those cases, our policy into record such expenses as incurred .

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

10

FIN 45

In November 2002, the FASB issued FIN No . 45, "Guarantor's Accounting andDisclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others ." Guarantees and claims arise during the ordinary cours eof business from relationships with suppliers, customers, and strategic partnerswhen the Company undertakes an obligation to guarantee the performance of othersthrough the delivery of cash or other assets if specified triggering eventsoccur. Non-performance under a contract by the guaranteed party triggers theobligation of the Company . As of March 31, 2004, all indemnifications includedin agreements as of that date are excluded from the scope of FIN No . 45 as theyrelate primarily to our own future performance and do not require any contingentpayments .

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

NOTE 10 . CHANGES IN SECURITIES

As part of the strategic alliance agreement that we entered into with asubsidiary of Teva Pharmaceutical Industries Ltd . (Teva) in June 2001, wereceived $22 .0 million from Teva which assisted in the construction andimprovement of our Hayward, California facilities and the development of thetwelve products specified in our strategic alliance agreement . The $22 .0 millionwas reflected on the balance sheet as a refundable deposit . The refundabledeposit was provided in the form of a loan . Pursuant to the agreement, accruedand future interest on the refundable deposit was forgiven during 2002 as aresult of our receipt of tentative or final approvals for at least three of ourproducts . In addition, Teva forgave portions of this loan as we achieved certainmilestones relating to the development and launch dates of the productsdescribed in our strategic alliance agreement . In addition, by requiring us torepay only 50t of the portion of the loan related to certain missed milestones,Teva chose to continue to have exclusive marketing rights for those products . Atour option, we could repay Teva any amounts we owed it as part of the loan incash or in shares of our common stock . The price of the common stock forpurposes of repaying any amounts owed under the loan was the average closingsale price of our common stock measured over a ten-trading-day period ending twodays prior to repayment .

In September 2003, we issued 888,918 shares of common stock to Teva, paying$13 .5 million of the original $22 .0 million refundable deposit . In December2003, Teva exercised its option to retain marketing exclusivity for certainproducts and, accordingly, reduced the refundable deposit by $3 .5 million to$5 .0 million . In January 2004, Teva's exercise of the marketing exclusivityoption for certain products reduced the refundable deposit to $2 .5 million . OnJanuary 15, 2004, we satisfied the remaining $2 .5 million refundable depositobligation to Teva by issuing 160,751 shares of our common stock to Teva . Theseshares were issued to Teva without registration under the Securities Act of1933, as amended, in reliance upon the exemption from registration provided bySection 4(2) of the Securities Act of 1933 .

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

NOTE 11 . RESTATEMENT OF CONDENSED FINANCIAL STATEMENTS

Subsequent to the issuance of its condensed financial statements for the threemonths ended March 31, 2004, the Company determined that, based on informationprovided by Teva, its strategic partner, i) customer credits on sales ofbupropion were not recorded in the proper periods, ii) the sales returnsreserve was not properly recorded, and iii) sales invoices prepared by Teva,were incorrectly prepared . The impact of correcting these errors and reducingtaxable income caused the previous tax provision to be reversed . As a result,the accompanying condensed financial statements for the three months endedMarch 31, 2004 have been restated from the amounts previously reported .

A summary of the effects of the restatement is as follows ;

11

IMPAX LABORATORIES, INC .CONDENSED STATEMENTS OF INCOME

(UNAUDITED)(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Three Months ladedMarch 31, 2004

As Previously -----------------Reported As Restated

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

Net gales $ 35,622 8 31 .514Total revenues 36,653 34,54 5Oros■ margin 20,303 15 .995Not income (lose) from operations 9,740 5,432Income (loss) before provision for income taxes 9 .524 5,216Provision for income taxes 47 6Net income (lose) 8 9,045 0 5,216earnings per share :

Basic $ 0.16 8 0 .09Diluted $ 0.15 $ 0 .06

CONDENSED BALANCE SHEETS(UNAUDITED )

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

March 31, 2004----- - --------------------- -

A. Previously

---- - - -

Reported------" ---- -

As Restated

-- ------- -

Accounts receivable, net $ 24,052 $ 20,533Total current assets 75,395 71,87 6

Total assets 153,854 150,53 5Accrued expenses and deferred revenues 13,620 13,93 3Total current liabilities 55,329 55,64 2Total liabilities 66,713 67,02 6

Accumulated deficit (95,501) (99,333 )

Total stockholders' equity 67,141 83,30 9Total liabilities and stockholders' equity 153,854 150,33 5

CONDENSED STATEMENTS OF CASH FLOWS(UNAUDITED )

(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA )


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

As PreviouslyReported As Restated

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

Cash flows from operating activities ;Net income (loss) $ 9,048 $ 5,216

Change in assets and liabilities :Accounts receivable (14,167) ( 10,648)

Other liabilities 2,764 3,077

WE HAVE RECLASSIFIED PATENT LITIGATION EXPENSE FROM RESEARCH AND DEVELOPMENT

EXPENSE FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND MARCH 31, 2003 .

12

ITEM 2 . MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS

To the extent any statements made in this report contain information that is nothistorical, these statements are forward-looking in nature and express thebeliefs, expectations or opinions of management . For example, words such as"may," "will," "should," "estimates," "predicts" "potential," "continue,""strategy," "believes," "anticipates," "plans," "expects," "intends," andsimilar expressions are intended to identify forward-looking statements . Suchstatements are based on current expectations and involve a number of known andunknown 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-lookingstatements . Such risks and uncertainties include, but are not limited to,IMPAX's ability to obtain sufficient capital to fund its operations, thedifficulty of predicting FDA filings and approvals, consumer acceptance anddemand for new pharmaceutical products, the impact of competitive products andpricing, IMPAX's ability to successfully develop, test and commercializepharmaceutical products, IMPAX's limited manufacturing capability may require itto build additional capacity, IMPAX's ability to develop an effective salesorganization to market and sell future brand name products, IMPAX's reliance onkey strategic alliances, the uncertainty of patent litigation, the availabilityof raw materials, the regulatory environment, decreases in healthcarereimbursements could limit IMPAX's ability to sell products or decrease itsrevenues, dependence on patent and other protection for innovative products,exposure to product liability claims, fluctuations in operating results,terrorist attacks, the location of its Corporate Headquarters in an earthquakezone, future dilution in ownership as a result of terms of outstanding andfuture issuances of securities, the volatility of IMPAX's stock price, controlof IMPAX is concentrated in its directors and executive officers who ownapproximately 28% of its stock, and other risks detailed from time to time inIMPAX's filings with the Securities and Exchange Commission . Forward-lookingstatements speak only as to the date on which they are made, and IMPAXundertakes no obligation to update publicly or revise any forward-lookingstatement, regardless of whether new information becomes available, futuredevelopments occur, or otherwise .

The accompanying management's discussion and analysis of financial condition andresults of operations gives effect to the restatement of the condensed financialstatements for the three month period ended March 31, 2004 an described in Note11 to the condensed financial statements .

GENERAL

Impax Laboratories, Inc . was formed through a business combination on December

14, 1999 between Impax Pharmaceuticals, Inc ., a privately held drug deliverycompany, and Global Pharmaceutical Corporation, a generic pharmaceutical

company. Impax Pharmaceuticals, Inc . merged with and into Global, with Impaxstockholders receiving 3 .3358 shares of Global common stock for each share ofImpax Pharmaceuticals, Inc . At the conclusion of the merger, Impax

Pharmaceuticals, Inc . stockholders held over 70% of the combined company . Foraccounting 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, the surviving company changed its name to Impax Laboratories,Inc .

we are a technology based, specialty pharmaceutical company applying formulationand development expertise, as well an our drug delivery technology, to thedevelopment of controlled-release and niche generics, in addition to thedevelopment of branded products . An of March 31, 2004, the Company marketsthirty-three generic pharmaceuticals, which represent dosage variations offourteen different pharmaceutical compounds, and have seventeen applicationspending at the FDA, including five tentatively approved, that addressapproximately $5 .4 billion in U.S . product sales for the twelve months endedFebruary 29, 2004, according to NDCHealth. Thirteen of these pending filingswere made under Paragraph IV of the Hatch-Waxman Amendments . We haveapproximately twenty-seven other products in various stages of development forwhich applications have not yet been filed . These products are generic versionsof pharmaceutical products that had U .S. sales of approximately $14 .5 billionfor the twelve months ended February 29, 2004, according to NDCHealth .

CRITICAL ACCOUNTING POLICY RELATED TO REVENUE RECOGNITION

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

Emerging Issues Task Force (EITF) No . 00-21 supplemented SAB 101 for accountingfor multiple element arrangements . The Company has entered into severalstrategic alliances that involve the delivery of multiple products and servicesover an extended period of time . In multiple element arrangements, the Companymust determine whether any or all of the elements of the arrangement can beseparated from one another . If separation is possible, revenue is recognized foreach deliverable when the revenue recognition criteria for the specificdeliverable is achieved . If separation is not possible, revenue recognition isrequired to be spread over an extended period .

