GLOBAL PHARMACEUTICAL CORP \DE\ - 10-K Annual Report

Back to GetFilings.com

U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB

[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1997
-----------------

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ___________ to ___________

Commission file number 33-99310-NY
Global Pharmaceutical Corporation
---------------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 65-0403311
------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

Castor & Kensington Aves., Philadelphia, PA 19124-5694
------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

(215)289-2220
-----------------------------------------------------------
(Issuer's Telephone Number, Including Area Code) Securities
registered under Section 12(b) of the Exchange Act:

Title of Each Class Name of Each Exchange on Which Registered
None None
------------ ------------

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $.01 par value per share
--------------------------------------
(Title of class)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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__

Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]

State issuer's revenues for its most recent fiscal year $427,000.

The aggregate market value of voting stock held by non-affiliates of
the registrant as of March 9, 1998 (based on the closing price for such shares
on March 9, 1998 as reported by NASDAQ and the assumption for this computation
only that all directors and executive officers of the registrant are affiliates)
was $16,494,299.

As of March 9, 1998, the number of shares outstanding of each of the
issuer's classes of common equity was 4,286,871 shares of common stock, ($.01
par value per share).

Transitional Small Business Disclosure Format (check one) Yes_ No X

Registrant's Proxy Statement to be filed with the Securities and
Exchange Commission in connection with solicitations of proxies for Registrant's
1998 Annual Meeting of Stockholders scheduled to be held on May 12, 1998 is
incorporated by reference in Part III, Items 9, 10, 11 and 12 of this Form
10-KSB.

PART I

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

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

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

Item 1. Description of Business

Introduction

Global Pharmaceutical Corporation (the "Company" or "Global") is engaged
principally in the manufacture and sale of solid oral generic prescription and
over-the-counter ("OTC") drugs. The Company currently owns 54 previously
manufactured and marketed Abbreviated New Drug Applications ("ANDAs"), New Drug
Applications ("NDAs") and New Animal Drug Applications ("NADAs"), more than 100
previously manufactured and marketed prescription and OTC formulations not
subject to ANDA approval by the United States Food and Drug Administration
("FDA"), and a renovated 113,000 square foot manufacturing facility (the
"Facility") located in Philadelphia, Pennsylvania. Each ANDA, NDA and NADA
represents the governments permission to manufacture a specific drug product
pursuant to specified processes at a specified location. In July 1997, the
Company received notification from FDA indicating the company's compliance with
current good manufacturing practices ("cGMPs"). The Company commenced operations
in the fourth quarter of fiscal 1997, with the manufacturing and sale of
Global's Tetracycline Hydrochloride 250 mg and 500 mg capsules. The Company was
incorporated in Delaware in 1995

The Company's strategic policy is to develop a broad product line composed
of solid oral (tablets and capsules) prescription and over-the-counter generic
drugs, various products that require isolation during their production, narcotic
and other drug products that are heavily regulated by the United States Drug
Enforcement Agency ("DEA") and dietary supplements. In August 1997, the Company
received approval from DEA to manufacture Class II through V controlled
substance products. The Company also intends to seek to develop or license
certain brand name pharmaceutical products. Although most of the Company's
products are expected to be dedicated to the treatment of humans, some products
may also be for the treatment of animals.

Many of the generic drugs the Company will initially produce as well as
those planned for future production are targeted at niche markets characterized
by few, if any, generic competitors. The Company also plans to manufacture and
sell drugs that are regulated by DEA such as narcotics, barbiturates and certain
tranquilizers, as well as certain products that require isolated manufacturing
facilities, which the Company has provided by refurbishing and equipping a part
of its existing facility and adding a large vault.

In addition, the Company intends to expand its line of generic products
through a combination of a research and development program that is expected to
result in new products owned by the Company, as well as the licensing of
additional products owned by others. Generally, it is important that a new
generic product be approved by FDA for marketing by, or shortly after, the
patent expiration date of the equivalent brand name drug (plus any
legislatively-granted extensions) in order to gain significant market share at
attractive profit margins. As more generic products compete in the same market,
which customarily occurs increasingly over time following the brand name
product's patent expiration date (and extensions, if any), unit prices and
profit margins decrease. As the development of a new generic drug product,
including its formulation, testing and FDA approval, generally currently takes
approximately three or more years, development activities may begin several
years in advance of the

1

patent expiration date of the brand name drug equivalent. Consequently, the
Company may select drugs for development several years in advance of their
anticipated entry to market.

The Company intends to enter larger, more competitive generic markets at
such times as it believes it can effectively compete in those markets.
Positioning itself to effectuate this strategy, in January 1997, the Company
entered into an agreement (the "Genpharm Agreement") with Genpharm, Inc.
("Genpharm"), a Canadian corporation and an indirect subsidiary of Merck KGaA, a
German corporation, pursuant to which the Company shall supply packaging with
respect to Genpharm's United States Ranitidine Form I ("Ranitidine") production
requirements based on a five-year cost-plus and percentage of profits
compensation arrangement, commencing on August 27, 1997, the day Genpharm
received ANDA approval for Ranitidine from FDA. Ranitidine is the generic
equivalent of Glaxo Wellcome plc's ("Glaxo") patented prescription drug
Zantac(R). Genpharm is currently shipping Ranitidine into the U.S. market,
however, no revenue has been recognized by the Company through December 31, 1997
due to certain contract provisions.

In addition to the packaging of Ranitidine, the Genpharm Agreement
provides the Company with the opportunity to develop products that are marketed
outside the U.S. with the assistance of Merck KGaA. Development is currently
under way with respect to the two products previously selected, with one ANDA
having been filed in January 1998 and the second ANDA anticipated to be filed by
the Company by the end of the first quarter of 1998.

Also, in August 1997 the Company signed two exclusive ten-year licensing
agreements with Eurand America ("Eurand"), a unit of American Home Products, an
international drug company that specializes in oral drug delivery. One agreement
provides for Eurand to supply the Company with a specified dosage of
Pancrelipase, a pancreatic enzyme used primarily by cystic fibrosis patents to
aid in digestion, for the generic market. The second agreement provides for
Eurand to develop and manufacture for Global, on an exclusive basis, several
Pancrelipase products using a new Eurand technology, and grants to the Company
an exclusive ten-year license to market and sell the products in the United
States subject to minimum sales levels. Currently, the Company is marketing
Pancrelipase 4500 USP Lipase content product.

Following the FDA's determination that Global's Tetracycline Hydrochloride
250 mg and 500 mg capsules had been validated, the Company commenced operations
during the fourth quarter of fiscal 1997. During the period January 1, 1998
through February 28, 1998, the Company reintroduced two of its ANDA products:
Chloroquine Phosphate 250 mg tablets, an antimalarial medication, and
Methyltestosterone 25 mg tablets, an androgenic steroid, and one ANDA exempt
product, Guaifenesin Pseudoephedrine ER 600 mg/120 mg tablets, a cold and cough
product. In March 1998, the Company reintroduced the Methyltestosterone 10 mg
tablets.

During the second half of 1997, the Company completed the sale of
approximately $6.3 million of its Preferred Stock. All of the shares of the
Company's common stock into which the Preferred Stock is convertible
(approximately 2.3 million shares of common stock, at March 16, 1998) was
subsequently registered for resale under the U.S. federal securities laws.

