United States Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

(Mark One)

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003
------------------------------

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

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

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

Delaware 65-0403311
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation 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 reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.

Yes X No
----- -----

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

The number of shares outstanding of the registrant's common stock as of
October 31, 2003 was approximately 53,585,313 .
-------------------------- ------------------

IMPAX LABORATORIES, INC.

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

PART I. FINANCIAL INFORMATION

PAGE
----

Item 1. Financial Statements:

Balance Sheets as of September 30, 2003 and December 31, 2002 (unaudited) ............................. 3

Statements of Operations for the Three Months and
Nine Months Ended September 30, 2003 and 2002 (unaudited)......................................... 4

Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002 (unaudited) ............ 5

Notes to Financial Statements (unaudited) ............................................................. 6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 11

Item 3. Quantitative and Qualitative Disclosure About Market Risk................................................. 19

Item 4. Controls and Procedures................................................................................... 19

PART II. OTHER INFORMATION AND SIGNATURES

Item 1. Legal Proceedings......................................................................................... 20

Item 2. Changes in Securities and Use of Proceeds................................................................. 26

Item 6. Exhibits and Reports on Form 8-K.......................................................................... 26

Signatures .................................................................................................... 28

Certifications .................................................................................................... 29

PART I - FINANCIAL INFORMATION
- ------------------------------

ITEM 1. FINANCIAL STATEMENTS

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

September 30, December 31,
2003 2002
------------ -----------

ASSETS
Current assets:
Cash and cash equivalents $ 22,482 $ 10,219
Accounts receivable, net 7,899 6,524
Inventory 19,863 10,478
Prepaid expenses and other assets 922 973
------------ -----------
Total current assets 51,166 28,194
Restricted Cash 10,000 10,000
Property, plant and equipment, net 37,696 37,065
Investments and other assets 1,145 807
Goodwill, net 27,574 27,574
Intangibles, net 475 763
------------ -----------
Total assets $ 128,056 $ 104,403
============ ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,153 $ 861
Accounts payable 15,564 7,529
Notes payable 5,195 3,999
Accrued expenses and deferred revenues 9,043 10,859
------------ -----------
Total current liabilities 30,955 23,248
Refundable deposit 8,500 22,000
Long term debt 9,035 9,105
Deferred revenues and other liabilities 2,441 1,486
------------ -----------
Total liabilities 50,931 55,839
Commitments and contingencies

Mandatorily redeemable convertible Preferred Stock:
Series 2 mandatorily redeemable convertible Preferred Stock, $0.01
par value 75,000 shares outstanding at September 30, 2003,
and December 31, 2002, redeemable at $100 per share 7,500 7,500
------------ -----------

Stockholders' equity:
Common stock, $0.01 par value, 75,000,000 shares authorized and
53,498,924 and 47,874,614 shares issued and outstanding
at September 30, 2003, and December 31, 2002, respectively 535 479
Additional paid-in capital 168,540 131,085
Unearned compensation (3) (158)
Accumulated deficit (99,447) (90,342)
------------ -----------
Total stockholders' equity 69,625 41,064
------------ -----------
Total liabilities and stockholders' equity $ 128,056 $ 104,403
============ ===========

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

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

Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2003 2002 2003 2002
----------- ----------- ----------- -----------

Net Sales $ 15,908 $ 7,283 $ 40,434 $ 15,860

Other revenues 589 255 1,555 255
----------- ----------- ----------- -----------

Total revenues 16,497 7,538 41,989 16,115
----------- ----------- ----------- -----------

Cost of sales 12,976 5,153 30,444 12,274
----------- ----------- ----------- -----------

Gross margin 3,521 2,385 11,545 3,841

Research and development 4,203 4,533 12,305 11,899

Less: Teva payments (93) (182) (247) (486)
----------- ----------- ----------- -----------

Research and development, net 4,110 4,351 12,058 11,413

Selling expenses 546 697 1,552 2,001

General and administrative expenses 2,321 2,084 6,526 6,193

Other operating income (expense), net 4 (30) 25 (39)
----------- ----------- ----------- -----------

Net loss from operations (3,452) (4,777) (8,566) (15,805)

Interest income 87 138 199 540

Interest expense (243) (571) (738) (1,304)
----------- ----------- ----------- -----------

Income (Loss) before provision for income taxes (3,608) (5,210) (9,105) (16,569)
----------- ----------- ----------- -----------

Provision for income taxes -- -- -- --

Net loss (3,608) (5,210) (9,105) (16,569)
=========== =========== =========== ===========

Net loss per share (basic and diluted) $ (0.07) $ (0.11) $ (0.18) $ (0.35)
=========== =========== =========== ===========

Weighted average common shares outstanding 52,610,356 47,778,512 50,382,455 47,302,950
=========== =========== =========== ===========

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

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

Nine Months Ended
September 30,
-----------------
2003 2002
----------- -----------

Cash flows from operating activities:
Net loss $ (9,105) $ (16,569)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 2,718 1,773
Non-cash compensation charge (warrants and options) 437 351
Change in assets and liabilities:
Accounts receivable (1,375) (2,144)
Inventory (9,385) (1,581)
Prepaid expenses and other assets (287) 981
Accounts payable and other liabilities 7,174 8,849
----------- -----------

Net cash used in operating activities (9,823) (8,340)
----------- -----------

Cash flows from investing activities:
Purchases of property and equipment (3,063) (12,653)
Sales of short term investments - 20,422
----------- -----------

Net cash (used in) provided by investing activities (3,063) 7,769
----------- -----------

Cash flows from financing activities:
Notes payable borrowings 1,196 --
Additions to long-term debt 896 --
Repayment of long-term debt (674) (173)
Net proceeds from sale of common stock 23,298 7,500
Proceeds from issuance of common stock (upon exercise of
stock options and warrants) 433 605
----------- -----------
Net cash provided by financing activities 25,149 7,932
----------- -----------
Net increase in cash and cash equivalents 12,263 7,361
----------- -----------
Cash and cash equivalents, beginning of the period $ 10,219 $ 15,044
----------- -----------
Cash and cash equivalents, end of the period $ 22,482 $ 22,405
=========== ===========

Cash paid for interest $ 447 $ 384
=========== ===========
Cash paid for income taxes $ - $ -
=========== ===========

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

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

NOTES TO FINANCIAL STATEMENTS
Nine Months Ended
September 30, 2003 and September 30, 2002
(unaudited)

Note 1. The financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations; however, the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these financial statements be read in conjunction with the financial statements
and the notes thereto included in the Company's latest Annual Report on Form
10-K. The results of operations for the nine months ended September 30, 2003 are
not necessarily indicative of the results of operations expected for the year
ending December 31, 2003.