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

1) the delivered item2) there is objective

undelivered item ;3) if the arrangement

or performance of

has value to the customer on a standalone basis ;and reliable evidence of the fair value of the

andincluded a general right of return, or whether delivery

the undelivered item is considered probable .

13

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

In June 2001, the Company entered into a Strategic Alliance Agreement with asubsidiary of Teva for twelve controlled-release generic pharmaceuticalproducts. The agreement granted Teva exclusive U .S . prescription marketingrights for these products for a period of ten years from the date of Teva'sfirst sale of the products . Under the terms of this agreement, Teva has sole andexclusive right to determine all terms and conditions of sale to its customers,including pricing discounts, allowances, price adjustments, returns and rebates .

Revenues from product sales for these products under our strategic alliance arerecognized at the time title and risk of loss transfers to Teva's customers .During the three months ended March 31, 2004, the Company commenced shipping itsBupropion Hydrochloride 100 mg and 150 mg Controlled Release Tablets . Teva shipsthe Bupropion products to its customers and reports the results on a monthlybasis . Teva provides to IMPAX a financial report detailing its gross sales lessapplicable chargebacks, rebates and other credits to arrive at net sales, costof sales information and gross margins for the Bupropion products . The Companyis endeavoring to take steps under the Strategic Alliance Agreement to ensurethat all such adjustments granted by its strategic partner in the future arereported to the Company on a timely basis . These steps include, but are notlimited to, regular discussions with Teva management regarding their monthlyfinancial reports to IMPAX on our products marketed by Teva via monthlyteleconferences and quarterly meetings . These discussions will cover all theareas of revenue recognition for these products, including but not limited to,Bales credits, product returns and internal controls over Teva's financialreporting to IMPAX . Our procedures will include a review of applicabledocumentation for IMPAX revenue sharing . The Audit Committee of the Company'sBoard of Directors may take additional steps as deemed necessary . Under theterms of the contract, the Company has the option to perform an annual auditwith our strategic partner . The information on the financial report is used byIMPAX to record its monthly revenue for the Bupropion 100 mg and 150 mgproducts. Effective with the three months ended March 31, 2004, we beganestimating returns for prescription products marketed by our strategic partners,such as Teva, called "Rx Partners," based on our internal returns analysis andhistorical industry statistics . Additionally, the amount of revenue that IMPAXearns is based on a reimbursement of manufacturing costs plus a fixed grossmargin percentage .

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

RESULTS OF OPERATION S

Except for the three months ended March 31, 2004, we have incurred net losses ineach quarter since our inception . we had an accumulated deficit of $99,333,000at March 31, 2004 .

THREE MONTHS ENDED MARCH 31, 2004, COMPARED TO THREE MONTHS ENDED MARCH 31, 2003

OVERVIEW

The net income for the three months ended March 31, 2004, was $5,216,000 as

compared to a net loss of $3,213,000 for the three months ended March 31, 2003 .

REVENUES

Revenues for the first quarter of 2004 were a record $34,545,000, up more than2021 compared with revenues of $11,425,000 in the prior year's first quarter .The year-over-year increase for the first quarter was primarily due to shipmentsof our generic versions of Wellbutrin(R) SR (Bupropion Hydrochloride) 100 mg and150 mg Controlled Release Tablets, both of which were approved by the FDA duringthe quarter and represented approximately 57% of total revenues . During thequarter, upon approval from the FDA, we also commenced shipments ofDemeclocycline Hydrochloride (Declomycin(R)) 150 mg and 300 mg Tablets .

The company generated $3,031,000 of other revenues in the 2004 period, ascompared to $359,000 in the 2003 period. Other revenue for the 2004 periodconsisted of $2,500,000 from Teva, which represented the reversal of a portionof the refundable deposit for its exercise of the exclusivity option for certain

14

products . The balance of $531,000 of other revenue represents revenuesrecognized pursuant to strategic agreements with Schering-Plough, Wyeth, andNovartis . The following table summarizes the activity in net revenues for thethree months ended March 31, 2004 and 2003)

3004 2007

rreduet sale . f 70,077 i 14,10 1Less ,RWt.. (1,1701 (1 1 061)ch.r"baek . (2,140) (1,314 )P .4t retYrn rosy- (7,570) (1371OnMr erWf . (fell ( 5 701

Net ai1N

. . . . . . . .

71,f1~

. . . . . . . . .

11,0 6 6Rewnu0 from reversal of refundable deposit Cram T." 7,00 0Other Re venue s f 3 1 7! !

Total avenues t 34 .11. .... . ..

t 11,~2 f.. .... ...

The rebates, chargebacks, returns and other credits decreased for the threemonths ended March 31, 2004 to approximately 17% of product sales as compared toapproximately 220 for the comparable period in 2003 . This decrease was due toSupropion Hydrochloride 100 mg and 150 mg Controlled Release Tablets and salesof Loratadins and Pseudoephedrine Sulfate (5sg/110ag) 12-hour Extended ReleaseTablets which are exempt from rebates, chargebacks and other credits as per theagreements with Schering-Plough, Wyeth, and Novartis . The increase in thereserve for sales returns was primarily due to returns for LIPRAM products, andproducts marketed by Rx Partners .

COST OF SALES

The cost of sales for the three months ended March 31, 2004, was $18,550,000 ascompared to $8,147,000 for the same period in 2003 . The overall increase in costof sales was primarily due to the increase in cost of materials as a result ofincreased product sales, primarily from eupropion Hydrochloride 100 mg and 150mg Controlled Release Tablets .

GROSS MARGIN

Gross margin for the three months ended March 31, 2004 was $15,995,000 ascompared to $3,278,000 for the same period in 2003 . The gross margin improvementwas primarily due to higher net product sales, such as Supropion Hydrochloride100 mg and 150 mg Controlled Release Tablets and Demeclocycline Hydrochloride150 and 300 mg Tablets and higher revenue from strategic alliances, whichinclude amortization of deferred revenue for up-front and milestone payments of$531,000, as compared to $359,000 in 2003 . In addition, $2,500,000 of otherrevenues represented the reversal of a portion of the refundable deposit fromTeva under the strategic alliance agreement for its exercise of the exclusivityoption for certain products .

RESEARCH AND DEVELOPMENT E XPENSES

The research and development expenses for the three months ended March 31, 2004were $4,884,000 less reimbursements of $11,000 by a subsidiary of TevaPharmaceutical Industries, Ltd . under the Strategic Alliance Agreement signed inJune 2001, as compared to $3,547,000 less reimbursements of $132,000 for thesame period in 2003 . The higher research and development expenditures in 2004 ascompared to 2003 were attributable to higher legal expenses related to higherpersonnel costs, Active Pharmaceutical Ingredient (API) costs, clinical studies,and new product introduction costs .

PATENT LITIGATION EXPENSES

The patent litigation expenses for the three months were $1,620,000 an comparedto $208,000 for the prior period in 2003 . The year-to-year increase for thethree months was primarily due to ongoing Paragraph IV litigation related to ourANDA5 for Omeprazole Capsules, Penofibrate Tablets and Fexofenadine andPseudoephedrine Tablets .

SELLING EXPENSES

The selling expenses for the three months ended March 31, 2004 were $726,000 ascompared to $568,000 for the same period in 2003 . The increase in sellingexpenses as compared to 2003 was primarily due to higher personnel costs .

15

GENERAL AND ADMINISTRATIVE EXPENSES

The general and administrative expenses for the three months ended March 31,2004 were $3,351,000 as compared to $2,122 , 000 for the same period in 2003 . Theincrease in general and administrative expenses as compared to 2003 wasprimarily due to higher professional fees, insurance premiums , and personnelcosts .

INTEREST INCOME

Interest income for the three months ended March 31, 2004 was $56,000 ascompared to $42,000 for the same period in 2003, primarily due to higher averagecash equivalents for the quarter .

INTEREST EXPENSE

Interest expense for the three months ended March 31, 2004 was $272,000 ascompared to $231,000 for the same period in 2003 . The interest expense for 2004relates primarily to the two Cathay Bank loans, and the revolving creditfacility and term loan agreement with Machovia Bank N .A . The following tablesummarizes the activity for the three months ended March 31, 2004 and 2003 :

2004 2003(in $0000) ------ ------Interest expense $ 272 $ 231

INCOME TAXES

Total interest expense $ 272 $ 231

On a quarterly basis, the Company evaluates its projected full year taxableincome and related book-to-tax timing difference and the use of NOLcarryforwards . The Company estimates that it is not subject to current yearincome taxes . we evaluate the realizability of deferred tax assets on an annualand quarterly basis or if there is a significant change in circumstance that maycause a change in our judgment about the realizability of our deferred taxassets . At December 31, 2003, the Company had a net operating loss carryforwardtotaling approximately $94,600,000, which expires from 2009 through 2023 .