FDA Approval of Products

Among Global's assets are 54 approved applications acquired from Richlyn
Laboratories, Inc. ("Richlyn"). Richlyn ceased operations as a generic drug
manufacturer and distribution in 1992 for failure for comply with FDA
regulations pertaining to cGMPs. In order to distribute these products, the
Company must demonstrate the validity of its manufacturing processes. This
effort entails the manufacture and testing of multiple batches under highly
exacting standards. On July 11, 1997, the Company was notified that, following
an inspection, FDA had determined that Global's Tetracycline Hydrochloride 250
mg capsules had been validated; upon the subsequent determination by FDA that
sufficient data were available to assign an expiration date to this product's
label, the Company began shipping the product in September 1997. On December 12,
1997, the Company was notified that, following an inspection, FDA had determined
that Global's Tetracycline Hydrochloride 500 mg capsules had been validated;
upon the subsequent determination by FDA that sufficient data were available to
assign an expiration date to the product's label, the Company began shipping the
product in December 1997. On January 12, 1998, the Company was notified that,
following an inspection, FDA had determined that Global's Chloroquine Phosphate
250 mg tablets had been validated and, in addition, FDA had no objections to the
Company marketing Methyltestosterone 25 mg tablets. Global began shipping both
products in January 1998. Since Global commenced operations, FDA has routinely
inspected and approved the work necessary for each of Global's product
introductions. On January 29, 1998, FDA informed the Company that
product-by-product inspection and prior authorization would no longer be
required for the Company to manufacture and ship products in interstate
commerce.

2

Products and Product Development

The Company's policy is to develop a broad product line composed of solid
oral (tablets and capsules) prescription and over-the-counter generic drugs,
various products that require isolation during their production, narcotic and
other drug products that are heavily regulated by DEA and dietary supplements.
The Company also intends to seek to develop or license certain brand name
pharmaceutical products. Although most of the Company's products are expected to
be dedicated to the treatment of humans, some products may also be for the
treatment of animals.

The Company also plans to manufacture and sell drugs that are regulated by
DEA such as narcotics, barbiturates and certain tranquilizers, as well as
certain products that require isolated manufacturing facilities, which the
Company has provided by refurbishing and equipping a part of its existing
facility. DEA regulations generally deal with the storage and dissemination of
certain drugs and related raw materials and are designed to protect the security
of those products and their dissemination against receipt by unauthorized
persons. The Company believes that the DEA regulations that will be applicable
to it will not materially increase the scope or expense of its regulatory
compliance requirements.

The Company acquired from Richlyn 54 ANDAs, NDAs and NADAs and more than
100 previously marketed prescription and OTC formulations including
pharmaceutical products not subject to FDA approval that were manufactured and
sold by Richlyn. The following table contains a list of all the Company's ANDAs,
NDAs and NADAs and sets forth certain additional information concerning each of
them:

The Company's ANDAs, NDAs and NADAs

Brand Name Dosage Form,
Equivalent(s)/ Administration Prescribed
Generic Product Name Manufacturer(s) and Strength Use(s)
- ----------------------------------------------------------------------------------------------------
Human Use Drugs:
- ----------------------------------------------------------------------------------------------------

CT
100mg and 200mg Bronchodilator
Aminophylline Aminophylline ECT 100mg Bronchodilator
Searle ECT 200 mg Bronchodilator
- ----------------------------------------------------------------------------------------------------
Chlordiazepoxide Librium HSC Tranquilizer
Roche 5, 10 and 25mg
- ----------------------------------------------------------------------------------------------------
Chloroquine Phosphate Aralen CT Anti-malarial
Sanofi 250mg
- ----------------------------------------------------------------------------------------------------
Cortisone Acetate Cortone CT Corticosteroid
MSD and Upjohn 25mg
- ----------------------------------------------------------------------------------------------------
Dexamethasone Decadron CT Corticosteroid
MSD 0.75mg
- ----------------------------------------------------------------------------------------------------
Diphenhydramine Benadryl HSC Antihistamine
Parke Davis and 25 and 50mg
Warner Chilcott
- ----------------------------------------------------------------------------------------------------
Ergocalciferol Drisdol SGC Vitamin D
Sanofi 1.25mg Rickets Treatment
- ----------------------------------------------------------------------------------------------------
Folic Acid Folvite CT Folic Acid
Lederle 1mg Supplement
- ----------------------------------------------------------------------------------------------------
Hydralazine HCL Apresoline CT Antihypertensive
Ciba Geigy 25 and 50mg
- ----------------------------------------------------------------------------------------------------
Hydrochlorothiazide Hydrodiuril CT Diuretic
MSD 25, 50 and 100mg
- ----------------------------------------------------------------------------------------------------
Hydrocortisone Hydrocortone Corticosteroid
MSD CT
Cortef 20mg
Upjohn
- ----------------------------------------------------------------------------------------------------
Isoniazid Nydrazid CT Anti-tuberculin
Apothecon 100mg
- ----------------------------------------------------------------------------------------------------
Meprobamate Miltown Tranquilizer
Wallace CT
Equanil 200 and 400mg
Wyeth Ayerst
- ----------------------------------------------------------------------------------------------------

3

(Table continued from previous page)

The Company's ANDAs, NDAs and NADAs

Brand Name Dosage Form,
Equivalent(s)/ Administration Prescribed
Generic Product Name Manufacturer(s) and Strength Use(s)
- ----------------------------------------------------------------------------------------------------
Human Drugs Continued:
- ----------------------------------------------------------------------------------------------------

Methocarbamol Robaxin CT Depressant for
American Home 500 and 750mg musculo-skeletal
disorders
- ----------------------------------------------------------------------------------------------------
Oreton, Testred, SLT 10mg
Methyltestosterone Android CT 10mg Androgenic
ICN Pharmaceutical CT 25mg Steroid
- ----------------------------------------------------------------------------------------------------
Niacin Nicolar Peripheral
Rhone Poulenc CT 500mg Vasodilator
Rorer Armour
- ----------------------------------------------------------------------------------------------------
Oxytetracycline HCL Terramycin HSC Antibiotic
Pfizer 250mg
- ----------------------------------------------------------------------------------------------------

Piperazine Citrate Vermidol CT Antihelmintic
Solvay 250mg
- ----------------------------------------------------------------------------------------------------
Prednisolone Meticortilone CT Corticosteroid
Schering 5mg
- ----------------------------------------------------------------------------------------------------
Prednisone Deltasone CT Corticosteroid
Upjohn 5mg
Orasone
Solvay
- ----------------------------------------------------------------------------------------------------
Probenecid & Colbenemid CT Uric Acid
Colchicine MSD 500mg Reducer
- ----------------------------------------------------------------------------------------------------
Promethazine Phenergan CT Antihistamine
Hydrochloride American Home 25mg
- ----------------------------------------------------------------------------------------------------
Propantheline Probanthine SCT Anticholinergic
Bromide Searle 15mg
- ----------------------------------------------------------------------------------------------------
Propoxyphene HCL Darvon 65 HSC Analgesic
Lilly 65mg
- ----------------------------------------------------------------------------------------------------
Propylthiouracil Propylthiouracil CT Anti-thyroid
Lederle 50 mg therapy
- ----------------------------------------------------------------------------------------------------
Pyrilamine Maleate (No brand) CT Antihistamine
25 mg
- ----------------------------------------------------------------------------------------------------
Quinidine Sulfate Quinidine Sulfate CT Cardiac
Parke Davis 200mg Arrhythmia
- ----------------------------------------------------------------------------------------------------
Rauwolfia Raudixin SCT Anti-
Serpentina Apothecon 50 and 100mg hypertensive
- ----------------------------------------------------------------------------------------------------
Reserpine Serpasil CT Anti-
Ciba Geigy 0.1 and 0.25mg hypertensive
- ----------------------------------------------------------------------------------------------------
Sulfadiazine Microsulfon CT Antibacterial
Consolidated Midland 500mg
- ----------------------------------------------------------------------------------------------------
Sulfa-Triple Terfonyl CT Antibacterial
Squibb 500mg
- ----------------------------------------------------------------------------------------------------
Sulfasoxazole Gantrisin CT Urinary
Roche 500mg Antiseptic
- ----------------------------------------------------------------------------------------------------
Tetracycline Achromysin V HSC Broad spectrum
HCL-Human Lederle 100, 250 and anti-infective
Sumycin 500mg
Apothecon
- ----------------------------------------------------------------------------------------------------
Thyroglobulin Proloid CT Endocrine
Parke Davis 64mg Therapeutic
- ----------------------------------------------------------------------------------------------------
Triamcinolone Aristocort CT Corticosteroid
Lederle 4mg
Kenacort
Squibb
- ----------------------------------------------------------------------------------------------------