Impax Laboratories, Inc. ("IMPAX," "we," "us," or "the Company") focuses on the
development, manufacturing, and marketing of specialty pharmaceutical products
utilizing its own formulation expertise and drug delivery technologies. The
Company is currently marketing twenty-seven generic pharmaceuticals, which
represent dosage variations of ten different pharmaceutical compounds, and has
eighteen applications under review with the Food and Drug Administration (FDA),
addressing approximately $7 billion in U.S. product sales in the twelve months
ended August 31, 2003. Fourteen of these pending filings were filed under
Paragraph IV of the Hatch-Waxman Amendments. The Company has approximately
twenty-five other products in various stages of development for which
applications have not yet been filed. These other products are generic versions
of pharmaceutical products that had U.S. sales of approximately $12.7 billion in
the twelve months ended August 31, 2003.

We have experienced, and expect to continue to experience, operating losses and
negative cash flow from operations and our future profitability is uncertain. We
do not know whether or when our business will ever be profitable or generate
positive cash flow, and our ability to become profitable or obtain positive cash
flow is uncertain. We have experienced operating losses and negative cash flow
from operations since our inception. As of September 30, 2003, our accumulated
deficit was $99,447,000 and we had outstanding indebtedness in an aggregate
principal amount of $23,883,000 including $8,500,000 refundable deposit from
Teva. To remain operational, we must, among other things:

o continue to obtain sufficient capital to fund our operations;

o obtain FDA approval for our products;

o prevail in patent infringement litigation in which we are involved;

o successfully launch our new products; and

o comply with the many complex governmental regulations that deal with
virtually every aspect of our business activities.

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

The $8.5 million refundable deposit from Teva, less any forgiven amounts upon
IMPAX's attainment of certain milestones, if any, is due and payable on January
15, 2004, in cash or equity at our discretion. As of September 30, 2003, we
believe that up to $8.5 million may be forgiven prior to January 15, 2004,
although there is no assurance that any of the $8.5 million may be ultimately
forgiven. These milestone events, if achieved, will represent the culmination of
a separate earnings process. We currently plan to repay the remaining balance of
the refundable deposit to Teva in stock. Accordingly, we have classified the
refundable deposit as long-term in the accompanying balance sheet as of
September 30, 2003. The price of the common stock for purposes of repaying any
amounts owed under the loan will be the average closing sale price of our common
stock measured over a ten-trading-day period ending two days prior to the
transaction. However, if any of the shares we issue to Teva as repayment of the
loan will cause Teva to own in excess of 19.9% of our outstanding common stock,
we will have to repay that portion of the loan in excess of 19.9% in cash. In
September 2003, we issued 888,918 shares of common stock to Teva, paying $13.5
million of the original $22 million refundable deposit. As of September 30,
2003, to our knowledge, Teva owns 2,351,001 shares of IMPAX common stock, or
approximately 4.4% of the outstanding common stock. If we repay some or all of
the $8.5 million remaining deposit in stock, such payment will result in
dilution. If we repay the remaining balance in cash, we may seek additional
sources of liquidity to fund such payment, discussed below.

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

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

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

Had compensation cost for the Company's Plans been determined based on the fair
value at the grant dates for the awards under a method prescribed by SFAS No.
123, the Company's loss and loss per share would have been increased to the pro
forma amounts indicated below (in thousands) except per share amounts:

Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2003 2002 2003 2002
----------- ----------- ----------- -----------

Net loss, as reported $ (3,608) $ (5,210) $ (9,105) $ (16,569)
Add: Stock-based employee compensation
included in reported net income,
net of related tax effects - - - -

Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (919) (635) (2,727) (1,924)
----------- ----------- ----------- -----------

Pro forma net loss $ (4,528) $ (5,845) $ (11,833) $ (18,493)
=========== =========== =========== ===========

Earnings per share:
Basic - as reported $ (0.07) $ (0.11) $ (0.18) $ (0.35)
----------- ----------- ----------- -----------
Basic - pro forma $ (0.09) $ (0.12) $ (0.23) $ (0.39)
----------- ----------- ----------- -----------

Diluted - as reported $ (0.07) $ (0.11) $ (0.18) $ (0.35)
----------- ----------- ----------- -----------
Diluted - pro forma $ (0.09) $ (0.12) $ (0.23) $ (0.39)
----------- ----------- ----------- -----------

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:
dividend yield at 0%; weighted average expected option term of five years;
risk-free interest rate of 2.84%. The expected stock price volatility for the
three months ended September 30, 2003 was 82%. The weighted average fair value
of options granted for the quarter was $9.713. For the nine months ended
September 30, 2003, the expected stock price volatility was 73%. The weighted
fair value of options granted for the nine month period was $3.63.

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

Mandatorily redeemable convertible stock of 1,500,000 shares (on an as-converted
basis), warrants to purchase 3,399,081 shares, and stock options to purchase
5,816,550 shares were outstanding at September 30, 2003, but were not included
in the calculation of diluted earnings per share, as their effect would be
anti-dilutive.

Note 2. Recent Accounting Pronouncements

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

retirement cost capitalized as an increase to the carrying amount of the
associated long-lived asset, and accumulated depreciation on that capitalized
cost. The provisions of this Statement did not have a material impact on the
Company's financial condition or results of operations.

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

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

In November 2002, the EITF reached a consensus on Issue No. 00-21, "Revenue
Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance
on how to account for arrangements that involve the delivery or performance of
multiple products, services, and/or rights to use assets. The provisions of EITF
Issue No. 00-21 applies to revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. The provisions of this Statement did not have a
material impact on the Company's financial condition or results of operations.

Also in November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34." FIN
45 clarifies the requirements of SFAS No. 5, "Accounting for Contingencies,"
relating to the guarantor's accounting for, and disclosure of, the issuance of
certain types of guarantees. The disclosure provisions of FIN 45 are effective
for the current fiscal year. The provisions for initial recognition and
measurement are effective on a prospective basis for guarantees that are issued
or modified after December 31, 2002, irrespective of a guarantor's year-end. The
Company has not issued any guarantees as of September 30, 2003.

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

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

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

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

Note 3. Our gross receivables and related deductions activity for the nine
months ended September 30, 2003 and the year ended December 31, 2002 were:

(in $000s) September 30, December 31,
2003 2002
----------- -----------

Gross accounts receivable $ 12,803 $ 9,827
Less: Accrued rebates (2,429) (1,525)
Less: Accrued chargebacks (2,377) (1,373)
Less: Other deductions (98) (405)
----------- -----------
Net accounts receivable $ 7,899 $ 6,524
----------- -----------

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

Chargebacks, Rebates, and Returns Accrual activity for the nine months ended
September 30, 2003 and the year ended December 31, 2002 was:

CHARGEBACKS ACCRUAL
-------------------
(in $000s) September 30, December 31,
2003 2002
----------- -----------

Beginning Balance $ 1,373 $ 580
Add: Provision related to sales made in current period 6,000 4,632
Less: Credits issued during the current period (4,996) (3,839)
----------- -----------
Ending Balance $ 2,377 $ 1,373
----------- -----------

REBATES ACCRUAL
---------------
(in $000s) September 30, December 31,
2003 2002
----------- -----------

Beginning Balance $ 1,525 $ 886
Add: Provision related to sales made in current period 4,857 4,095
Less: Credits issued during the current period (3,953) (3,456)
----------- -----------
Ending Balance $ 2,429 $ 1,525
----------- -----------