NET INCOME

The net income for the three months ended March 31, 2004, was $5,216,000 ascompared to ■ net loss of $3,213,000 for the some period in 2003 . The net incomefor the three months ended March 31, 2004 was due primarily to the introductionof the Bupropion 100 mg and 150 mg products marketed by Teva, and DemeclocyclineHydrochloride 150 and 300 mg . Tablets . In addition, the other revenues of

$3,031,000 contributed to the profitability for the quarter .

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2004, we had $19,491,000 in cash and cash equivalents . Only

$200,000 of the account balances are insured by the Federal Depository InsuranceCompany (FDIC) . The balance of the Company's cash equivalents are held in U .S .

Treasury securities, which are not insured by the FDIC .

we generated cash in excess of our working capital requirements for the threemonths ended March 31, 2004 . Our cash flows provided by operations were apositive amount of $4,982,000, as compared to a negative amount of $871,000 in

the prior year. This increase was primarily related to the change,year-over-year, in not income, partially offset by increases in working capitalaccount balances . In addition, the remaining balance of the refundable depositwas satisfied by issuing 160,751 shares of common stock to Teva and by Teva'sexercise of the exclusivity option for certain products . As of March 31, 2004,to our knowledge, Teva owns 2,511,752 shares of IMPAX common stock, orapproximately 4 .3% of the outstanding stock .

The net cash provided by financing activities for the three months ended March31, 2004, was approximately $1,029,000 consisting of the $1,985,000 net proceedsfrom issuance of common stock upon exercise of stock options and warrants, andnet repayments of $956,000 primarily from the Wachovia credit facility .

Our capital expenditures for the three months ended March 31, 2004 were$2,025,000 as compared to $698,000 for the some period in 2003 .

In December 2003, the Company transferred the $25 million Loan and SecurityAgreement from Congress Financial Corporation to Nachovia Bank, N .A., thereby

16

securing lowe r interest and l oos restrictive borrowing terms . The revolving loan

is collateralized by eligible accounts receivable and inventory, subject to

sublinits and other term, and the term loan is collateralized by machine ry and

equipment, with a 60-month amort isation . In addition , a $10 million restrictedcash account was established as collateral for this credit facility, to bereduced based on meeting certain cumulative positive cash flow targets . The

interest rates for the revolving loans are prime rate plus 0 . 75%, or eurodollar

rate plus 2 .75% . at our option , based on excess availability . The term loan has

an interest rats of prime rate plus 1 .51, or eurodollar rate plus 4%, at our

option . As of March 31, 2004 , we borrowed approximately $6,953,000 against the

revolving credit line and $3 , 055,000 against the term loan. The borrowingavailability under the revolving credit line changes daily based on eligible

accounts re

ceivable and inventory . The revolving credit facility and the termloan agreement have t wo financial covenants , one related to Adjusted ixcess

Availability , and the other one related to Capital expenditures limits . At March

31, 2004 , both financial covenants were met .

We have no interest rate or derivative financial instruments nor materialforeign exchange risks . We are also not party to any off -balance-sheetarrange ments , other than operating leases .

we expect to incur significant operating expenses , particularly re se arch and

development , for the foreseeable future in order to execute our business plan .

No, therefore , anticipate that such operating expenses, as well as plannedcapital expenditures, will constitute a material use of our cash resources .

On April S . 2004 , the Company completed a convertible senior subordinated

debenture offering of $95 , 000,000 for net proceeds of $91 , 675,000 . The proceedsof the debentures will be used for general corporate purposes , including workingcapital requirements , manufacturing of our products, and research anddevelopment .

To date , we have funde d our research and development and other operatingactivities through equity and debt financing , and strategic alliances .

we have not paid any cash dividends on our common stock and we do not plan topay any such cash dividends in the foreseeable future . No 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 withoutthe other party ' s consent .

RRCRH'r ACCOUNTING PRCNOUNCOIENT S

In November 2002 , the RIT9 reached a consensus on Issue No . 00 - 21, 'Revenue

Arrangements with Multiple Deliverabl es .• BIT? Issue No . 00 - 21 provides guidanceon how to account for arrangements that involve the delivery or performance of

multiple products , services , and/or rights to use assets . The provisions of RITF

Issue No . 00 - 21 applies to revenue arrangements entered into in fiscal periodsbeginning after June 15, 2003 . No implemented the provisions of BITr Issue No .

00-21 in revenue recognition of certain strategic agreements . The Company

reviews all of the tern of its strat eg ic alliances and follows the guidance

from this Iss ue for all multiple element arrangements .

In December 2002, the PASS issued SPAS No . 146 , 'Accounting for Stock-Based

Compensation - Transition and Disclosure , amendment of FAIR Statement No . 123 .•

This stateaent provides additional transition guidance for those entiti es that

elect to voluntarily adopt the provisions of SPAS No. 123 , - Accounting for Stock

Based Compensation .- Furthermore, SFAS No . 146 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. 146 . However, the

Company has adopted the disclosure provisions and h as included this information

in Note I to the Company ' s financial statements .

In January 2003 , the PASS i ssued PASS Interpretation No . 46 (- FIN 46 .1 .

'Consolidation of Variable Interest Intities .• FIN 46 clarifies the applicationof Accounting Research Bulletin No . S1, -Consolidated Financial Statements .' to

certain entities in which equity investors do not have the characteristics of acontrolling financial interest or do not have sufficient equity at risk for theentity to finance its activities without additional subordinated financialsupport from other parties . FIN 46 applies immediately to variable interest

entities created after January 31, 2003 , end 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 variableinterest entities in which an enterprise holds a variable interest that itacquired before February 1 , 2003 . F IN 46 applies to public enterprises as of the

beginning of the applicable interim or annual period . On October 6, 2003, the

PASS decided to deter FIN 46 until the first report ing period ending after

December 15 , 2003 . The provisions of this interpretation did not have a material

impact on the Company ' s financial condition or results of operations .

In December 2003, the PASS Issued WIN No . 461, Consolidation of Variable

Interes t tntitiss, clarifying the application of Accounting Res ea rch Bulletin

No . 51 , Consolidated Financial Statements , to certain entities in which equity

investors do not have the characteristics of a controlli ng financial interest or

do not have sufficient equity at risk for the entity to finance its activitieswithout additional subordinated financial suppo rt . The provisions of this

Interpretation do not have a material impact on the Company's financialcondition or results of operations .

In February 2004, the PASS issued revised FOP pertaining to FIN 46(R) . The

revised FSPs replace certain previously issued FIN 46 FSP for entities to whichFIN 46(R) is applicable . This revision to FIN 46 did not have a material impacton the Company's financial condition or results of operation .

In February 2004, the PASS revised SPAS 133, Accounting for Derivative

Instruments and Hedging Activities for Implementation issue 52L, A1J, and C6 .

The revisions to SPAS 133 did not have a material impact on the Company's

financial condition or results of operation .

In December 2003, the FASB revised SFAS 132, "Employers' Disclosure AboutPensions and Other Post Retirement Benefits ." This Statement does not change the

measurement or recognition of those plans required by FASS 87, "Employers'Accounting for Pensions," and No . 106, 'Employers' Accounting for Post

Retirement Benefits Other than Pensions ." This Statement retains the disclosure

requirements contained in PASS No . 132, 'Employers' Disclosure about Pensionsand Other Post Retirement Plans ." The provisions of this statement do not have amaterial impact on the Company's financial condition or results of operations .

During the three months ended March 31, 2004 and 2003, the employer 401-K matchwas $24,352 and $21,347, respectively .

In January 2004, the PASS issued FASE Staff Position ?AS 106-1 to provide

temporary guidance concerning the Medicare Prescription Drug Improvement andModernization Act of 2003 . The provisions of this pronouncement did not have amaterial impact on the Company's financial condition or results of operations .