Trichlormethiazide Metahydrin CT Diuretic
MMD 4mg
Naquae
Schering
- ----------------------------------------------------------------------------------------------------
Tripelennamine PBZ CT Antihistamine
HCL Ciba Geigy 50mg
- ----------------------------------------------------------------------------------------------------
Vitamin A Soluble Aquasol-A SGC Vitamin A
Astra 50,000 units deficiency
- ----------------------------------------------------------------------------------------------------
Vitamin A Natural Del-Vi-A SGC Vitamin A
Del Ray 50,000 units deficiency
- ----------------------------------------------------------------------------------------------------

4

==================================================================================================
(Table continued from previous page)

The Company's ANDAs, NDAs and NADAs

==================================================================================================
Brand Name Dosage Form,
Equivalent(s)/ Administration Prescribed
Generic Product Name Manufacturer(s) and Strength Use(s)
- --------------------------------------------------------------------------------------------------
Vitamin A Synthetic Various SGC Vitamin A
50,000 units deficiency
- --------------------------------------------------------------------------------------------------
Animal Use Drugs:
- --------------------------------------------------------------------------------------------------
Diclorophenal Toluene (No brand) SGC Anthelmintic
- --------------------------------------------------------------------------------------------------
n-Butyl Chloride V (No brand) SGC
1, 2, 5ml. Anthelmintic
- --------------------------------------------------------------------------------------------------
Tetracycline Achromysin V HSC Antibiotic
HCL-Veterinary Lederle 50, 100, 250 and
- --------------------------------------------------------------------------------------------------
Key:
CT = Compressed tablet SCT = Sugar coated tablet
CCT = Chewable compressed tablet HSC = Hard shell capsule
SGC = Soft gelatin capsules ECT = Enteric coated tablet
SLT = Sublingual tablet (Buccal) MLT = Multi-layer tablet

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

In addition, the Company intends to expand its line of generic products
through a combination of a research and development program that is expected to
result in new products owned by the Company and licensing of additional products
owned by others. The Genpharm Agreement provided the Company with the
opportunity to develop products that are marketed outside the U.S. Development
is currently under way with respect to the two products previously selected,
with one ANDA having been filed in January 1998 and the second ANDA anticipated
to be filed by the Company by the end of the first quarter of 1998.

The exclusive ten-year licensing agreements with Eurand will enable Global
to market several dosages of Pancrelipase using a new Eurand technology. The
U.S. market for Pancrelipase is estimated at approximately $100 million
annually.

Generally, it is important that a new generic product be approved by FDA
for marketing by, or shortly after, the patent expiration date of the equivalent
brand name drug (plus any legislatively-granted extensions) in order to gain
significant market share at attractive profit margins. As more generic products
compete in the same market, which customarily occurs increasingly over time
following the brand name product's patent expiration date (and extensions, if
any), unit prices and profit margins decrease. As the development of a new
generic drug product, including its formulation, testing and FDA approval,
generally currently takes approximately three or more years, development
activities may begin several years in advance of the patent expiration date of
the brand name drug equivalent. Consequently, the Company may select drugs for
development several years in advance of their anticipated entry to market. That
program potentially will require that considerable capital be devoted to
activities that do not concurrently provide an immediate return.

Raw Materials

The raw materials that will be essential to the Company's business are
expected to be bulk pharmaceutical chemicals which are generally available and
purchased from numerous sources. Because FDA requires specification of raw
material suppliers in applications for approval of drug products, if raw
materials from a specified supplier were to become unavailable, the required FDA
approval of a new supplier could cause a significant delay in the manufacture of
the drug involved. Although the Company expects to specify more than one raw
materials supplier with respect to each FDA application where that is possible,
some materials are currently available from only one or a limited number of
suppliers, as a result of which the Company would be subject to the special
risks that are associated with limited sources of supply. The Company plans to
purchase bulk pharmaceutical chemicals pursuant to multi-shipment contracts,
typically of one year's duration, when it believes advance-ordered bulk
purchases are advantageous to assure availability at a specified price. The
Company believes that alternative sources could be found, or new sources would
arise, should any of its sole or limited source raw materials become unavailable
from current suppliers. Nevertheless, any curtailment of raw materials could be
accompanied by production or other delays as well as increased raw materials
costs, with consequent adverse effects on the Company's business and results of
operations. Furthermore, as any new source of raw materials, whether domestic or
foreign, would require FDA approval, any delays in obtaining FDA approval could
also have a material adverse effect on the Company's business and operating
results.

5

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

Quality Control

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

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

The Company's policy is to continually seek to meet the highest quality
standards, with the goal of thereby assuring the quality, purity, safety and
efficacy of each of its drug products. The Company believes that adherence to
high operational quality standards will also promote more efficient utilization
of personnel, materials and production capacity.

Sales and Marketing

The Company's products are expected to be marketed and sold domestically
directly and through independent distributors and wholesalers as well as
manufacturer's representatives, primarily to independent pharmacies, retail
chains and institutions, including managed health care organizations, hospitals
and governmental agencies. The Company anticipates that, as its operations
eventually reach regular, recurring status, a significant portion of its sales
will be to independent distributors and other wholesalers.

Presently, the Company is marketing and selling products to various
customers utilizing the national and regional National Wholesalers Drug
Association ("NWDA") wholesalers for distribution. Agreements for some
wholesalers include exclusive distribution of Global products to specific sets
of retail customers who purchase as a group. The Company is also selling its
product portfolio through the CARE Alliance and the Premier Group, two
significant distributor purchasing organizations.

Marketing efforts are expected to extend beyond the ordinary promotional
vehicles; Global plans to reach the decision makers, including physicians and
dispensing pharmacists, with a campaign designed to develop awareness for some
of their exclusive pharmaceutical alternatives. Patients can be treated with
similar therapies at a fraction of the cost. By offering these new generic
entities, Global will provide customers a choice in the selection of
pharmaceutical therapy.

With the proliferation of group purchasing organizations at every level
within the industry, there is a trend toward developing longer term agreements.
The Company expects to enter into multi-year agreements with such group
purchasing organizations since they represent significant market penetration.
These multi-year agreements are expected to provide the Company with numerous
benefits, including sales volumes projected over the life time of the agreement,
marketing support, and increased leverage with the distribution channels.