RETURNS ACCRUAL
---------------
(in $000s) September 30, December 31,
2003 2002
----------- -----------

Beginning Balance $ 3,100 $ 3,072
Add: Provision related to sales made in current period 709 1,937
Less: Credits issued during the current period (709) (1,909)
----------- -----------
Ending Balance $ 3,100 $ 3,100
----------- -----------

Note 4. Our inventory consists of the following:
September 30, December 31,
(in $000s) 2003 2002
----------- -----------

Raw materials......................................................... $ 13,072 $ 7,122
Work in process....................................................... 2,300 365
Finished goods........................................................ 4,791 3,191
20,163 10,678
Less: Reserve for obsolescence and net realizable value (300) (200)
----------- -----------
$ 19,863 $ 10,478
----------- -----------

Historically, IMPAX considered product costs as inventory once the Company
received FDA approval to market its ANDA related products. During the three
months ended September 30, 2003, the Company evaluated the risk of building
commercial quantities as inventories of certain products that have not received
FDA approval. For the first time, the Company decided to build and capitalize
inventories in commercial quantities prior to receiving FDA approval. The
Company, as do most companies in the generic pharmaceutical industry, may build
inventories of certain ANDA related products that have not yet received FDA
approval and/or satisfactory resolution of patent infringement litigation, when
it believes that such action is appropriate to increase its commercial
opportunity.

As of September 30, 2003, the Company's total inventory of $19,863,000 included
$10,481,000 in inventories relating to products pending launch while IMPAX
awaits receipt of FDA marketing approval and/or satisfactory resolution of
patent infringement litigation, as follows:

(in $000s)
Raw materials $ 8,576
Work in process 1,159
Finished goods 746
---------
Total $ 10,481
---------

Of the $10,481,000 inventories related to products pending launch, approximately
$5,589,000 are considered risk protected because of our strategic alliance
agreements.

Note 5. Intangibles consist of the following:

Estimated September 30, December 31,
(in $000s) useful life 2003 2002
(years) ------------- ------------
-----------

Product rights and licenses..................................... 3 - 8 $ 2,691 $ 2,691

Less: Accumulated amortization (2,216) (1,928)
------------- ------------
$ 475 $ 763
============= ============

Amortization expense was $288,000 for the nine months ended September 30, 2003.
Expected amortization expense for 2003 and 2004 is $384,000 and $379,000,
respectively. The existing intangible assets will be fully amortized by December
31, 2004.

Note 6. Commitments and Contingencies

Lease Obligations

On October 7, 2003, the Company signed a lease for a building with approximately
61,800 square feet of warehouse space at 30941 San Clemente Street, Hayward,
California, through October 2005. The annual rent amount is approximately
$281,640.

Patent Litigation

As part of our patent litigation strategy, we have obtained two policies
covering up to $7 million of patent infringement liability insurance from
American International Specialty Line Company ("AISLIC"), an affiliate of AIG
International. This litigation insurance covers us against the costs associated
with patent infringement claims made against us relating to seven of the ANDAs
we filed under Paragraph IV of the Hatch-Waxman Amendments. Correspondence
received from AISLIC indicated that, as of October 29, 2003, one of the policies
had approximately $638,000 remaining on the limit of liability, and the second
of the policies had reached its limit of liability. It is expected that, after
AISLIC pays the July, August, and part of September 2003 invoices, the first
policy will also reach its limit of liability. While Teva has agreed to pay 45%
to 50% of the attorneys' fees and costs (in excess of the $7 million expected to

be covered by our insurance policies for six products) related to the twelve
products covered by our strategic alliance agreement with them, we will be
responsible for the remaining expenses and costs for these products, and all of
the costs associated with patent litigation for our other products and our
future products.

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

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

FIN 45

In November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." Guarantees and claims arise during the ordinary course
of business from relationships with suppliers, customers, and strategic partners
when the Company undertakes an obligation to guarantee the performance of others
through the delivery of cash or other assets if specified triggering events
occur. Non-performance under a contract by the guaranteed party triggers the
obligation of the Company. As of September 30, 2003, all indemnifications
included in agreements as of that date are excluded from the scope of FIN No. 45
as they relate primarily to our own future performance and do not require any
contingent payments.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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

General

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

We are a technology based, specialty pharmaceutical company applying formulation
and development expertise, as well as our drug delivery technology, to the
development of controlled-release and niche generics, in addition to the
development of branded products. We currently market twenty-seven generic
pharmaceuticals, which represent dosage variations of ten different
pharmaceutical compounds, and have eighteen applications pending at the FDA,
including three tentatively approved, that address approximately $7 billion in
U.S. product sales for the twelve months ended August 31, 2003. Fourteen of
these pending filings were made under Paragraph IV of the Hatch-Waxman
Amendments. We have approximately twenty-five other products in various stages
of development for which applications have not yet been filed. These products
are generic versions of pharmaceutical products that had U.S. sales of
approximately $12.7 billion for the twelve months ended August 31, 2003.

Results of Operations

We have incurred net losses in each year since our inception. We had an
accumulated deficit of $99,447,000 at September 30, 2003.

THREE MONTHS ENDED SEPTEMBER 30, 2003, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2002

Overview

The net loss for the three months ended September 30, 2003, was $3,608,000 as
compared to $5,210,000 for the three months ended September 30, 2002. The
decrease in the net loss was primarily due to increased revenues for the
quarter.

Revenues

Revenues for the three months ended September 30, 2003, were $16,497,000 as
compared to $7,538,000 for the same period in 2002. The increase in net sales
was primarily due to shipments of over-the counter (OTC) Loratadine and
Pseudoephedrine Sulfate (5mg/120mg) 12-hour Extended Release Tablets to
Schering-Plough and Wyeth, and Minocycline Hydrochloride 50mg, 75mg, and 100mg
capsules, which were launched in the third quarter of 2002; higher sales of
Fludrocortisone Acetate Tablets 0.1mg, and Lipram products; decreased product
returns; and increased other revenue arising from strategic agreements with
Schering-Plough, Wyeth, and Novartis. The following table summarizes the
activity in total revenues for the three months ended September 30, 2003 and
2002:

2003 2002
---------- ----------

Product sales $ 21,628 $ 10,902
Less:
Rebates (2,054) (982)
Chargebacks (2,646) (1,327)
Returns (389) (442)
Other credits (631) (868)
---------- ----------
Net sales 15,908 7,283
Other Revenues 589 255
---------- ----------
Total Revenues $ 16,497 $ 7,538
========== ==========

The rebates, chargebacks and other credits decreased for the three months ended
September 30, 2003 to approximately 26% of product sales as compared to
approximately 33% for the comparable period in 2002. This decrease was mainly
due to Loratadine and Pseudoephedrine Sulfate (5mg/120mg) 12-hour Extended
Release Tablets which are exempt from rebates, chargebacks and other credits as
per the agreements with Schering-Plough and Wyeth, and to lower product returns.