MAJOR OPERATIONAL HIGHLIGHT FOR THE THREE MONTHS ENDED MARCH 31, 200 4

o On January 28, 2004, INPAX Laboratories, Inc . announced that the U .S . Food

and Drug Administration (FDA) has granted final approval to the Company'sAbbreviated Now Drug Application (ANDA) for its generic version o f

Wellbutrin(R) SR (Bupropion Hydrochloride) 100 mg Controlled ReleaseTablets and has granted tentative approval to the Company's generic version

of Wellbutrin SR 150 mg Controlled Release Tablets . OlaxoSmithXline markets

Nellbutrin SR for the treatment of depression . According to NDCHealth, U .S .

sales of these dosage forms of Wellbutrin SR Tablets were approximately

$1 .4 billion in the twelve months ended February 29, 2004 .

o On January 29, 2004, IMPAX Laboratories, Inc . announced that the Court of

Appeals for the Federal Circuit in Washington, D .C . upheld a lower court

decision that ruled against certain claims by GlaxoSmithxline in regards tothe Company's Abbreviated New Drug Applications (ANDAS) for WellbutrinSR(R) (Bupropion Hydrochloride) 100 mg and 150 mg and for Zyban(R)(Bupropion Hydrochloride) 150 zg . OlaxoSmithKline markets Hellbutrin SR for

the treatment of depression and Zyban for smoking cessation .

o On February 27, 2004, IMPAX Laboratories, Inc . announced that the U .S . Food

and Drug Administration (FDA) has granted tentative approval to theCompany's Abbreviated New Drug Application for its generic version ofAllegra(R)-D (Fexofenadine Hydrochloride and Pseudoephedrine Hydrochloride60mg/120mg) Extended Release Tablets . Aventis Pharmaceuticals marketsAllegra-D for the treatment of the symptoms associated with seasonal

allergic rhinitis. According to NDCNealth, U .S. sales of Allegra-D were

approximately $452 million in the twelve months ended February 29, 2004 .

o On March 5, 2004, IMPAX Laboratories, Inc . announced that the U .S. Food and

Drug Administration (FDA) has granted final approval to the Company'sAbbreviated New Drug Application for a generic version of Claritin(R)-D24-Hour (Loratadine and Pseudoephmdrtne Sulfate, 10mg/240mg) ExtendedRelease Tablets . Schering-Plough Corporation markets Claritin-D 24-Hour asan over-the-counter (OTC) drug for the relief of symptoms of seasonalallergic rhinitis (hay fever) . According to NDCHealth, U .S . sales of

Claritin-D 24-Hour were $21 million for the twelve months ended February29, 2004 . The Company is working with its marketing partner toward the

commercial launch of this product .

o On March 8, 2004, IMPAX Laboratories, Inc . announced that the U .S . Food and

Drug Administration (FDA) has granted tentative approval to the Company'sAbbreviated New Drug Application (ANDA) for its generic version o f

Tricor(R) (Fenofibrate) Tablets . Tricor Tablets are marketed by Abbott

Laboratories, Inc . to assist patients in managing their cholesterol levels .

The drug is indicated for use in reducing elevated LDL cholesterol, totalcholesterol, triglycerides and Apo a and increasing HDL cholesterol inpatients with primary hypercholasterolemia or mixed lipidemia . The drug has

also been approved as adjunctive therapy for the treatment ofhypertriglyceridemia, a disorder characterized by elevated levels of verylow density lipoprotein (VLDL) in the plasma . According to NDCHealth, U .S .

sales of Tricor Tablets were approximately $620 million for the twelvemonths ended February 29, 2004 .

18

o On March 32, 2004, IMPAX Laboratories, Inc . announced that the U .S . foodand Drug Administration (FDA) has granted final marketing approval to theCompany's Abbreviated Now Drug Application (ANDA) for its generic versionof Mellbutrin(R) SR (Dupropion Hydrochloride) 150 mg Controlled ReleaseTablets . The FDA had previously granted final approval for the Company'sapplication for the 100 mg strength . Olaxosmithxline markets Wellbutrin SRfor the treatment of depression . both products were shipped to ourmarketing partner, Teva .

o On March 23, 2004, IMPAX Laboratories, Inc . announced that the U.S . Foodand Drug Administration (FDA) has granted final marketing approval to theCompany's Abbreviated Now Drug Application (AMDR) for its generic versionof Declosycin(R) (D.meclocycline Hydrochloride) 150 and 300 mg . Tablets .KSP Pharma markets Declomycia for the treatment of various infections .According to MDCMealth, U .S . sales of Declorycin were approximately $24million for the twelve months ended February 29, 2004 . IMPAX's globalPharmaceuticals division began marketing the product Immediately .

e On March 30, 2004, IMPAX Laboratories, Inc . announced the pricing of its

private offering of $95 million aggregate principal amount of 1 .130%convertible senior subordinated debentures due 3024, to qualifiedinstitutional buyers pursuant to Rule 144A under the Securities Act of1933, as amended . (For additional details, please see Note 2 . )

ITEM 3 . QUAXTITATIVR AND QUALITATIVE DISCLOSURES ABOUT MARK= RIS K

The Company's cash and cash equivalents includes U .S . government and short termcommercial paper stated at cost which approximates market value . The primaryobjective of the Company's investment activities is to preserve principal while,at the same time, maximise yields without significantly increasing risk . Toachieve this objective, the Company maintains its portfolio in a variety of highcredit quality securities, including U .S . Goverment securities, treasury bills,and short-term commercial paper . one hundred percent of the Company's portfoliomatures in l ess than one year . The carrying value of the portfolio approximatesthe market value at March 31, 2004 . The Company's debt instruments at March 31,2004, are subject to fixed and variable interest rates and principal payments .We belie" that the fair value of our fixed and variable rate long-term debtapproximates their carrying value of approximately $16 .6 million at March 31 .

2004 . While changes in market interest rates may affect the fair value of ourfixed and variable rate long-term debt, we believe the offset . if any, ofreasonably possible near-term changes in the fair value of such debt on the

Company's financial statements will not be material .

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

ITEM 4 . CONTROLS AND PROCEDURE S

The Company, under the supervision and with the participation of our management,including our principal executive officer and our principal financial officer,evaluated the effectiveness of our disclosure controls and procedures (asdefined in Exchange Act Rule 13a-16(e)), as of the end of the period covered bythis report . Based on this evaluation, including consideration of therestatement discussed below, our principal executive officer and our principalfinancial officer concluded that our disclosure controls and procedures areeffective in reaching a reasonable level of assurance that information requiredto be disclosed by us in the reports that we file or submit under the SecuritiesExchange Act of 1934, as amended, is recorded, processed , summarised, andreported within the time period specified in the Securities and ExchangeCommission's rules and forms .

The principal executive officer and principal financial officer also conductedan evaluation of internal control over financial reporting ('Internal control-)to determine whether any changes in internal Controls occurred during thequarter that have materially affected, or which are reasonably likely tomaterially affect, Internal Controls . Rased on this evaluation, there has been

no such change during the quarter covered by this report .

A control system, no matter how we ll conceived and operated, can provide only

reasonable, not absolute, assurance that the objectives of the control systemare met . Further, the design of a control system must reflect the fact thatthere are resource constraints, and the benefits of controls must be considered

relative to their costs . Because of the inherent limitations in all controlsystems, no evaluation of controls can provide absolute assurance that allcontrol issues and instances of fraud, if any, within the Company have beendetected . The company conducts periodic evaluations of its internal controls toenhance, where necessary, its procedures and controls . Because of the inherentlimitations in a cost-effective control system . misstatements due to error orfraud may occur and not be detected .

Subsequent to issuance of the condensed financial statements for the quarterended March 31, 2004, the Company restated its condensed financial statements asdescribed in Note 11 . The Company determined that a material weakness existed in

its internal controls . The Company is endeavoring to take steps to correct thedeficiency that gave rise to this restatement . These steps include, but are not

limited to, regular discussions with Teve management regarding their monthlyfinancial reports to IMPAX on our products marketed by Teva via monthly

teleconferen ces and quarterly meetings . These discussions will cover all theareas of revenue recognition for these products , including but not limited to,sales credits , product returns and internal controls over Teva ' s financial

report ing to IMPAX. Our procedures will include a review of applicabledocumentation for IMPAX revenue sharing . The Audit Committee of the Company's

Board of Directors may take additional steps as deemed necessary . The Company isendeavoring to take steps under the strategic Alliance Agreement to ensure thatall such adjustments granted by its strategic partner in the future are reportedto the Company on a timely basis . Under the contract terms, the Company has theoption to perform an annual audit with our strategic partner . The Company has

disclosed and discussed this with its Audit Committee . For more informationconcerning the res tatement , sea note 11 in the Notes to f inancial Statementscontained in the Company's Quart erly Report an Form 10 - Q/A for the quarter endedMarch 32, 3004 .

PART It - OTHZR INFORMATION

ITEM 1 . LEGAL PROCSIDINGS

PATENT LITIGATION

There has been substantial litigation in the pharmaceutical, biological, and

biotechnology industries with respect to the manufacture . use, and sale of now

products that are the subject of conflicting patent rights . one or more patentscover most of the brand name controlled -release products for which we aredeveloping generic versions . Under the Hatch-Waxman Amendments, when a drugdeveloper files an ANDA for a generic drug , and the developer believes that anunexpired patent which has been listed with the FDA as covering that brand nameproduct will not be infringed by the developer ' s product or is invalid or

unenforceable , the developer must so certify to the FDA . That cert ification must

also be provided to the patent holder , who may challenge the developer's

certification of non - infringement , invalidity or unenforceability by filing asuit for patent infringement within 45 days of the patent holder's receipt ofsuch ce rtification . If the patent holder files suit , the FDA can review and

approve the AMDA, 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 ce rt ification was received, whichever is sooner . should apatent holder com mence a lawsuit with respect to an alleged patent infringementby us, the uncertainties inherent in patent litigation wake the outcome of suchlitigation difficult to predict . The delay in obtaining FDA approval to marketour product candidates as a result of litigation , as well as the expense of suchlitigation , whether or not we are successful , could have a material adverseeffect on our results of operations and financial position . In addition, therecan be no assurance that any patent litigation will be resolved prior to the30-month period . As a result , even if the FDA were to approve a product uponexpiration of the 30-month period, we may not commence, marketing that product if

patent litigation is still pending .