Competition

The Company's sales are expected to be primarily directed to the generic
sector of the pharmaceutical market (also known as the "multisource
pharmaceutical market"). Competition in the generic industry is intense. The
Company is in competition with numerous other companies in that industry,
including major pharmaceutical concerns and other exclusively generic
manufacturers, most of whom have significantly greater resources.

The originator of a pharmaceutical product generally markets the product
under its own brand name during the life of the product's patent and any
statutory extensions of the patent. Companies introducing a product after the
patent (and any extension) expires may market the product under a brand name and
promote it to physicians and pharmacists to create a market for the product or
may market the product under its generic name and rely on physicians,
pharmacists and customers to specify the lower cost generic product. Producers
of brand name

6

pharmaceutical products are also involved in the generic marketplace, due to
their concurrent marketing of both generic and brand name versions of their
products after their patents have expired.

Some of the Company's competitors may choose to augment their presence in
the generic drug market through acquisitions and strategic alliances. This
activity could result in consolidation and restructuring within the generic
industry and could impair the Company's ability to compete effectively or
effectively limit the number of new opportunities for the Company's products.

The principal competitive factors in the generic pharmaceutical market are
the ability to introduce generic versions of products promptly after a patent
expires, price, quality of products, customer service (including maintenance of
inventories for timely delivery), breadth of product line and the ability to
identify and market niche products. Approvals for new products may have a
synergistic effect on a company's entire product line as orders for new products
are frequently accompanied by, or bring about, orders for other products
available from the same company. Price is usually the major competitive factor
with respect to a generic product, but as more generic products enter a given
market, their prices, and hence their profit margins, decrease and competition
increasingly is based primarily on quality of product and service. The Company's
strategy, therefore, is to begin principally by reintroducing a number of the
ANDAs it acquired from Richlyn that enjoy no or limited generic product
competition. The Company also plans to compete by broadening its product mix to
include products not previously manufactured by Richlyn that also serve niche
markets.

Proprietary Rights

The Company does not own any patents and does not believe that patent
protection is material to its business. The Company may in the future be
required or may desire to obtain other licenses to develop, manufacture and
market commercially viable products in the future. There can be no assurance
that any licenses, if needed or desired by the Company, will be obtainable on
commercially reasonable terms or that any licensed patents or proprietary rights
will be valid and enforceable. Further, should the Company become subject to any
claim that it is violating the patent rights of another person, the Company
could be subject to costly litigation and, possibly, material liability. The
Company carefully monitors trademarks used by pharmaceutical companies,
including product trademarks, through regularly published and readily available
sources. Further, as the Company's generic products will only be manufactured
and sold by the Company after their respective brand name products' patents have
expired, and as the Company sells its products under generic, chemical names, it
believes the likelihood of it infringing on the patents of others is and will
continue to be remote.

Government Regulation

Industry Regulation

All pharmaceutical manufacturers are extensively regulated by the federal
government, including the FDA, the DEA and various State agencies. The Federal
Food, Drug, and Cosmetic Act, the Controlled Substances Act, the Generic Drug
Enforcement Act of 1992 and other federal statutes and regulations govern or
influence the manufacture, labeling, testing, storage, recordkeeping, approval,
advertising and promotion of the Company's products. Noncompliance with
applicable requirements can result in fines, recalls, seizure of products,
suspension of production, refusal of the government to enter into supply
contracts or to approve drug applications, and criminal prosecution.

FDA approval is required before any "new drug" may be distributed in
interstate commerce. A drug that is the generic equivalent of a previously
approved prescription drug (i.e., the reference drug) also requires FDA
approval. Many over-the-counter drugs also require FDA pre-approval if the
over-the-counter drug is not covered by or does not conform with the conditions
specified in an applicable OTC Drug Product Monograph. All facilities engaged in
the manufacture of drug products must be registered with FDA and are subject to
FDA inspection to ensure that drug products are manufactured in accordance with
cGMPs.

Generally, two types of applications are used to obtain FDA approval of a
new drug. They include the following:

1. New Drug Application ("NDA"). For drug products with active
ingredients or indications not previously approved by FDA, a prospective
manufacturer must submit a complete application which contains the results
of clinical studies supporting the drug's safety and efficacy. An NDA may
also be submitted for a drug with a previously approved active ingredient
if the abbreviated procedure discussed below is not

7

available. Currently, FDA approval of an NDA, on average, is estimated to
take approximately 18 to 20 months.

2. Abbreviated New Drug Application ("ANDA"). The Drug Price
Competition and Patent Term Restoration Act of 1984 (the "Drug Price Act")
established an abbreviated new drug application procedure for obtaining FDA
approval of certain generic drugs. An ANDA is similar to an NDA except that
the FDA waives the requirement for conducting clinical studies to
demonstrate the safety and effectiveness of the drug. Instead, for drugs
that contain the same active ingredient and are for the same route of
administration, dosage form, strength and indication(s) as drugs already
approved for use in the United States, FDA ordinarily only requires
bioavailability data illustrating that the generic drug formulation is
bioequivalent to the previously approved reference drug. "Bioavailability"
indicates the rate of absorption and levels of concentration of a drug in
the blood stream which are needed to produce a therapeutic effect.
"Bioequivalence" compares the bioavailability of one drug product with
another and, when established, indicates that the rate of absorption and
the levels of concentration of a generic drug in the body do not show a
significant difference from those of the previously approved equivalent
drug. According to information published by FDA, it currently takes
approximately two years on average to obtain FDA approval of an ANDA
following the date of its first submission to FDA.

Although veterinary drugs are classified separately for purposes of FDA
approval, the approval procedure for those types of drugs conforms substantially
to the NDA and ANDA procedures described above.

The Drug Price Act, created new statutory protections for approved brand
name drugs. Prior to enactment of the Drug Price Act, FDA gave no consideration
to the patent status of a previously approved drug in deciding whether to
approve an ANDA. Under the Drug Price Act, the effective date of approval of an
ANDA can depend, under certain circumstances, on the patent status of the brand
name drug. Additionally, the Drug Price Act, in certain circumstances, can
extend the term of certain patents to cover a drug for up to five additional
years. Any such extension is intended to compensate the patent holder for the
reduction of the effective market life of a patent due to the time involved in
federal regulatory review. With respect to certain drugs that are not covered by
patents, the Drug Price Act sets specified time periods of two to ten years
during which ANDAs for generic drugs cannot become effective or, under certain
circumstances, be filed if the equivalent brand name drug was approved after
December 31, 1981.

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

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

The Company is also subject to the Maximum Allowable Cost Regulations ("MAC
Regulations"), which limit reimbursements for certain multi-source prescription
drugs under Medicare, Medicaid and other programs to the lowest price at which
such drugs are generally available. In many instances, only generic prescription
drugs fall within the MAC Regulations' limits. Generally, the methods of
reimbursement and fixing of reimbursement levels are under active review by
federal, state and local governmental entities as well as by private third-party
reimbursers. The Company cannot predict the results of those reviews or their
impact on the business of the Company.

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

8

Environmental Laws

The Company is subject to comprehensive federal, state and local
environmental laws, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Resource Conservation
and Recovery Act and the Toxic Substance Control Act, which govern, among other
things, all emissions, waste water discharge and solid and hazardous waste
disposal, and the remediation of contamination associated with generation,
handling and disposal activities. The Company is subject periodically to
environmental compliance reviews by various regulatory offices.

A Phase I environmental study was conducted with respect to the Company's
idled plant and operations in 1993 and certain environmental compliance issues
identified at that time, including findings of asbestos in certain areas of the
plant and underground oil storage tanks, have been addressed. Additionally, the
Company will adopt a program pursuant to which it monitors regularly its
compliance with any applicable Environmental Laws. There can be no assurance
that future developments, administrative actions or liabilities relating to
environmental matters will not have a material adverse effect on the Company's
financial condition or results of operations.