Cost of Sales

The cost of sales for the three months ended September 30, 2003, was $12,976,000
as compared to $5,153,000 for the same period in 2002. The overall increase in
cost of sales was primarily due to the increase in cost of materials as a result
of increased product sales and increased expenses related to the ramping up
production for upcoming new product introductions including, but not limited to,
additional personnel, supplies and training costs.

Gross Margin

Gross margin for the three months ended September 30, 2003 was $3,521,000 as
compared to $2,385,000 for the same period in 2002. The gross margin improvement
was primarily due to higher revenues, partially offset by increased expenses
related to the ramping up production for upcoming new product introductions
including, but not limited to, additional personnel, supplies and training
costs.

Research and Development Expenses

The research and development expenses for the three months ended September 30,
2003, were $4,203,000 less reimbursements of $93,000 by a subsidiary of Teva
Pharmaceutical Industries, Ltd. under the Strategic Alliance Agreement signed in
June 2001, as compared to $4,533,000 less reimbursements of $182,000 for the
same period in 2002. The lower research and development expenditures in 2003
were attributable to lower cost of materials and bio-studies, offset by higher
legal expenses related to patents and alleged patent infringement lawsuits, and
personnel costs.

Selling Expenses

The selling expenses for the three months ended September 30, 2003, were
$546,000 as compared to $697,000 for the same period in 2002. The decrease in
selling expenses as compared to 2002 was primarily due to lower advertising and
market research costs.

General and Administrative Expenses

The general and administrative expenses for the three months ended September 30,
2003, were $2,321,000 as compared to $2,084,000 for the same period in 2002. The
increase in general and administrative expenses as compared to 2002 was
primarily due to higher professional fees, insurance premiums, and personnel
costs.

Interest Income

Interest income for the three months ended September 30, 2003, was $87,000 as
compared to $138,000 for the same period in 2002, primarily due to lower average
cash equivalents for the quarter, and lower interest rates.

Interest Expense

Interest expense for the three months ended September 30, 2003, was $243,000 as
compared to $571,000 for the same period in 2002. This decrease was due to the
elimination of the interest accrual on the refundable deposit with Teva. During
the fourth quarter of 2002, we received tentative or final approval on three
products, which met the condition that no future interest accrues on the
refundable deposit. The interest expense for 2003 relates primarily to the two
Cathay Bank loans, and the revolving credit facility and term loan agreement
signed with Congress Financial in October 2002. The following table summarizes
the activity for the three months ended September 30, 2003 and 2002:

2003 2002
-------- --------
(in $000s)
Interest expense $ 243 $ 133
Interest on refundable deposit - 438
Less: amount capitalized - -
-------- --------
Total interest expense $ 243 $ 571
-------- --------
Net Loss

The net loss for the three months ended September 30, 2003, was $3,608,000 as
compared to $5,210,000 for the same period in 2002. The decrease in the net loss
of $1,602,000 was primarily due to increased revenues.

NINE MONTHS ENDED SEPTEMBER 30, 2003, COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2002

Overview

The net loss for the nine months ended September 30, 2003, was $9,105,000 as
compared to $16,569,000 for the nine months ended September 30, 2002. The
decrease in the net loss of $7,464,000 was primarily due to higher revenues,
which were partially offset by higher operating expenses.

Revenues

The total revenues for the nine months ended September 30, 2003, were
$41,989,000 as compared to $16,115,000 for the same period in 2002. The revenues
increase was primarily due to the shipments of OTC Loratadine and
Pseudoephedrine Sulfate (5mg/120mg) 12-hour Extended Release Tablets under
agreements with Schering-Plough and Wyeth. In addition, other revenue from
strategic agreements was $1,555,000 for the nine months ended September 30, 2003
as compared to $255,000 in 2002. The following table summarizes the activity in
total revenues for the nine months ended September 30, 2003.

2003 2002
(in $000s) ---------- ---------

Product sales $ 53,713 $ 26,314
Less:
Rebates (4,857) (3,000)
Chargebacks (6,000) (3,063)
Actual returns (709) (1,937)
Other credits (1,713) (2,454)
---------- ---------
Net sales 40,434 15,860
Other Revenues 1,555 255
---------- ---------
Total Revenues $ 41,989 $ 16,115
========== =========

Cost of Sales

The cost of sales for the nine months ended September 30, 2003, was $30,444,000
as compared to $12,274,000 for the same period in 2002. The overall increase in
cost of sales was primarily due to the increase in cost of materials as a result
of increased product sales and increased expenses related to the ramping up
production for upcoming new product introductions including, but not limited to,
additional personnel, supplies and training costs.

Gross Margin

The gross margin for the nine months ended September 30, 2003 was $11,545,000 as
compared to $3,841,000 for the same period in 2002. The increase in 2003 gross
margin was primarily due to higher revenues, higher margins on a number of
products, lower product returns, and improved plant capacity utilization,
partially offset by increased expenses related to the ramping up production for
upcoming new product introductions including, but not limited to, additional
personnel, supplies and training costs.

Research and Development Expenses

The research and development expenses for the nine months ended September 30,
2003, were $12,305,000 less reimbursement of $247,000 by TEVA under the
strategic alliance agreement signed in June 2001, as compared to $11,899,000
less reimbursement of $486,000 for the same period in 2002. The increase in 2003
research and development expenses as compared to the same period in 2002 was due
to higher legal expenses related to patents and alleged patent infringement
lawsuits and personnel costs.

Selling Expenses

The selling expenses for the nine months ended September 30, 2003, were
$1,552,000 as compared to $2,001,000 for the same period in 2002. The decrease
in selling expenses as compared to 2002 was primarily due to lower advertising,
and market research costs.

General and Administrative Expenses

The general and administrative expenses for the nine months ended September 30,
2003, were $6,526,000 as compared to $6,193,000 for the same period in 2002. The
increase in 2003 general and administrative expenses as compared to 2002 was
primarily due to higher personnel costs, professional fees, and insurance
premiums.

Interest Income

Interest income for the nine months ended September 30, 2003, was $199,000 as
compared to $540,000 for the same period in 2002, primarily due to lower average
cash equivalents and lower interest rates.

Interest Expense

Interest expense for the nine months ended September 30, 2003, was $738,000 as
compared to $1,304,000 for the same period in 2002. This decrease in interest
expense was due to the elimination of the interest accrual on the refundable
deposit with TEVA. The interest expense in 2003 relates to the two Cathay Bank
loans and the revolving credit facility and term loan agreement signed with
Congress Financial in October 2002. The following table summarizes the activity
for the nine months ended September 30, 2003 and 2002:

(in $000s) 2003 2002
-------- --------

Interest expense $ 738 $ 384
Interest on refundable deposit - 1,314
Less: amount capitalized - (394)
-------- --------
Total interest expense $ 738 $ 1,304
-------- --------

Net Loss

The net loss for the nine months ended September 30, 2003, was $9,105,000 as
compared to $16,569,000 for the same period in 2002. The decrease in net loss
was primarily due to higher revenues, which was partially offset by increases in
research and development, and operating expenses.