Lawsuits have been filed against us in connection with fourteen of our ParagraphIV filings . The outcome of such litigation is difficult to predict because ofthe uncertainti es inherent in patent litigation .

ASTRAZI RCA AR BT AL . V. IMPAXs THE OMRPRAZOLI CARE R

In May 1000 , Astrafeneca AS and four of its related companies filed suit against

IMPAX in the U .B . District Court in Wilmington, Delaware claiming that IMPAX's

submission of an AM for Qaeprasole Delayed Release Capsul es, 10 mg and 20 y,

constitutes infringement of six U .B . patents relating to Astraseneca 's Prilosec

product . The action seeks an order enjoining IMPAX from marketing CeaprazoleDelayed Release Capsules , 10 as and 20 as until Februa ry 4, 301 4, and awardingcosts and attorney fees . There is no claim for damages .

In February 2001 , Astrafenecs and the same related companies filed the some suit

against IMPAR in the aau federal cou rt in Delaware for Infringement , based upon

IMPAX ' s amendment to its AMDA adding 40 as strength Dseprazole Delayed Release

Capsules .

Astraieneca filed essentially the saw lawsuits against nine other genericpharmaceutical companies (Andrx , Qenpharm , Cheminor, Kreaers . LZK, ton , Nylon,

Apotex, and Zenith) . Due to the numbe r of these cases, a nultidlatrict

litigation proceeding , In re Oeeprasole 10 mg . 20 wag, and 40 mg Delayed Released

Capsules Patent Litigation, MDL-1391 , has b een established to coordinate

pro-trial proceedings . Roth lawsuits filed by Astrateneca against IMPAX have

been transferred to the sultidistrict litigation .

Early in the multidistrict litigation , the trial court ruled that one of the six

patent s- in- suit was not infringed by the sale of a generic oaieprasole productand that certain other patents were invalid . These rulings effectivelyeliminated four patents from the trial of these infringement cases, although

Astrateneca may appeal these rulings ae part of the overall appeal process in

the case .

On October 11, 2002, after a trial involving Andrx , uenphar. . Cheainor, and

Rresers, the trial judge handling the aultidistrict litigation ruled onAstrateneca ' s complaints that three of these four defendants (First waveDefendants) infringed the remaining patents- in-suit . The trial judge ruled thatthree of the First Wave defendants , Andrx . Oenphar m, and Chemins, infringed the

remaining two patents a sserted by Astrazeneca in its complaints , and that thosepatents are valid until 2007 . In the same ruling , the trial court ruled that theremaining First Wave Defendant , Krewers , did not infringe either of th eremaining two patents . This defendant's formulation differed from theformulation used by the other First Wave Defendants in several respects . Inmid-December 2003 , the U .S . Court of Appeals for the Federal Circuit affirmedthe October 3002 ruling in all respects . Subsequent petitions for rehearing havebeen denied .

The formulation that IMPAX would employ in manufacturing its generic equivalentof o.eprasole has not been publicly announced . IMPAX ' ■ formulation has elementsthat res emble those of other First Nave Defendants , but It also has elementsthat differ . Although the ruling by the trial court in the multidistrictlitigation has a significant effect on the course of Aatraseneca ' e litigationagainst IMPAX , application of the trial court ' s opinion is not certain . IMPAXbelieves that it has defenses to Astrafeneca's claims of infringement , but theopinion rendered by the trial court in the First Wave cases makes the outcome ofAstraZeneca ' s litigation against IMPAX uncertain .

Two of the remaining six defendants ( Second Wave Defendants ) filed Notions forSummary Judgment of Non - Infringement , based upon the October 2002 ruling . Thetrial court has deferred ruling on those motions until discove ry is completed .

In December 3003 , the trial court entered a new scheduling order gove rn ingpre-trial proceedings relating to the Second Wave Defendants, including IMPAX .The schedule for completion of the litigation in the Second Wave, IncludingAstraseneca ' s litigation against IMPAX, now provides that all fact discove ry(with certain exceptions ) is complete . Astraseneca ' a expert reports on issues asto which it bears the burden of proof , including issues of alleged infringeme nt,were produced on Februa ry 17 , 2004 . IMPAX ' ■ responsive expert reports will becompleted by July 12 , 3004 . Any rebuttal report s by Astrazeneca will be requiredto be produced by August i, 2004 . The parties have not submitted their jointschedule for expert depositions to the Special Master and the Special Master hasnot iss ued an order reg arding expert depositions . Depositions of the pa rt ies'expe rt s are expected to occur thereafter and to be completed by aid-December2004 . Notions for Summary Judgment and responses must be filed and fully briefedby November 1 6 , 2004 . given the delays which have thus far occurred in thelitigation and the number of experts already designated by the parties, it isunce rtain whether the expe rt depositions can be completed in the time allottedby the present schedule .

Under the scheduling order, any further notions for summary Judgment must befiled by early fall, and they will be heard by the trial court after briefing iscompleted in November 2004 . IMPAX may file Motions for Summa ry Judgment,includi ng a Motion tome Summary Judgment of Non - Infringement , following the closeof all discovery. If the cue is not resolved by summary judgment, the cam einvolving IMPAX will be returned to the U .S . District Court in Delaware fortrial . It is likely, given the proceedings in the First Wave eases , that thecase against IMPAX will be transferred back to New York for a consolidated trialbefore the same judge who decided the First Wave cues . Trial will commence assoon as practicable thereafter . If IMPAX does not file a Notion for SummaryJudgment , or if such a Motion is denied , the court will schedule a date fortrial . IMPAX intends to vigorously defend the action brought by Astraseneca .

In August 2003 , the court issued an order dismissing four of thepatents - in-suit, thr ee with prejudice . 00 September 30, 2003, as a result of thecourt ' s dismissal , Astraseneca served each of the second Wave Defendants,including IMPAX , with an a mended complaint . In October 2003, IMPAX filed anans wer to the amended complaint in which we asserted a now counterclaim withantitrust all egations . The counterclaim will be severed , and proceedingsrelating to it will be stayed until after trial of the patent infringement case .

GLAXOSMITNKLINR (0X.AXO) V . IMPAXI TNN SUPROPIOI CASKS

Glaze filed a Complaint (Case No . 00-04403) against IMPAX in the U .S . DistrictCourt for the Northern District of California on November 3, 2000 alleginginfringement of U .S . Patent No . 5,427 , 796 covering Wellbutrin OR and Zyban . OnNovember 7 , 2000, INPAX filed its Answe r to the Complaint which includeddefenses to the infringement claim, and counterclaimed for patent invalidity .

Glaze has filed suit against Andre , Watson, Ron (only with regard to NellbutrinSR) and excel for similar ANDA filings .

IMPAX filed a summary Judgment Motion , based upon prosecution history estoppelgrounds . The parties completed the briefing on this issue and oral argument washeld on November 19, 2001 . At the request of the court . In July 2002 . both sidessubmitted briefs on the i mpact of the recent Supreme Court decision in Pesto v .

Shoketeu Kinsoku Rogyo Rabuahi Co ., at al . (which we refer to as the Pestodecision ) to the pending notion for Summary Judgment . IMPAX brought anadditional Notion for Summary Judgment in earl y August 2002 , requesting that thecourt apply another court ' s decision which limited the scope of the Olaso .79spatent .

On August 21, 2002, IMPAR ' s Motions for Summa ry Judgment were granted . Olexo hasappealed this decision to the Court of Appeals for the Federal Circuit and thatappeal was fully briefed on January 23, 2003 . Oral argument was heard on June 2 .2003 and the District Court ' s decision in favor of IMPAX w as affirmed by theCourt of Appeals on Janua ry 29, 2004 . Olaxo has filed a request for rehearing orrehearing an bane .

Previously, Olaxo had decided to settle its eupropion Hydrochloride 100 mg andI50 mg Rxtended Release Tablets litigation with Watson Pha rmaceuticals on termsthat are confidential .