Litigation and Product Liability

The Company's operations are subject to an order ("the Richlyn Order")
issued on May 25, 1993, by the United States District Court for the Eastern
District of Pennsylvania. The Richlyn Order, among other things, permanently
enjoined Richlyn from introducing into commerce any drug manufactured,
processed, packed or labeled at Richlyn's manufacturing facility unless Richlyn
met certain stipulated conditions, including successful compliance with a
validation and recertification program as described below. The Company, having
acquired certain assets of Richlyn, is obligated by the terms of the Richlyn
Order. The Richlyn Order also requires that the Company hire and retain a
person, subject to FDA approval, who, by reason of training and expertise, is
qualified to inspect the Company's drug manufacturing facilities to determine
that its methods, facilities and controls are operated and administered in
compliance with cGMPs. The Richlyn Order further requires that the person so
retained both will inspect the Company's manufacturing facilities and its manner
of operating them and will examine all drug products manufactured, processed,
packed and held at the Company's Facility; and will certify in writing to FDA
the Company's compliance with related cGMPs. The Company has retained an
independent consultant to serve in respect of the Richlyn Order (see the caption
"Government Regulation").

Additionally, the Company has assumed the liabilities of Richlyn in
connection with Diethyl Stilbestrol ("DES"), which was manufactured by Richlyn
and many other drug manufacturers during the late 1950's and early 1960's. DES
was prescribed to pregnant women during that period and has been alleged to
cause birth defects, in particular an increased risk of uterine cancer and
sterility to female children whose mothers took DES during their pregnancy.
There have been numerous claims brought against drug manufacturers in connection
with DES. Since 1987, Richlyn's insurers have paid approximately $128,000 on
Richlyn's and the Company's behalf to settle approximately 138 DES-related
suits. The Company is unaware of any other legal actions having been brought or
threatened against Richlyn or the Company in connection with DES-related claims.
The Company believes that all DES-related legal actions have been directed
towards individual manufacturers and not been embodied in a class action, and,
as such, does not expect to be held liable for DES-related claims other than
claims based on products manufactured by Richlyn. While Richlyn's insurers have
in the past defended those DES claims against Richlyn and paid settlements in
connection therewith to date, those insurers have reserved their right to
discontinue the defense of the claims and the payment of any settlements at any
time. There can be no assurance or guarantee that the insurers will defend
actions or pay claims in the future. Further, there can be no assurance that, if
those insurers fail or refuse to pay any claim, the Company will have recourse
against the insurers with respect thereto. Accordingly, there can be no
assurance that the Company will not be exposed to the risk of substantial
monetary judgments. Claims settlements to date have been based upon market share
and Richlyn's share of the market during the periods in question was
substantially less than 1%. The Company does not believe the Richlyn DES
liabilities will have a material adverse effect on the Company's business.

Product liability claims by customers constitute a risk to all
pharmaceutical manufacturers. The Company carries $1 million of product
liability insurance for its own manufactured products and $10 million for
packaged products. The Company believes that this increased insurance will be
adequate for its foreseeable purposes and is comparable to product liability
insurance carried by similar generic drug companies.

The Company believes there are no other material pending or threatened
legal actions, private or governmental, against the Company.

9

Employees

As of March 9, 1998, the Company employed approximately 68 full-time
persons. Of those employees, approximately 28 work in the quality area, 27 are
in operations, 7 are in administration, 4 are in product development and 2 work
in sales and marketing. The Company may also employ part-time personnel from
time to time to meet specific demands of its business should they arise. None of
the Company's employees are expected to be subject to collective bargaining
agreements with labor unions. The Company believes that its relations with its
employees, in general, are satisfactory.

Executive Officers

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

- -------------------------------------------------------------------------------------------------------------
Name Age Position
- -------------------------------------------------------------------------------------------------------------
Max L. Mendelsohn 64 President, Chief Executive Officer and a Director
- -------------------------------------------------------------------------------------------------------------
Cornel C. Spiegler 53 Chief Financial Officer and Vice President - Administration.
- -------------------------------------------------------------------------------------------------------------
Marc M. Feinberg 48 Vice President - Quality and Regulatory Affairs
- -------------------------------------------------------------------------------------------------------------
Pieter J. Groenewoud 43 Vice President - Product Development
- -------------------------------------------------------------------------------------------------------------
Mitchell Goldberg 46 Vice President - Sales and Marketing
- -------------------------------------------------------------------------------------------------------------
Seymour Hyden, Ph.D. 64 Vice President - Scientific and Technical Affairs
- -------------------------------------------------------------------------------------------------------------
Joseph A. Storella 56 Vice President - Operations
- -------------------------------------------------------------------------------------------------------------

Max L. Mendelsohn has been President and Chief Executive Officer since
September 1995 and a director of the Company since December 1993. From 1970 to
1990, Mr. Mendelsohn was President and Chief Executive Officer of
Barre-National, Inc., a manufacturer of liquid pharmaceutical products. From
1991 to 1995, Mr. Mendelsohn served as Vice President - Business Development of
Pharmakinetics Laboratories, Inc., a provider of clinical and analytical
services to United States and Canadian pharmaceutical companies. Mr. Mendelsohn
has been a director of the Generic Pharmaceutical Industry Association since
1987 and was recently elected Secretary-Treasurer of that organization.

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

Marc M. Feinberg has been Vice President - Quality and Regulatory Affairs
since October 1996. Prior to joining the Company, from 1995 to 1996, Mr.
Feinberg served as Vice President - Quality Assurance and Regulatory Affairs for
the JWS Delavau Company, a contract manufacturer and packager of nutritional and
over-the-counter products. From 1989 to 1995, Mr. Feinberg held the position of
Vice President - Quality Assurance for Packaging Coordinators, Inc., a contract
packager for the pharmaceutical industry. From 1985 to 1989, Mr. Feinberg served
as Manager, Quality Assurance for ICI Pharmaceuticals Group. From 1972 to 1985,
Mr. Feinberg served as Senior Drug Investigator for the U.S. Food and Drug
Administration.

Pieter J. Groenewoud has been Vice President - Product Development since
May 1996. From October 1995 to May 1996, Mr. Groenewoud served as Chief
Operating Officer of the Company. From 1992 to 1995, Mr. Groenewoud served as
General Manager of Vintage Pharmaceutical Inc., a manufacturer of generic drug
pharmaceutical products. From 1990 to 1992, Mr. Groenewoud was Project Manager
for Pennex Products Company Inc., a generic drug company. From 1988 to 1990, Mr.
Groenewoud was Vice President of Quality Control at Medicopharma Inc., a
manufacturer of pharmaceutical products, and formerly held the position of Vice
President of Operations from 1986 to 1988.

Mitchell Goldberg has been Vice President - Sales and Marketing since March
1997. From October 1996 until March 1997, Mr. Goldberg served as Vice President
- - Sales and Marketing for Ethex Corporation, a generic manufacturing company.
From 1985 to October 1996, Mr. Goldberg held a number of sales and marketing
management positions with Schein Pharmaceutical, Inc., a generic pharmaceutical
company. From 1980 to 1985, Mr. Goldberg served in sales positions for
Pharmavite Corporation, a nutritional supplement manufacturer.