Liquidity and Capital Resources

As of September 30, 2003, we had $22,482,000 in cash and cash equivalents.

The net cash provided by financing activities for the nine months ended
September 30, 2003, was approximately $25,149,000, consisting of the $23,298,000
net proceeds from a private placement of common stock and warrants, and proceeds
of $433,000 from issuance of common stock upon exercise of stock options and
warrants, and net borrowings of $1,418,000 from the Congress Financial credit
facility.

Our capital expenditures for the nine months ended September 30, 2003 were
$3,063,000 as compared to $12,653,000 for the same period in 2002 when we
completed our new production facility in Hayward, California. We expect our 2003
capital expenditures to approximate $5 million as compared to $15 million in
2002.

Net cash of $9,823,000 was used by operating activities during the nine months
ended September 30, 2003, which was primarily the result of inventory buildup of
$9,385,000 and an increase of accounts receivable of $1,375,000, partially
offset by increases in accounts payable, accrued expenses and other current
liabilities of $7,174,000.

In October 2002, we signed a three-year, $25 million Loan and Security Agreement
with Congress Financial Corporation, comprised of a revolving loan of up to
$20,500,000, and a term loan of up to $4,500,000. The revolving loan is
collateralized by eligible accounts receivable and inventory, subject to
sublimits and other terms, and the term loan is collateralized by machinery and
equipment, with a 60-month amortization. In addition, a $10 million restricted
cash account was established as collateral for this credit facility to be
reduced based on meeting certain profitability targets. The interest rates for
the revolving loans range from prime rate plus 1% to 1.75%, or Eurodollar rate
plus 3% to 3.75%, at our option, based on excess availability. The term loan has
an interest rate of prime rate plus 1.5%, or Eurodollar rate plus 4%, at our
option. As of September 30, 2003, we borrowed approximately $5,195,000 against
the revolving credit line and $3,495,000 against the term loan. The revolving
credit facility and the term loan agreement have a number of quarterly covenants
primarily covering Minimum Tangible Net Worth, and either EBITDA or excess
availability and annual capital expenditures limit of $8 million. At September
30, 2003, all the bank loan covenants were met.

The $8.5 million refundable deposit from Teva, less any forgiven amounts upon
IMPAX's attainment of certain milestones, if any, is due and payable on January
15, 2004, in cash or equity at our discretion. As previously indicated in Note
1, as of September 30, 2003, we believe that up to $8.5 million may be forgiven
prior to January 15, 2004, although there is no assurance that any of the $8.5
million may be ultimately forgiven. These milestone events, if achieved, will
represent the culmination of a separate earnings process. We currently plan to
repay the refundable deposit in stock. Accordingly, we have classified the
refundable deposit as long-term in the accompanying balance sheet as of
September 30, 2003. The price of the common stock for purposes of repaying any
amounts owed under the loan will be the average closing sale price of our common
stock measured over a ten-trading-day period ending two days prior to the
transaction. However, if any of the shares we issue to Teva as repayment of the
loan will cause Teva to own in excess of 19.9% of our outstanding common stock,
we will have to repay the portion of the loan in excess of 19.9% in cash. In
September 2003, we issued 888,918 shares of common stock to Teva, paying $13.5
million of the original $22 million refundable deposit. As of September 30,
2003, to our knowledge, Teva owns 2,351,001 shares of IMPAX common stock, or
approximately 4.4% of the outstanding common stock. If we repay some or all of
the $8.5 million remaining deposit in stock, such payment will result in
dilution. If we repay the remaining balance in cash, we may seek additional
sources of liquidity to fund such payment, discussed below.

We have no interest rate or derivative hedging contracts and material foreign
exchange or commodity price risks. We are also not party to any
off-balance-sheet arrangements, other than operating leases.

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

Although our existing cash and cash equivalents are expected to decline during
2003, we believe that our existing cash and cash equivalent balances, together
with our revolving line of credit, will be sufficient to meet our operational
plan for the next twelve months. We may, however, seek additional financing
through strategic alliances and/or equity or debt markets to repay the Teva

deposit, if required, and to fund our research and development plans, fund
opportunities for growth, and potential revenues shortfall due to delays in new
products introduction. However, we may be unable to obtain such financing.

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 retain any
earnings for the operation and expansion of our business. Our loan agreements
and our strategic agreement with Teva prohibit the payment of dividends without
the other party's consent.

Recent Accounting Pronouncements

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

Company has adopted the disclosure provisions for the current fiscal year and
has included this information in Note 1 to the Company's financial statements.

Major Operational Highlights for the Nine Months Ended September 30, 2003

o On January 27, 2003, Abbott Laboratories filed a lawsuit against the
Company in the federal district court of Delaware alleging patent
infringement related to IMPAX's filing of an ANDA for a generic version of
the cholesterol drug Tricor(R) Tablets. Tricor is a treatment for very high
serum triglyceride levels. U.S. sales of Tricor Tablets were approximately
$550 million for the twelve months ended August 31, 2003, according to
NDCHealth.

o On January 30, 2003, the FDA granted final approval to the Company's
Abbreviated New Drug Application (ANDA) for a generic version of Rilutek(R)
(Riluzole 50mg) tablets. Aventis markets Rilutek for the treatment of
amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig's disease.
Approval followed the expiration of Aventis' Orphan Drug Exclusivity on
December 12, 2002. According to NDCHealth, U.S. sales of Rilutek were $31.4
million for the twelve months ended August 31, 2003.

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

o Also in January 2003, following final approval from FDA and under the terms
of a non-exclusive Licensing Contract Manufacturing and Supply Agreement,
we commenced shipping the generic version of Claritin-D 12-hour (loratadine
and pseudoephedrine sulfate) 5mg/120mg Extended Release Tablets to
Schering-Plough Corporation. Schering-Plough launched its OTC Claritin-D
12-hour in March 2003. Shipments to Wyeth under our Development, License
and Supply Agreement with them started in late March. Wyeth launched this
product in mid-May as Alavert(TM) D12.

o In February 2003, Merck & Co., Inc. filed a lawsuit against the Company in
the federal district court in Delaware alleging patent infringement related
to IMPAX's filing of an ANDA for a generic version of Sinemet(R) CR
Tablets. Sinemet CR is used to treat patients with Parkinsonism. U.S. sales
of Sinemet CR and the currently marketed generic equivalent were
approximately $86 million in the twelve months ended August 31, 2003,
according to NDCHealth. In April 2003, Merck & Co., Inc. withdrew its
lawsuit alleging patent infringement related to our filing of the ANDA for
a generic version of Sinemet CR Tablets.

o On March 28, 2003, U.S. District Court in Chicago ruled that our
Fenofibrate Capsules, a generic form of Tricor(R) Micronized Capsules, does
not infringe Abbott Laboratories' patent on this product. Tricor is
marketed for the treatment of hypercholesterolemia and
hypertriglyceridemia. According to NDCHealth, U.S. sales of the capsule
form of the lipid-regulating agent were approximately $1.4 million for the
twelve months ending August 31, 2003, as Abbott converted usage to the
tablet form prior to the availability of generic capsules. On October 27,
2003, the FDA granted final approval to the Company's ANDA for the
Fenofibrate Capsules.

o On April 28, 2003, the FDA granted approval to the Company's ANDA for a
generic version of Mestinon(R) (Pyridostigmine Bromide) 60mg Tablets. ICN
Pharmaceuticals, Inc. markets Mestinon for symptomatic treatment of
myasthenia gravis. Myasthenia gravis is a neuromuscular disorder primarily
characterized by muscle weakness and rapid muscle fatigue. According to
NDCHealth, U.S. sales of Mestinon were $18.8 million for the twelve months
ended August 31, 2003.