AVRNTIS PHARMACSTfICALS INC ., IT AL . V . IMPAX , THS PBXOFINADINt CASES

On March 25, 2002 , Ave ntis Pharmaceuticals Inc ., Morrell Pharmaceuticals Inc .,

and Carder . Capital L .P . (collectively referred to as Aventis) sued IMPAX in the

U .S . District Court for the District of Nov Jersey (Civil Action No . 02-CV-1322)alleging that IMPAR ' a proposed foxofenedine and pseudoephsdrine hydrochloridetablets , containing 60 mg of fexofenadine and 120 mg of pseudoephedrinehydrochloride, infringe U .S . Patent Nos . 6,039,9741 6 . 037 353, 5,735,6727

6,117,791, 5,699,912, and 6,113 , 562 . On November 7, 2002 , Aventls filed an

amended complaint , which added an allegation that IMPART Pexotenadine andPseudoephedrine Hydrochloride 60 p/120 6g Extended Release Tablet productinfringes U .S . Patent No . 6,399 , 632 . Aventis seeks an injunction preventingIMPAX from marketing its haofenadine and Paeudoephedrine Hydrochloride 60mg/120 mg Extended Release Tablet product until the patents - in-suit have

expired . and an award of damages for any commercial manufacture , use, or sale of

INPAX ' 5 rexofenadine and Pseudoephedrine Hydrochloride 60 mg/120 mg ExtendedRelease Tablet product , together with costs and attorneys' fees .

Pact discovery in this action is scheduled to close on October 29, 2004 . IMPAX

believes that it has defenses to the claims made by Aveatis based on

noninfringesrnt and invalidity . No trial date has been set .

Aventia has also filed a suit against Barr Laboratori es, Inc ., MylanPharmaceuticals , Inc ., Or . Reddy ' s Pharmaceuticals and Teva Pharmaceuticals USA,Inc . in Now Jersey asserting the same patent infringement against thesedefendants ' proposed ► exofenadine and Pseudoephedrine or Pexofenadine products .

The IMPAX came has been consolidated for trial with the Barr , Mylan, Dr . Reddyand Teva cases .

On July 23, 2003 , IMPAX filed Su mm a ry Judgment motions for non-infringement of

U .S . Patent Nos . 6,039,974, 6,113 , 942, and S .555 .9121 and for non-infringement

and Invalidity of U .S . Patent No . 5,730 , 672 . Opposition papers were filed onAugust 11 , 2003 . Reply papers we re filed on September 24 , 2003 . On October 2 4 ,

2003 . IMPAX filed a brief discussing the impact of the recent Pasta decision on

their Motions for Summary Judgment of non-infringement . Oral argument for the

summary Judgme nt Motion regarding the '912 , - 942, and - 974 patents was heard onNovember 3, 2003 . Oral argument for the Summary Judgme nt Notion regarding the

872 patent was heard on December e, 2003 . IMPAX is currently awaiting a

decision on these motions .

POROUS PHARMA L .P . BY AL . V IMPAX , THE OXYC0D0NS CASES

On April 11 , 2002 , Purdue Pharma and related companies filed a complaint in the

U .B . District Court for the Southern District of New York alleging that IMPAX' ■

submission of ANDA No . 76-318 for 60 mg OxyContin Tablets infringes three

patent s owned by Purdue . The Purdue patents are U .S . Patent Nos . 4,$6l,S95,

4,970 , 075 and 5 , 266,331, all directed to controlled release opioid formulations .

On September 19, 2002 , Purdue filed a second Infringement Complaint regarding

INPAX' s 40 mg OxyContin generic product . On October 9, 2002 , Purdue filed a

third infringement Complaint regarding IMPAX' s 10 mg and 20 mg Oxycontin generic

products . IMPAX filed its waver and counterclaims in each case on October 3 .

2003 . On November 25, 2003 , Purdue submitted their reply to our counterclaim .

Purdue is seeking, among other things , a court order preventing IMPAX frommanufacturing , using or selling any drug product that infringes the subjectPurdue patents . IMPAX had disputed jurisdiction of the Now York cou rts and

brought an action for a Declaratory Judgment of Patent Invalidity in Delaware .

The Now York court denied IMPAR ' a Notion to Dismiss and the Delaware action was

dismissed .

Purdue previously sued Boehringer lagelbeie/Roxane, Undo and Teva on the same

patents . One or more of these defendants may resolve the Invalidity issuessurrounding the Purdue patents prior to IMPAX ' a ease goes to trial . The

Soehringer Ingelheie / Roxane suit is stayed . The Sndo action was tried in June

2003 and post trial briefs have been filed . In January 200 4, the judge in the

Soda action ruled that the three patents in suit , the Sane patents that Purdue

had "sorted against IMPAX , are unenforceable because they were inequitably

procured and enjoined their enforcement . There can be no assurances that such

ruling will not be challenged or, if sustained upon challenge , that the rulings

in IMPAX ' s cases will be consistent with such rulings .

IMPAX V . AVUNTIS PNARMRCSUTICALB , INC ., THE RILUZOLR CAS E

In June 2002 , IMPAX filed suit against Aventi ■ Pharmaceuticals, Inc . in the U .S .

District Court in Wilmington , Delaware , seeking a declaration that the filing ofan ANDA to engage in a commercial manufacture and/or sale of Rilusole 50 eyTablets for treatment of patients with a .yotrophic lateral sclero ses (ALS) does

not infringe claims of Aventis ' U .S . Patent No . 5,527 , 614 ('114 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 ' 114 patent . In December

2002, the district court granted Aventis ' Notion for Preliminary Injunction and

enjoined IMPAX from infringing , contributory infringing, or inducing any other

person to infringe Claims 1, 4 or S of the '814 patent by selling, offering forsale, distributing, marketing or exporting from the United States anypharmaceutical product or compound containing rilusole or salt thereof for thetreatment of ALS .

The trial was completed on October 30, 2003, and post-trial briefing wascompleted in December 2003 . IMPAX is pursuing its assertions that claims of the'814 patent are invalid in view of prior art and are unenforceable in view ofinequitable conduct committed during the prosecution of the patent before theUnited States Patent and Trademark Office (USPTO) .

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

If IMPAX is not ultimately successful in proving invalidity or unenforceability,there is a substantial likelihood that the court will enter a Permanent

Injunction enjoining IMPAX from marketing Riluzole 50 e.g Tablets for thetreatment of ALE 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 tomarket its Riluzole 50 mg Tablet product for the treatment of ALS in the UnitedStates .

ABBOTT LABORATORIES V . IMPAXs THE FBNOFIBRATB TABLET CASE S

In January 2003, Abbott Laboratories and Fournier Industrie at Santa and arelated company filed suit against IMPAX in the U .S . District Court inWilmington, Delaware claiming that IMPAX's submission of an ANDA for Fenofibrate

Tablets, 160 e.g . constitutes infringement of two U .S . patents owned by Fournierand exclusively licensed to Abbott, relating Abbott's Tricor tablet product .

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

These cases were consolidated in April 2003 .

In September 2003, Abbott and Fournier filed a third action against IMPAX in theU.S. District Court in Wilmington, Delaware, claiming that IMPAX's submission of

its ANDA for 54 mg and 160 mg Fenofibrate Tablets constitutes infringement of athird patent recently issued to Fournier and exclusively licensed to Abbott .

This action was also consolidated with the two previously consolidated actionsin December 2003 . In January 2004, Abbott and Fournier filed a fourth action

relating to IMPAR's 54 mg and 160 e.g Fenofibrate Tablets based upon a claim of

infringement of a fourth patent . All four cases were consolidated in March 2004 .

Discovery in the consolidated cases closes in June 2004 and the trial iscurrently set for June 2005 . IMPAX has responded to all four complaints byasserting that its proposed generic Fenofibrate Tablet products do not infringethe patents-in-suit and by asserting that the patents-in-suit are invalid .

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

SOLVAY PHARMACEUTICALS V . IMPAX: THE CREON CAS E

On April 11, 2003, Solvay Pharmaceuticals, Inc ., manufacturer of the Croon line

pancreatic enzyme products, brought suit against IMPAX in the U .S . District

Court for the District of Minnesota claiming that IMPAX has engaged in falseadvertising, unfair competition, and unfair trade practices under federal andMinnesota law in connection with the Company's marketing and sale of its Lipramproducts . The suit seeks actual and consequential damages, including trebledamages, attorneys' fees, injunctive relief and declaratory judgments that wouldprohibit the substitution of Lipram for prescriptions of Croon . On June 6, 2003,

IMPAX filed a Motion for Dismissal of Plaintiff's Complaint, which seeks todismiss each count of Solvay's complaint . Oral argument on that Motion was heard

on November 7, 2003 . On January 9, 2004, the U .S . District Court issued a ruling

on IMPAX's Motion for Dismissal, dismissing two of the counts set forth in theComplaint, including the count which sought a declaratory judgment that Lipram

may not lawfully be substituted for prescriptions of Croon . On January 26, 2004,

IMPAX filed its Answer to the Complaint and Counterclaim alleging that Solvaywrongfully interfered with IMPAX' ■ business relationships . On February 17, 2004,

Solvay filed its Reply to IMPAX's Counterclaim . On February 24, 2004, the Rule

16 Scheduling Conference was held and, on February 25, 2004, the Court issued aScheduling Order setting the deadline for discovery on January 14, 2005, and a

trial data for July 1, 2005 . Fact discovery is currently ongoing in this case .