10

Dr. Seymour Hyden has been Vice President - Scientific and Technical
Affairs since March 1997. From November 1993 to March 1997, Dr. Hyden was the
Vice President - Product Development of Chelsea Laboratories. From October 1992
to November 1993, Dr. Hyden was first the Vice President - Business Development
for Interchem Corporation and then the Vice President - Technical Services for
Block Drug Co., Inc. From March 1985 to October 1992, Dr. Hyden was Executive
Vice President - Technical Affairs for Vitarine Pharmaceuticals, Inc. Prior to
joining Vitarine Pharmaceuticals, Inc., Dr. Hyden served in a number of
executive and management positions in the technical and scientific areas with
companies engaged in the branded and generic pharmaceutical field. Dr. Hyden is
the Chairman of the Science Committee of the Generic Pharmaceutical Industry
Association and has a Ph.D. in Organic Chemistry from the New York University.

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

Item 2. Description of Property

The executive offices and research, warehouse and production facilities of
the Company occupy an aggregate of approximately 113,000 square feet at Castor
and Kensington Avenues in Philadelphia, Pennsylvania. The Company's principal
executive offices are part of that overall facility.

The Company owns its plant, which consists of three three-story brick
interconnected buildings that were constructed between 1900 and 1930. The
interior of the plant has been substantially renovated and modernized since 1993
and includes a new dust collection system and special environmental control
units for humidity and temperature. The land and the building serve as partial
collateral for two Pennsylvania Industrial Development Authority ("PIDA") loans.
See Item 6, Management's Discussion and Analysis or Plan of Operation--Liquidity
and Capital Resources.

Of the total 113,000 square foot area of the plant, approximately 20,000
square feet are used for warehousing and storage operations, (including high
security DEA areas and designated areas for raw materials, processed goods,
labels and packaging materials); approximately 11,000 square feet are devoted to
manufacturing operations; approximately 13,700 square feet for maintenance
operations; approximately 10,000 square feet for laboratory, quality assurance
and quality control activities, including batch testing and stability testing
operations; approximately 5,000 square feet are for labeling and packaging
activities; approximately 2,500 square feet for product development; and
approximately 9,000 square feet are for administrative functions. The unused
balance of the plant, approximately 41,800 square feet, is available for future
expansion. Management believes that the Company's production facilities are
sufficient for its current and reasonably anticipated operations.

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

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

Item 3. Legal Proceedings

The Company is not a party to, nor is any of its properties the subject of,
any material pending legal proceedings. See Item 1, "Description of
Business--Litigation and Product Liability" for a description of certain legal
matters with respect to the Company.

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

None

11

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

The Company's Common Stock is traded on the NASDAQ Small Cap Market under
the symbol "GLPC". The following are the high and low per share bid prices of
the Company's Common Stock on the NASDAQ Small Cap Market since December 19,
1995, the date of the Company's IPO. Such prices represent quotations or prices
between dealers and do not include retail mark-up, mark-down or commission and
may not necessarily represent actual transactions:

Quarter Ended High Low
- ------------- ---- ---

December 31, 1995 $10 $ 9
March 31, 1996 $12 5/8 $11
June 30, 1996 $11 $10 1/8
September 30, 1996 $ 9 1/4 $ 8
December 31, 1996 $ 8 7/8 $ 6 1/2
March 31, 1997 $ 9 5/8 $ 6 7/8
June 30, 1997 $ 8 3/8 $ 4
September 30, 1997 $ 7 1/2 $ 3 3/4
December 31, 1997 $ 5 1/2 $ 2 3/4

On March 9, 1998, the last reported bid price of the Common Stock on the
NASDAQ Small Cap Market was $4.75 per share. As of December 1, 1997, there were
approximately 67 holders of record of the Common Stock.

The Company has never paid cash dividends on its Common Stock and has no
present plans to do so in the foreseeable future. The Company's current policy
is to retain all earnings, if any, for use in the operation of its business. The
payment of future cash dividends, if any, will be at the discretion of the Board
of Directors and will be dependent upon the Company's earnings, financial
conditions, capital requirements and other factors as the Board of Directors may
deem relevant.

During the second half of 1997, the Company completed the sale of
approximately $6.3 million of its Preferred Stock. All of the shares of the
Company's common stock into which the Preferred Stock is convertible
(approximately 2.3 million shares of common stock, at March 16, 1998) was
subsequently registered for resale under the U.S. Federal securities laws. See
Item 6, "Management's Discussion and Analysis or Plan of Operation".

Item 6. Management's Discussion and Analysis or Plan of Operation

General

The Company was formed in April 1993 to acquire the manufacturing plant,
equipment and certain related assets (the "Facility") and the ANDAs, NDAs and
NADAs of Richlyn. Richlyn operated as a generic pharmaceutical business from
1947 to 1992. Richlyn ceased operations at the Facility in 1992 as a result of
failure to comply with FDA regulations concerning cGMPs. See Item 1,
"Description of Business."

The Company was the surviving corporation in a merger effected on April 6,
1995 (the "Merger") with a shell acquisition corporation ("Toledex"), which had
been incorporated in Delaware in March 1995.

Effective November 28, 1995, the Company effected a 39.182 -for-1 common
stock split, and increased its authorized capital stock to 10 million common
shares and 2 million shares of undesignated preferred stock.

On December 19, 1995, the Company completed its IPO in which 1,650,000
shares of common stock were sold for net proceeds of $11,489,000. An additional
247,500 shares of common stock were sold to the underwriter of the IPO in
January 1996, upon the exercise of the underwriter's over-allotment option for
net proceeds to the Company of $1,835,000.

From its inception, the Company has devoted substantially all of its
efforts to improving and renovating the Facility, establishing policies and
procedures to bring the Facility into compliance with cGMP, and obtaining all
government approvals necessary to begin operating the Facility. On July 11, 1997
the Company was notified that, following an inspection, FDA had determined that
Global's Tetracycline Hydrochloride 250 mg capsules had been validated. The FDA
subsequently determined that sufficient data was available to assign an
expiration date to the

12

product's label and the Company began shipping the product in September 1997. On
December 12, 1997, the FDA notified Global that its Tetracycline Hydrochloride
500 mg capsules had been validated and upon the subsequent determination by the
FDA that sufficient data was available to assign expiration date to the
product's label, the Company began shipping the product in December 1997. On
January 12, 1998, the Company was notified that Global's Chloroquine Phosphate
250 mg tablets had been validated and, in addition, the FDA had no objections to
the Company marketing Methyltestosterone 25 mg tablets. Global began shipping
both products in January 1998. Since Global commenced operations, the FDA has
routinely inspected and approved the work necessary for each of Global's product
introductions. On January 29, 1998, the FDA informed the Company that
product-by-product inspections and authorizations would no longer be required
for the Company's current ANDA product portfolio.

In the fourth quarter ended December 31, 1997, the Company became
operational and generated net revenues in the quarter of $427,000.

The Company cannot currently predict whether its business will be seasonal
in nature, but to the extent that it manufactures and distributes products that
pertain to seasonal ailments such as allergies or colds, the Company may
experience seasonal patterns in its sales and profitability. There can be no
assurance that the potential seasonality of the Company's business will not have
a material adverse effect on the Company. In addition, the Company's revenues,
and hence its profitability, if any, may vary significantly from fiscal quarter
to fiscal quarter as well as in comparison to the corresponding quarter of the
previous year as a result, among other factors, of the timing of process
validation for particular generic drug products, the timing of any significant
initial shipments of newly approved drugs and competitive pressures from other
generic drug manufacturers who receive FDA approvals covering competing
products.