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

o On May 28, 2003, the FDA accepted our filing of an ANDA for a generic
version of Wellbutrin SR(R) (Bupropion Hydrochloride) 200mg Tablets.
GlaxoSmithKline markets Wellbutrin SR for the treatment of depression. U.S.
sales of Wellbutrin SR 200mg Tablets were approximately $200.3 million in
the twelve months ended August 31, 2003, according to the NDCHealth.

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

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

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

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

o On August 29, 2003, IMPAX Laboratories, Inc. announced that the U.S. Food
and Drug Administration (FDA) has granted approval to the Company's
Abbreviated New Drug Application (ANDA) for a generic version of Urispas(R)
(Flavoxate Hydrochloride) 100mg tablets. Ortho McNeil Pharmaceutical, Inc.
markets Urispas for the symptomatic relief of various urinary tract
conditions including dysuria, urgency, nocturia, suprapubic pain, frequency
and incontinence as may occur in cystitis, prostatitis, urethritis,
urethrocystitis and urethrotrigonitis. According to NDCHealth, U.S. sales
of Urispas were $8 million for the twelve months ended August 31, 2003.

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

o On September 5, 2003, IMPAX Laboratories, Inc. announced that the FDA
granted tentative approval to the Company's ANDA for a generic version of
OxyContin(R) (Oxycodone Hydrochloride) Controlled Release Tablets, 80mg.
Purdue Pharma markets OxyContin for the management of moderate to severe
pain. According to NDCHealth, U.S. sales of OxyContin Controlled Release
Tablets, 80mg were $596 million for the twelve months ended August 31,
2003.

o On September 9, 2003, IMPAX Laboratories, Inc. announced that Alza
Corporation, a Johnson & Johnson unit, had filed a lawsuit against the
Company in the United States District Court, Northern District of
California alleging patent infringement related to IMPAX's filing of an
ANDA for a generic version of Ditropan(R)XL (Oxybutynin Chloride) Tablets,
15mg. Ditropan XL Tablets are used for the treatment of overactive bladder
with symptoms of urge urinary incontinence, urgency, and frequency.
According to NDCHealth, U.S. sales of Ditropan XL Tablets, 15mg were $46
million for the twelve months ended August 31, 2003. Additionally, IMPAX
has filed for generic versions of Ditropan XL Tablets, 5mg and 10mg, whose
U.S. sales were $306 million for the twelve months ended August 31, 2003,
according to NDCHealth.

o On September 30, 2003, the Company announced that the FDA granted approval
to the Company's ANDA for a generic version of Claritin(R) Reditabs(R)
(Loratadine Orally Disintegrating Tablets) 10mg. Schering Plough
Corporation markets Claritin Reditabs as an OTC drug for the relief of
symptoms of seasonal allergic rhinitis (hay fever). According to NDCHealth,
U.S. sales of Claritin Reditabs were over $147 million for the twelve
months ended August 31, 2003.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company's investment portfolio consists of cash and cash equivalents and
marketable securities stated at cost which approximates market value. The
primary objective of the Company's investment activities is to preserve
principal while, at the same time, maximize yields without significantly
increasing risk. To achieve this objective, the Company maintains its portfolio
in a variety of high credit quality securities, including U.S. Government
securities, treasury bills, short-term commercial paper, and highly rated money
market funds. One hundred percent of the Company's portfolio matures in less
than one year. The carrying value of the investment portfolio approximates the
market value at September 30, 2003. The Company's debt instruments at September
30, 2003, are subject to fixed interest rates and principal payments. We believe
that the fair value of our fixed rate long-term debt and refundable deposit
approximates their carrying value of approximately $18 million at September 30,
2003. While changes in market interest rates may affect the fair value of our
fixed rate long-term debt, we believe the effect, if any, of reasonably possible
near-term changes in the fair value of such debt on the Company's financial
statements will not be material.

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

ITEM 4. CONTROLS AND PROCEDURES

The Company, under the supervision and with the participation of our management,
including our principal executive officers and our principal financial officer,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures 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 are
effective in reaching a reasonable level of assurance that information required
to be disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized, and reported within the
time period specified in the Securities and Exchange Commission's rules and
forms. The Co-CEOs and CFO also conducted an evaluation of internal control over
financial reporting ("Internal Control") to determine whether any changes in
Internal Controls occurred during the quarter that have materially affected, or
which are reasonably likely to materially affect, Internal Controls.

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

PART II - OTHER INFORMATION
- ----------------------------

ITEM 1. LEGAL PROCEEDINGS

Patent Litigation

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

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

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

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

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

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

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

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

created "in situ" by some reaction between elements of the "core" and an enteric
coating. The court held that the formulations employed by Andrx, Genpharm, and
Cheminor met these patent requirements as well, and that these three First Wave
defendants thus infringed both the '505 and '230 patents.

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

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

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

In December 2002, following proceedings before a Special Master appointed to
supervise discovery in the case, the trial court entered a new scheduling order
governing pre-trial proceedings relating to the six Second Wave defendants,
including IMPAX. The timing of further proceedings in this litigation may be
adversely affected by the appellate proceedings that have been commenced by
AstraZeneca and several of the First Wave Defendants. Under the scheduling order
entered by the court, discovery and pretrial proceedings have already commenced,
with the parties exchanging additional document requests and interrogatories.
Depositions of fact witnesses commenced on February 15, 2003 and, under the
scheduling order, are expected to be completed in the fourth quarter of 2003.
Expert discovery will occur thereafter and is expected to end early in 2004.