IMPAX believes it has defenses to Solvay's allegations and intends to pursue

these defenses vigorously .

23

ALZA CORPORATION V. IMPAX ; THE OXYBUTYNIN CASE

On September 4, 2003, Alas Corporation ("Alze") filed a lawsuit against IMPAX inthe U .S . District Court for the Northern District of California alleging patentinfringement of one patent related to IMPAX's filing of an ANDA for a genericversion of Ditropan XL (Oxybutynin Chloride) Tablets, 5 mg, 10 mg, and 15 mg .

Alta seeks an injunction, a declaration of infringement, attorney's fees andcosts. On October 24, 2003, IMPAX filed its Answer to the Complaint, whichincluded defenses to the infringement claim, and counterclaimed for patentnon-infringement and invalidity .

On October 24, 2003, IMPAX filed a lawsuit against Alta in the U .S. DistrictCourt for the Northern District of California seeking a declaratory judgmentthat four Alta patents relating to IMPAX's filing of an ANDA for a genericversion of Ditropan XL (Oxybutynin Chloride) Tablets, S mg, 10 mg, and 15 mg(the "Product") are invalid and/or not infringed by the commercial manufacture,use, offer for sale, sale, or importation of the IMPAX Product . On November 17,2003, Also moved to dismiss the Company's complaint for lack of subject matterjurisdiction based on Alze's argument that there is no case or controversybetween the parties with respect to these four patents . The U .S. District Courtfor the Northern District of California has ordered a mediation on June 20,2004 .

SHIRE LABORATORIES INC . V IMPAX : THE ADDERALL CAS E

On December 29, 2003, Shire Laboratories, Inc ., a subsidiary of ShirePharmaceuticals Group, PLC, filed a lawsuit against IMPAX in the U .S . DistrictCourt for the District of Delaware alleging patent infringement on U .S. Patent

Nos . 6,322,919 and 6,605,300 related to filing of an AMA to market a generic

version of Adderall 30 mg capsules . IMPAX filed its answer on January 20, 2004,

denying infringement and contesting the validity of both patents . A tentativecourt date has been scheduled for October 11, 2005 .

OTHER LITIGATION

STATE OF CALIFORNIA V. IMPAX

On August 7 , 2003 , IMPAX received an Accusation from the Department of Justice,

Bureau of Narcotic Enforcement , State of California ("BNE'), alleging that IMPAXfailed to maintain adequate controls to safeguard precursors from theft or lossregarding our pseudoephedrine product in Janua ry 2003 . IMPAX contested the

allegations in the Accusation and entered into discussions with the state of

California , Department of Justice , to bring resolution to this matter . IMPAX hasimplemented a number of remedial measures aimed at improving the security andaccountability of precursor substances used by IMPAX and regulated by the

Califo rnia Department of Justice, Bureau of Narcotic Enforcement . In March 2004,

following a theft of pseudoephedrine from IMPAX's facilities , the SHE filed an

Amended Accusation , again alleging that IMPAX failed to maintain adequatecontrols to safeguard precursors from theft or loss regarding ourpseudoephedrins product . IMPAX is continuing its discussions with the State of

California , Department of Justice , and hopes to resolve this matter without the

need for a formal hearing .

Other than the legal proceedings described above, we are not aware of any othermaterial pending or threatened legal actions, private or governmental , against

us. However , as we file additional applications with the FDA that containParagraph IV Certifications and develop now products , it is likely we willbecome involved in additional litigation related to those filings or products .

INSURANCE

As part of our patent litigation strategy, we had obtained two policies covering

up to $7 million of patent infringement liability insurance from AmericanInternational Specialty Line Company ("AISLIC "), an affiliate of AIOInternational . This litigation insurance covered us against the costs associatedwith patent infringement claims made against us relating to seven of the ANDAs

we filed under Paragraph IV of the Hatch -Waxman Amendments . Both policies had

reached their limits of liability . While Teve has agreed to pay 45• to 50% of

the attorneys ' fees and costs (in excess of the $7 million expected to be

covered by our insurance policie s for six products ) related to the twelve

products covered by our strategic alliance agreement with them, we will beresponsible for the remaining expenses and costs for these products , and all of

the costs associated with patent litigation for our other products and ourfuture products .

However , we do not believe that this type of litigation insurance will beavailable to us on acceptable terms for our other current or future ANDA5 . In

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

Product liability claims by customers constitute a risk to all pharmaceuticalmanufacturers . we carry $20 million of product liability insurance for our own

manufactured products . This insurance may not be adequate to cover any product

liability claims to which we may become subject .

Wn

ITEM 2 . CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY

SECURITIES

1 .250% CONVERTIBLE SENIOR 8DSORDINAT1D DEBENTURES

on April S, 2004, the Company issued and sold $95 .0 million in aggregate

principal amount of its 1 .250% Convertible senior subordinated debentures due

2024 . The debentures were sold by the Company to Citigroup Global Markets Inc .,

wachovia Capital Markets, LLC and First Albany Capital Inc ., as initialpurchasers, in a private placement exempt from registration under the securitiesAct of 1933, as amended (the -Securities Act") . We have been advised by theinitial purchasers that they have remold, and/or intend in the future to resell,the debentures to -qualified institutional buyers- (as defined in Rule 144A

promulgated under the Securities Act) in transactions exempt from theregistration requirements of the Securities Act in reliance on Rule 144A .

The issuance and sale of the debentures resulted in net proceeds to the Company

of approximately $91,675,000 . Thew proceeds are being used for generalcorporate purposes, including working capital requirements, manufacturing of ourproducts and research and development .

The debentures bear interest at the rate of 1 .250% per year . Interest on the

debentures is payable on April 1 and October 1 of each year, beginning on

October 1, 2004 . The debentures are convertible by holders into shares of ourcommon stock at a conversion price of $24 .05 per share (which represented ■ 30%

premium over our stock price at the time the debentures were issued) . The

conversion price is subject to adjustment in certain events if, (1) the price ofour common stock reaches a specific threshold ; (2) the trading price for the

debentures falls below certain thresholds ; (3) the debentures have been called

for redemption, or (4) certain corporate transactions occur .

The debentures mature on April 1, 2024, unless earlier redeemed, repurchased or

converted . Before April 5, 2007, we may redeem some or all of the debentures if

the price of our co mmon stock reaches a specific threshold, at a redemptionprice that includes an additional payment on the redeemed debentures equal to

$230 .77 per $1,000 principal amount of debentures, less the amount of anyinterest actually paid or accrued and unpaid on the debentures . on and after

April 5, 2007, the Company may redeem some or all of the debentures at certain

specified redemption prices .

The debentures are the Company's unsecured obligations and are subordinated inright of payment to all of the Company's existing and future senior

indebtedness . On April 1, 2009, April 1, 2014, and April 1, 2019, and undercertain circumstances, holders of the debentures will have the right to requireus to repurchase all or any part of their debentures at a repurchase price equalto 100% of the principal amount of the debentures, plus accrued and unpaidinterest and liquidated damages, if any, to, but excluding the repurchase date .

In connection with the offering of the debentures, we are required to file ashelf registration statement with the securities and Exchange Commissioncovering resales of the debentures and of the common stock issuable upon

conversion of the debentures .

STRATEGIC ALLIANCE AGREEMENT WITH TCVA

As part of the strategic alliance agreement that we entered into with asubsidiary of Teva Pharmaceutical Industries Ltd . (Teve) in June 2001, we

received $22 .0 million from Teve which assisted in the construction andimprovement of our Hayward, California facilities and the development of thetwelve products specified In our strategic alliance agreement . The $22 .0 million

was reflected on the balance sheet as a refundable deposit . The refundable

deposit was provided in the form of a loan . Pursuant to the agreement, accruedand future interest on the refundable deposit was forgiven during 2002 as aresult of our receipt of tentative or final approvals for at least three of our

products . In addition, Teva forgave portions of this loon as we achieved certainmilestones relating to the development and launch dates of the productsdescribed in our strategic alliance agreement . In addition, by requiring us to

repay only 50% of the portion of the loan related to certain missed milestones,Teva chose to continue to have exclusive marketing rights for those products . At

our option, we could repay Teve any amounts we owed it as part of the loan incash or in shares of our common stock . The price of the common stock for

purposes of repaying any amounts owed under the loan was the average closingsale price of our common stock measured over a ten-trading-day period ending two

days prior to repayment .