On August 20, 1997, Global signed two exclusive 10 year licensing
agreements with Eurand America, Inc. ("Eurand"), an international drug company
that specializes in oral delivery. Eurand is a unit of American Home Products,
one of the world's largest research-based pharmaceutical and healthcare
companies. Under the first agreement, Eurand will develop, manufacture and
supply to Global several dosages of Pancrelipase, a pancreatic enzyme used
primarily by cystic fibrosis patients to aid in digestion using a new Eurand
technology, and grants Global an exclusive license to market and sell the
products in the United States subject to minimum sales levels. The second
agreement provides for Eurand to supply Global with the existing Eurand
Pancrelipase 4500 USP Lipase content product, for the generic market.

Results of Operations

Upon receipt of FDA approvals, the Company became operational and generated
$427,000 in revenues in the quarter ended December 31, 1997. Previously, the
Company was considered a development stage company as defined in Statement of
Financial Accounting Standards No. 7. The Company had an accumulated deficit of
$17,976,000, at December 31, 1997.

Since its inception, the Company has devoted substantially all of its
efforts to improving and renovating the Facility, establishing policies and
procedures to bring the Facility into compliance with cGMPs, and obtaining all
government approvals necessary to begin operating the Facility.

Year Ended December 31, 1997 compared to Year Ended December 31, 1996.

The Company's net loss for the year ended December 31, 1997 was $5,877,000,
as compared to a net loss of $4,608,000 for the year ended December 31, 1996.
The increase in the net loss was due primarily to increased payroll costs
resulting from hiring of personnel necessary to support the Company's
infrastructure, recent FDA approvals and the "ramping up" for expected product
introductions, partially offset by minimal sales in 1997. Also, during 1997 the
Company issued Series A and Series B Convertible Preferred Stock which resulted
in non-cash imputed dividends which increased the net loss applicable to common
stock by $2,547,000 or $0.59 per share to $8,424,000 or $1.97 per share.

Net sales were $427,000 in the fourth quarter and for the year ended
December 31, 1997. Until September 30, 1997, Global was considered a development
stage company.

General and administrative expenses were $6,164,000 in the year ended
December 31, 1997 as compared to $5,121,000 during the same period in 1996, due
primarily to increased payroll costs resulting from the hiring of personnel
necessary to support the Company's infrastructure, recent FDA approvals and the
"ramping up" for expected product introductions.

13

Interest income was $124,000 for the year ended December 31, 1997 as
compared to $375,000 earned in the comparable period in 1996, due primarily to a
decrease in investments in cash equivalents throughout the year as a result of
capital expenditure incurred in upgrading the manufacturing facility, hiring
personnel necessary to support the Company's infrastructure and "ramping up" for
expected product introductions.

Interest expense was $65,000 for the year ended December 31, 1997 as
compared to interest expense of $40,000 during the same period in 1996 due to
the additional borrowings from PIDA and the Delaware River Port Authority
("DRPA") via Pennsylvania Industrial Development Corporation ("PIDC").

Other income of $122,000 generated during the year ended December 31, 1997
was due primarily to an amount received from a supplier for a claim filed by the
Company in 1996 relating to unacceptable materials purchased from the supplier.

Liquidity and Capital Resources

Until the Company's IPO, the Company financed its activities primarily
through the issuance of promissory notes to the family that previously
controlled Richlyn, borrowings from PIDA and PIDC, proceeds from the private
placement of its equity securities and loans from stockholders.

On December 19, 1995, the Company completed its IPO in which 1,650,000
shares of common stock were sold by the Company for net proceeds of $11,489,000.
An additional 247,500 shares of common stock were sold to the underwriter of the
IPO in January 1996, upon the exercise of the underwriter's over-allotment
option, for net proceeds to the Company of $1,835,000.

On July 29, 1997, the Company received a $758,000 loan from PIDA at 3.75%
annually fixed for 15 years and a $350,000 loan from the DRPA via the PIDC at
5.00% annually fixed for 10 years. These loans were partially used to fund
capital projects, and are secured by land, building and building improvements.
The remaining proceeds of $729,000 were invested in interest bearing
Certificates of Deposit owned by the Company and pledged as additional
collateral for these loans.

The Company completed an initial closing of approximately $1.2 million of
its Series A Mandatorily Redeemable Convertible Preferred Stock on August 19,
1997 and a subsequent closing of $150,000 on September 24, 1997. The Company
filed a S-3 Registration Statement covering an aggregate of 1,200,000 shares of
common stock (File No. 333-35569), which became effective on October 22, 1997.
In addition, the Company completed the closing of $5 million of its Series B
Mandatorily Redeemable Convertible Preferred Stock on December 1, 1997. The
Company filed a S-3 Registration Statement covering an aggregate of 1,818,182
shares of common stock (File No. 333-44217), which became effective on February
9, 1998. In connection with these offerings, at December 31, 1997, the Company
had incurred aggregate expenses, including legal and accounting fees and a fee
of $62,000 to Keane Securities, as placement agent, of approximately $196,000,
resulting in net proceeds to the Company of approximately $6.1 million. The
Company intends to use the proceeds from these offerings for working capital
purposes.

The Company has expended significant funds to purchase production and
laboratory equipment, and to develop its sales and marketing and product
development activities. With the commencement of operations in the fourth
quarter of 1997, the Company believes it will require additional financing in
1998 for working capital requirements which it believes will not exceed $1.5
million. The Company believes that such financing is available through
asset-based debt financing, collaborative arrangements with corporate partners,
or through other sources, although there can be no assurance that such funds
will be available on terms and conditions acceptable to the Company. The
Company's failure to obtain sufficient financing or to produce and sell
sufficient quantities of its products, would adversely affect its development
and operating plans.

The Year 2000 Issue

The Company's computer system and programs were designed in recent years
and concerns related to the year 2000 issue were addressed at the time the
decision to purchase the system was made. At this time, the Company does not
believe the year 2000 issue indicates a material event or uncertainty.

Item 7. Financial Statements and Supplementary Data

The financial statements and supplementary data required by this Item begin
on page F-1 of this Annual Report on Form 10-KSB.

14

Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures

None

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act

The information contained under the heading "Proposal No. 1 - Election of
Directors" in the Company's definitive Proxy Statement (the "Proxy Statement")
relating to the Company's Annual Meeting of Stockholders scheduled to be held on
or about May 12, 1998, to be filed pursuant to Regulation 14A of the Securities
Exchange Act of 1934 with the Securities and Exchange Commission is incorporated
herein by reference. For information concerning the executive officers and other
significant employees of the Company, see "Business - Executive Officers" in
Item 1 above of this Annual Report.

Item 10. Executive Compensation

The response to this item will be included in the Company's Proxy Statement
to used in connection with the Annual Meeting of Stockholders scheduled to be
held on May 12, 1998 and is incorporated herein by reference.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The response to this item will be included in the Company's Proxy Statement
to be used in connection with the Annual Meeting of Stockholders scheduled to be
held on May 12, 1998 and is incorporated herein by reference.

Item 12. Certain Relationships and Related Transactions

The response to this item will be included in the Company's Proxy Statement
to be used in connection with the Annual Meeting of Stockholders scheduled to be
held on May 12, 1998 and is incorporated herein by reference.