Under the scheduling order, any further Motions for Summary Judgment cannot be
filed until after completion of all fact discovery. IMPAX may well file a Motion
for Summary Judgment of non-infringement following the close of discovery. If
the case is not resolved by Summary Judgment, the case involving IMPAX will be
returned to the U.S. District Court in Delaware for trial. A possibility exists
that the case will be transferred back to New York for a consolidated trial
before the same judge who decided the First Wave cases. Trial will commence as
soon as practicable thereafter. If IMPAX does not file a Motion for Summary
Judgment or if such a motion is denied, IMPAX will press the court to schedule a
date for trial of the case in early 2004, but no assurance can be given that
trial will commence at any particular time. IMPAX believes, however, that any
trial that might be scheduled in the case will commence no later than the first
half of 2004. IMPAX is vigorously defending the action brought by AstraZeneca.
IMPAX's defense of the action was being conducted under an insurance policy
issued by AIG, which pays a portion of the costs of IMPAX's defense of
AstraZeneca's suit (see "Insurance" below). In March, 2001, AstraZeneca advised
all of the defendants in the multidistrict litigation that four new patents had
been added to the FDA's Orange Book as Omeprazole patents. IMPAX filed Paragraph
IV certifications asserting that, to its knowledge, its Omeprazole 10mg, 20mg,
and 40mg Delayed Released Capsules will not infringe valid claims of the four
newly listed patents. The forty-five (45) day period for AstraZeneca to file
suit against IMPAX under the four patents expired on August 6, 2001. AstraZeneca
did not file suit on these patents against IMPAX or any other generic company
that filed Paragraph IV certifications for these patents.

In August 2003, the court issued an order dismissing four of the
patents-in-suit, three with prejudice. On September 30, 2003, as a result of the
court's dismissal, AstraZeneca served each of the Second Wave defendants,
including IMPAX, with an amended complaint. IMPAX has filed an answer to the
amended complaint (10mg and 20mg, not yet the 40mg) in which we have asserted a
new counterclaim based upon antitrust motions. The counterclaim will be severed,
and proceedings relating to it will be stayed until after trial of the patent
infringement case.

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

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

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

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

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

In March 2002, Judge Darrah granted Novopharm's Motion for Summary Judgment of
Non-Infringement. The grounds for finding non-infringement by Novopharm were
directly applicable to IMPAX. IMPAX filed its own Motion for Summary Judgment of
Non-Infringement before Judge Gottschall, the judge who is presiding over the
IMPAX case. In March 2003, the Court of Appeals for the Federal Circuit affirmed
the grant of Novopharm's Motion for Summary Judgment of Non-Infringement.
Shortly thereafter, Judge Gottschall granted IMPAX's Motion for Summary Judgment
of Non-Infringement.

Abbott and Fournier have filed a petition requesting a rehearing before the
Federal circuit in its appeal in the Novopharm case. This petition was denied,
and on July 11, 2003, the complaint was dismissed with prejudice.

GlaxoSmithKline (Glaxo) v. IMPAX: The Bupropion Cases

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

All parties attended a Status Conference in July 2001 to discuss the need for a
Markman (claim construction) Hearing. IMPAX was successful in convincing the
Court that a Markman Hearing was unnecessary because there was no literal
infringement and no dispute regarding the Claim Construction proffered by Glaxo.
Instead, IMPAX advocated that our Summary Judgment Motion, based upon
prosecution history estoppel grounds, be calendared for oral argument. The
parties completed the briefing on this issue and oral argument was held on
November 19, 2001. At the request of the Court, in July 2002, both sides
submitted briefs on the impact of the recent Supreme Court decision in Festo v.
Shoketsu Kinzoku Kogyo Kabushi Co., et al. to the pending Motion for Summary
Judgment. An additional Motion for Summary Judgment was brought in early August
2002, requesting Judge Patel apply the District Court for the Eastern District
of Virginia's decision limiting the scope of the '798 patent in the Glaxo v.
Excel case to IMPAX's ANDA formulation.

On August 21, 2002, Judge Patel granted IMPAX's motions for Summary Judgment,
stating that "prosecution estoppel bars infringement by equivalents throughout
the '798 patent." Glaxo has appealed Judge Patel's decision to the Court of
Appeals for the Federal Circuit and that appeal was fully briefed on January 22,
2003. Some of the defense costs in this litigation were covered under an
insurance policy issued by AIG (see "Insurance" below). Oral argument was heard
on June 2, 2003 and IMPAX is currently awaiting a decision from the Court of
Appeals.

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

Schering-Plough Corporation v. IMPAX: The Loratadine Cases

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

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

On February 1, 2001, Schering-Plough sued IMPAX in the United States District
Court for the District of New Jersey (Case No. 01-0520), alleging that IMPAX's
proposed Loratadine and Pseudoephedrine Sulfate 12-hour Extended Release
Tablets, containing 5mgs of loratadine and 120mgs of pseudoephedrine sulfate,

infringe claims of the '716 patent. Schering-Plough has sought to enjoin IMPAX
from obtaining approval to market its 12-hour extended release tablets until the
'716 patent expires in 2004. Schering-Plough has also sought monetary damages
should IMPAX use, sell, or offer to sell its loratadine product prior to the
expiration of the '716 patent. IMPAX filed its Answer to the Complaint on
February 27, 2001 and has denied that it infringes any valid or enforceable
claim of the '716 patent.

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

Fact discovery and expert discovery on issues related to the '716 patent have
ended. In accordance with the schedule set by the Court, the parties filed
Initial Dispositive Motions on issues related to the '716 patent on October 31,
2001 - and these motions were fully briefed December 2001. Oral argument on two
of the Dispositive Motions took place before Judge Bissell on June 26, 2002. On
August 8, 2002, Judge Bissell granted Defendants' Motion for Summary Judgment
that Claims 1 and 3 of the '716 Patent are inherently anticipated by
Schering-Plough's '233 Patent and denied Schering-Plough's Motion for Summary
Judgment on Defendants' inherent anticipation defenses and counterclaims. The
Court held that Claims 1 and 3 of the '716 patent - the claims of that patent
that Schering-Plough asserted against IMPAX in Case Nos. 01-0009, 01-0279,
01-0520 - are invalid. Schering-Plough has appealed Judge Bissell's decision to
the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit heard
oral argument on Schering's appeal on April 8, 2003. On August 1, 2003, the
Court of Appeals for the Federal Circuit in Washington, D.C. upheld the lower
court decision that ruled against certain claims by Schering-Plough of the '716
patent in litigation relating to the antihistamine product Claritin(R)
(loratadine). On August 15, 2003, Schering-Plough filed a combined Petition for
Panel Rehearing and Rehearing ENBanc. The Federal Circuit requested a brief from
Appellees in response to Schering's petition which was filed on September 30,
2003. On October 28, 2003, the Court of Appeals denied Schering's petition for
Panel Rehearing and Rehearing ENBanc.

In Case No. 01-0009, fact discovery on the '697 patent is completed and expert
discovery on the '697 patent was completed on January 24, 2003. IMPAX served a
dispositive motion on issues related to the '697 patent on May 5, 2003. The
motion is fully briefed and was filed with the court on September 4, 2003. The
defense costs in this litigation were, thus far, covered under an insurance
policy issued by AIG (see "Insurance" below).

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

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

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

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

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

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

On July 23, 2003, IMPAX filed Summary Judgment motions for non-infringement of
United States Patent Numbers 6,039,974; 6,113,942; and 5,855,912; and for
non-infringement and invalidity of United States Patent Number 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 five page brief
discussing the impact of the recent Festo decision on their Motions for Summary
Judgment of non-infringement. Oral argument for the Summary Judgment Motion
regarding the '912, '942, and '974 patents is scheduled for November 3, 2003.
Oral argument for the Summary Judgment Motion regarding the '872 patent is
scheduled for December 8, 2003.