In September 2003, we issued 515,916 shares of common stock to Tevs, paying

$13 .5 million of the original $22 .0 million refundable deposit . In December

3003, Teva exercised its option to retain marketing exclusivity for certain

products and, accordingly . reduced the refundable deposit by $3.5 million to

$9 .0 million . In January 2004, Teva's exercise of the marketing exclusivityoption for certain products reduced the refundable deposit to $2 .5 million . On

January 15, 2004, we satisfied the remaining $2 .5 million refundable deposit

obligation to Teva by issuing 260,151 shares of our common stock to Teva . These

shares were issued to Teva without registration under the Securities Act of1933, as amended, in reliance upon the exemption from registration provided bySection 4(2) of the Securities Act of 1933 .

ITEM 6 . EXHIBITS AND REPORTS ON FORM 8- K

(a) Exhibits

o 4 .1 - Registration Rights Agreement between ImpaxLaboratories, Inc., as Issuer, and Citigroup Global

Markets Inc ., as representative of the InitialPurchasers, dated as of April 5, 2004 .

o 4 .2 - Indenture, between Impax Laboratories, Inc . andNachovie Bank, National Association, as Trustee,dated as of April 5, 2004 .

o 10 .1 - Purchase Agreement between Impax Laboratories,Inc ., Citigroup Global Markets, Inc ., WachoviaCapital Markets, LLC and First Albany Capital Inc .(the "Initial Purchasers") dated March 30, 2004 .

o 31.1 - Certification of Chief Executive Officer pursuantto Section 302 of the Sarbanes-Oxley Act of 2002 .

o 31 .2 - Certification of Chief Financial Officer pursuan t

to Section 302 of the Sarbanes-Oxley Act of 2002 .

o 32 .1 - Certifications pursuant to Section 906 of theSarbanes-Oxley Act of 2002 .

(b) Reports

o On January 6, 2004, the Company filed a report on Form8-K (Item 9) announcing that Chairman Charles Hsiao,

Ph.D., will be leading a new venture ; Impex Technologies .

Dr. Hsiao is relinquishing his position of Co-CE O

but will remain as Chairman. Barry R. Edwards has beenelected as sole Chief Executive Officer effective

January 1, 2004 .

o On January 28, 2004, the Company filed a report on Form8-K (Item 9) announcing that the U .S . Food and Drug

Administration (FDA) has granted final approval to theCompany's ANDA for its generic version of Wellbutrin SR100 mg Controlled Release Tablets .

o On January 29, 2004, the Company filed a report on Form8-K (Item 9) announcing that the Court of Appeals for theFederal Circuit in Washington, D .C. upheld a lower court

decision that ruled against certain claims by

GlaxoSmithKline in regards to the Company's ANDA5 forWellbutrin SR 100 mg and 150 mg, and for Zyban 150 mg .

o On February 17, 2004, the Company filed a report o n

Form 8-K (Items 9 and 12) announcing earnings for thequarter and the year ended December 31, 2003 .

o On March 5, 2004, the Company filed a report on Form 8-K(Item 9) announcing that the FDA had granted finalapproval to the Company's ANDA for its generic version ofClaritin(R)-D 24-Hour Extended Release Tablets .

o On March 22, 2004, the Company filed a report on Form 8-K(Item 9) announcing that the FDA had granted finalmarketing approval to the Company's ANDA for its genericversion of Wellbutrin(R) SR 150 mg Controlled Release

Tablets .

o On March 23, 2004, the Company filed a report on Form 0-K(Item 9) announcing that the FDA had granted finalmarketing approval to the Company's ANDA for its genericversion of Declomycin(R) 150 and 300 mg Tablets .

o On March 30, 2004, the Company filed a report on Form 8-K(Item 9) announcing its intention to offer in a privateplacement, subject to market and other conditions, $75million aggregate principal amount of convertible seniorsubordinated debentures, due 2024, to qualifie d

institutional buyers pursuant to Rule 144A under the SEC

Act of 1933, as amended . In addition, the Company granted

initial purchasers an option to purchase up to a n

additional $11,250,000 of the debentures .

o On March 31, 2004, the Company filed a report on Form 8-K(Item 9) announcing the pricing of its private offering of$82 million aggregate principal amount of 1 .2501convertible senior subordinated debentures due 2024 .

Tj

SIGNATURES

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


By : /s/ BARRY R. EDWARDS November , 2004-------------------------------- --------------------

Chief Executive Office r(Principal Executive Officer )

By: /s/ CORNEL C . SPIEGLER November , 2004-------------------------------- --------------------

Chief Financial Office r(Principal Financial and Accounting Officer )

27

CERTIFICATION OFCHIEF EXECUTIVE OFFICER

1, Harry R. Edwards, certify that :

1 . I have reviewed this quarterly report on Form to-Q/A for the threemonths ended March 31, 2004 of Impax Laboratories, Inc .

2 . Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact, or omit to state a material factnecessary to make the statements made, in light of the circumstancesunder which such statements were made, not misleading, with respectto the period covered by this quarterly report .

3 . Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present, in allmaterial respects, the financial condition, results of operations,and cash flows of the registrant as of, and for, the periodspresented in this quarterly report .

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

a) designed such disclosure controls and procedures to ensurethat material information relating to the registrant,including its consolidated subsidiaries, is made known tous by others within those entities, particularly duringthe period in which this quarterly report is beingprepared ;

b) (intentionally omitted)

c) evaluated the effectiveness of the registrant's disclosurecontrols and procedures, and presented in this quarterlyreport our conclusions about the effectiveness of thedisclosure controls and procedures based on ourevaluation ;

d) disclosed in this report any change in the registrant'sinternal control over financial reporting that occurredduring the registrant's most recent fiscal quarter (theregistrant's fourth fiscal quarter in the case of anannual report) that has materially affected, or isreasonably likely to materially affect, the registrant',internal control over financial reporting, and ;

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

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

b) any fraud, whether or not material, that involvesmanagement or other employees who have a significant rolein the registrant's internal controls .

/s/ Barry R . Edwards

---------R- . R. Edwards

Chief Executive Office r

November 15, 2004

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

CERTIFICATION OFCHIEF FINANCIAL OFFICER

1, Cornel C . Spiegler , certify that :

1 . I have reviewed this quarterly report on Form 10-0/A for the threemonths ended March 31, 2004 of Impax Laboratories, Inc .

2 . Based on my knowledge , this quarterly report does not contain anyuntrue statement of a material fact , or omit to state a material factnecessary to make the statements made , in light of the circumstancesunder which such statements were made , not misleading, with respectto the period covered by this quarterly report .

3 . Based on sty knowledge , the financial statements , and other financialinformation included in this quarterly report, fairly present, in allmaterial respects , the financial condition, results of operations,and cash flows of the registrant as of, and for , the periodspresented in this quarterly report .

4 . The registrant 's other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-14 and lid-14) for the registrant,and we have .

a) designed such disclosure controls and procedures to ensurethat material information relating to the registrant,including its consolidated subsidiaries , is made known tous by others within those entities, particularly duringthe period in which this quarterly report is beingprepared ,

b) (intentionally omitted )

c) evaluated the effectiveness of the registrant's disclosurecontrols and procedures ; and presented in this quarterlyreport our conclusions about the effectiveness of thedisclosure controls and procedures based on ourevaluation ;

d) disclosed in this report any change in the registrant'sinternal control over financial reporting that occurredduring the registrant's most recent fiscal quarter (theregistrant's fourth fiscal quarter in the case of anannual report) that has materially affected, or isreasonably likely to materially affect, the registrant'sinternal control over financial reporting, and ;

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

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

b) any fraud, whether or not material, that involvesmanagement or other employees who have ■ significant rolein the registrant's internal controls .

/s/ Cornel C . Spiegler

--------------------------Cornel C . Spiegler

Chief Financial Officer

November 15, 2004

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

Exhibit 32 . 1

CERTIFICATION PURSUANT TO 18 U .S .C . SECTION 1350AS ADOPTED PURSUANT TO

SECTION 906 OF THOE SARBANES -OXLEY ACT OF 200 2

Pursuant to 18 U .S .C . Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002, with respect to the Quarterly Report of the Companyon Form 10-Q/A for the quarter ended March 31, 2004, (the "Report"), each of theundersigned officers of Impax Laboratories, Inc . does hereby certify that :

1 . The Report fully complies with the requirements of the Section 13(a) or15(d) of the Securities Exchange Act of 1934 ; and

2 . The information contained in the Report fairly presents, in all materialrespects, the financial condition and results of operations of theCompany .

/s/ Barry R . Edwards Chief Executive OfficerDate : November 15, 2004

---------------------------Barry R . Edwards

/s/ Cornel C . Spiegler Chief Financial OfficerDate : November 15, 2004

---------------------------Cornel C . Spiegler

The foregoing certification is being furnished solely pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 of theU.S . Code) and is not being filed as part of the Report or as a separatedisclosure document .

30

Documents

BLANK ROME LLP MICHAEL JOSEPH (Pro Hac Vice JOSEPH …securities.stanford.edu/filings-documents/1032/...2 Blank Rome LLP Watergate, 600 New Hampshire Av enue, NW, Washington, DC, 20037