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

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

Purdue previously sued Boehringer Ingelheim/Roxane, Endo and Teva on the same
patents. It is likely that one or more of these other defendants will resolve
the invalidity issues surrounding the Purdue patents prior to IMPAX going to
trial. The Boehringer Ingelheim/Roxane suit is stayed. The Endo action was tried
in June; post trial briefs have been filed, and the decision is pending.

These are patent infringement actions relating to IMPAX's Abbreviated New Drug
Application (ANDA) for approval to market generic versions of Purdue's
OxyContin(R). All three actions are in their early stages. We are contesting
these patent infringement actions vigorously. While it is difficult to predict
the outcome of litigation, especially hotly contested litigations such as these,
we believe that IMPAX has a solid position and is likely to prevail. Due to the
nature of ANDA patent litigation, monetary damages cannot be awarded against
IMPAX merely for filing the ANDA. If IMPAX lost all these actions and, in
addition, was found to have willfully infringed Purdue's patents, IMPAX could be
liable for Purdue's attorneys' fees.

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

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

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

The trial commenced on October 28, 2003. IMPAX is pursuing its assertions that
claims of the '814 patent are invalid in view of prior art and are unenforceable
in view of inequitable conduct committed during the prosecution of the patent
before the U.S. Patent & Trademark Office.

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

Abbott Laboratories v. IMPAX: The Fenofibrate Tablet Cases

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

In March 2003, Abbott and Fournier filed a second action against IMPAX in the
same court making the same claims against IMPAX's 54mg Fenofibrate tablets. Both
actions seek an injunction preventing IMPAX from marketing its fenofibrate
tablet products until the expiration of the patents and an award of damages for
any commercial manufacture, use, or sale of IMPAX's fenofibrate tablet product,
together with costs and attorney fees.

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

IMPAX has responded to the complaints by asserting that its proposed generic
fenofibrate tablet product does not infringe the patents-in-suit and by
asserting that the patents-in-suit are invalid.

In April 2003, the court ordered the consolidation of the two IMPAX cases and
entered a schedule in which trial of the consolidated cases would occur in the
first quarter of 2005.

In September 2003, Abbott and Fournier filed a third suit against IMPAX in the
United States District Court in Wilmington, Delaware, claiming that IMPAX's
submission of its ANDA for 54 and 160mg fenofibrate tablets constitutes
infringement of a third patent recently issued to Fournier and exclusively
licensed to Abbott. It is expected that the newly filed action will be
consolidated with the pending action.

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

On February 24, 2003, Merck & Co., Inc. filed a lawsuit against the Company in
the United States District Court in Delaware alleging patent infringement
related to IMPAX's filing of an ANDA for a generic version of Sinemet CR
Tablets.

On April 8, 2003, Merck & Co., Inc. withdrew its lawsuit alleging patent
infringement related to our filing of the ANDA for a generic version of
Sinemet(R)CR Tablets

Solvay Pharmaceuticals v. IMPAX: The Creon(R) Case

On April 11, 2003, Solvay Pharmaceuticals, Inc., manufacturer of the Creon(R)
line pancreatic enzyme products, brought suit against the Company in the U.S.
District Court for the District of Minnesota claiming that the Company has
engaged in false advertising, unfair competition, and unfair trade practices
under federal and Minnesota law in connection with the Company's marketing and
sale of its Lipram products. The suit seeks actual and consequential damages,
including treble damages, attorneys' fees, injunctive relief and declaratory
judgments that would prohibit the substitution of Lipram for prescriptions of
Creon. On June 6, 2003, IMPAX filed a Motion for Dismissal of Plaintiff's
Complaint, which seeks to dismiss every count of Solvay's complaint. Oral
argument on that Motion is set for November 7, 2003. The Company believes the
allegations are without merit and intends to defend this suit vigorously.

Alza Corporation v. IMPAX: The Oxybutynin Case

On September 9, 2003, Alza Corporation filed a lawsuit against the Company in
the United States Northern District of California alleging patent infringement
related to Impax's filing of an ANDA for a generic version of Ditropan XL
(Oxybutynin Chloride) Tablets, 5mg, 10mg, and 15mg. Alza seeks an injunction, a
declaration of infringement, attorney's fees and costs.

State of California v. IMPAX

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

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

Insurance

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

Product liability claims by customers constitute a risk to all pharmaceutical
manufacturers. We carry $10 million of product liability insurance for our own
manufactured products. This insurance may not be adequate to cover any product
liability claims to which we may become subject.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Please see Item 1 Financial Information - Notes to Financial Statements - Note
1, for information regarding the issuance of 888,918 shares of common stock to
Teva, paying $13.5 million of the original $22.0 million refundable deposit.
These shares were issued to Teva without registration under the Securities Act
of 1933, as amended, in reliance upon the exemption from registration provided
by Section 4(2) of the Securities Act of 1933.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

o 10.1 - Exclusivity Transfer Agreement with Andrx and TEVA.
(Confidential treatment requested for certain
portions of this Exhibit pursuant to Rule 24b-2
under the Securities Exchange Act of 1934, as
amended, which portions are omitted and filed
separately with the Securities and Exchange
Commission.)

o 31.1 - Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

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

(b) Reports

o On July 28, 2003, the Company furnished a report on Form
8-K (Item 9) announcing earnings for the second quarter
ended June 30, 2003.

o On July 31, 2003, the Company furnished a report on Form
8-K (Item 9) enclosing a press release announcing that
IMPAX has entered into an Exclusivity Transfer Agreement
with Andrx Corp. and Teva Pharmaceutical Industries Ltd.
pertaining to pending ANDAs for bioequivalent versions of
Wellbutrin SR(R) and Zyban (Bupropion Hydrochloride) 100mg
and 150mg Extended Release Tablets filed by Andrx, as well
as by the Company.

o On September 5, 2003, IMPAX furnished a report on Form 8-K
(Item 9) enclosing a press release announcing that the FDA
had granted tentative approval for the Company's ANDA for
a generic version of OxyContin(R) (Oxycodone
Hydrochloride) Controlled Release Tablets, 80mg.

o On September 9, 2003, IMPAX furnished a report on Form 8-K
(Item 9) enclosing a press release announcing that Alza
Corporation, a unit of Johnson & Johnson, had commenced
litigation against the Company in the United States
District Court, Northern District of California, related
to the Company's generic version of Ditropan XL
(Oxybutynin Chloride) Tablets, 15mg.

o On September 25, 2003, the Company filed a report on Form
8-K (Item 4) announcing that IMPAX dismissed PWC LLP as
its independent accountants.

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

SIGNATURES

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

IMPAX LABORATORIES, INC.

By: /s/ BARRY R. EDWARDS November 14, 2003
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Co-Chief Executive Officer
(Principal Executive Officer)

By: /s/ CORNEL C. SPIEGLER November 14, 2003
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Chief Financial Officer
(Principal Financial and Accounting Officer)