Item 13. Exhibits, Lists and Reports on Form 8-K

a) Exhibits

Exhibit
Number Description of Document
------- -----------------------
2.1 Agreement and Plan of Merger among the Company, Management Stockholders
and Toledex Acquisition Corporation, dated as of April 6, 1995. (1)

2.2 Certification of Merger between Toledex Acquisition Corporation and the
Company, dated April 6, 1995. (1)

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

3.2 Certificate of the Designations, Powers, Preferences and Rights of the Series A
Convertible Preferred Stock of the Company. (3)

3.3 Certificate of the Designations, Powers, Preferences and Rights of the Series B
Convertible Preferred Stock of the Company. (6)

3.4 By-laws of the Company. (1)

4.1 Specimen Certificate of the Company's Common Stock, par value $.01 per share.
(1)

4.2 Form of Representative's Warrant Agreement between the
Company and the Representative, including form of Representative's Warrant Certificate. (1)

15

10.1 Employment Agreement of Pieter Groenewoud, dated as of October 1, 1995. (1)

10.2 Employment Agreement of Cornel C. Spiegler, dated as of September 27, 1995. (1)

10.3 Employment Agreement of Max L. Mendelsohn, dated as of September 1, 1995.
(1)
10.6 The Company's 1995 Stock Incentive Plan. (1)

10.7 Distribution Agreement by and between The Care Buying Alliance and the Company,
dated as of October 19, 1995. (1)

10.9 Form of Amended Agreement between the Company and Merck
Kommanditgesellschaft auf Aktien regarding the issuance of Common Stock
Purchase Warrants, dated as of November, 1995. (1)

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

10.18 Acquisition Agreement between PIDC-Financing Corporation and GPC Florida,
dated September 17, 1993. (1)

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

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

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

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

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

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

10.28 Secured $500,000 Note from the Company to PIDC Local Development
Corporation. (1)

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

10.37 Form of Escrow Agreement by and among the Company, the Representative and
Continental Stock Transfer and Trust Company. (1)

10.38 Supply and Marketing Agreement by and between the Company and Caraco
Pharmaceutical Laboratories Ltd. dated September 20, 1996. (2)

10.39 Employment agreement by and between the Company and Marc M. Feinberg dated
September 30, 1996. (2)

10.40 Technical Collaboration Agreement by and between the Company and Genpharm
Inc. dated January 8, 1997. (4)

16

10.41 Employment agreement by and between the Company and Dr. Seymour Hyden
dated February 7, 1997. (4)

10.42 Employment agreement by and between the Company and Mitchell Goldberg
dated March 13, 1997. (4)

10.43 Development, License and Supply Agreement with Eurand America, Inc.
dated August 20, 1997. (5)

10.44 License and Supply Agreement with Eurand America, Inc. dated August 20, 1997
(5)

11.1 Statement Regarding Computation of Earnings Per Share. (1)

23.1 Consent of Price Waterhouse LLP. (1)

27 Financial Data Schedule

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

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

(1) Previously filed with the Commission as Exhibits to,
and incorporated herein by reference from, the
Registrant's Registration Statement on Form SB-2
(File No. 33-99310-NY)

(2) Previously filed with the Commission as Exhibits to,
and incorporated herein by referenced from, the
Registrant's Quarterly Report on Form 10-QSB for the
quarterly period ended September 30, 1996.

(3) Previously filed with the Commission as Exhibit 3.3
to, and incorporated herein by reference from, the
Registrant's Registration Statement on Form S-3 (File
No. 333-35569)

(4) Previously filed with the Commission as Exhibits to,
and incorporated herein by reference from the
Registrant's Yearly Report on Form 10-KSB for the
year ended December 31, 1996.

(5) Previously filed with the Commission as Exhibits to,
and incorporated herein by reference from, the
registrant's Quarterly Report on Form 10-QSB for the
quarterly period ended September 30, 1997.

(6) Previously filed with the Commission as Exhibit 3.3
to, and incorporated herein by reference from, the
Registrant's Registration Statement on Form S-3 (File
No. 333-44217)

b) Reports on Form 8-K.

No reports on Form 8-K were filed during the last quarter of
the year ended December 31, 1997.

17

SIGNATURES

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

GLOBAL PHARMACEUTICAL CORPORATION

By /s/ Max L. Mendelsohn
---------------------------------------------------
Max L. Mendelsohn, President and Chief Executive Officer

March 25, 1998
Date ----------------------

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

/s/ MAX L. MENDELSOHN President and Chief Executive
--------------------------------- Executive Officer and
(Max L. Mendelsohn) Director (Principal
Executive Officer)

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

/s/ PHILIP R. CHAPMAN Director
---------------------------------
(Philip R. Chapman)

/s/ GARY ESCANDON Director
---------------------------------
(Gary Escandon)

/s/ GEORGE F. KEANE Director
---------------------------------
(George F. Keane)

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

/s/ JOHN W. ROWE Director
---------------------------------
(John W. Rowe)

/s/ UDI TOLEDANO Director
---------------------------------
(Udi Toledano)

18

GLOBAL PHARMACEUTICAL CORPORATION

INDEX TO FINANCIAL STATEMENTS

Page(s)
-------

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

Balance Sheet at December 31, 1996 and December 31, 1997 ......................................... F-3

Statement of Operations for each of the three years ended December 31, 1997....................... F-4

Statement of Changes in Stockholders' Equity for each of the three years ended December 31, 1997. F-5

Statement of Cash Flows for each of the three years ended December 31, 1997. ..................... F-6

Notes to Financial Statements..................................................................... F-7 to F-15

All financial statement schedules are omitted because they are not required.

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholders of Global Pharmaceutical Corporation

In our opinion, the accompanying balance sheet and the related statements of
operations, of cash flows and of changes in stockholders' equity present fairly,
in all material respects, the financial position of Global Pharmaceutical
Corporation (the Company) at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

Philadelphia, Pennsylvania
February 9, 1998

F-2

GLOBAL PHARMACEUTICAL CORPORATION

BALANCE SHEET

(in thousands, except share and per share data)

December 31,
---------------------
1997 1996
---- ----

ASSETS
Current assets:
Cash and cash equivalents..................................... $ 4,719 $ 4,044
Accounts receivable .......................................... 215 -
Inventories .................................................. 386 -
Prepaid expenses and other ................................... 46 49
--------- --------
Total current assets..................................... 5,366 4,093
Property, plant and equipment, net................................. 4,077 4,135
Intangible assets, net of accumulated amortization of $0 and $59... 1,118 1,177
Deferred financing costs, net...................................... 32 35
Investments........................................................ 729 -
--------- -------
Total assets.............................................. $ 11,322 $ 9,440
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................. $ 158 $ 90
Accounts payable.............................................. 673 383
Accrued expenses.............................................. 649 419
--------- -------
Total current liabilities................................ 1,480 892
Long-term debt..................................................... 2,129 1,197
--------- -------
3,609 2,089
--------- -------
Commitments and contingencies (Note 12)

Mandatorily redeemable preferred stock:
Series A mandatorily redeemable convertible preferred stock,
13,350 shares outstanding, $.01 par value, redeemable at
$100 per share....................................... 1,335 --
Series B mandatorily redeemable convertible preferred stock,
50,000 shares outstanding, $.01 par value, redeemable at
$100 per share........................................ 5,000 --
--------- -------
6,335 --
--------- -------
Stockholders' equity :
Preferred stock, $.01 par value, 2,000,000 authorized, 63,350
shares issued and outstanding............................ -- --
--------- -------
Common stock, $.01 par value, 10,000,000 authorized and
4,286,871 shares issued and outstanding.................... 43 43
Additional paid-in capital.................................... 19,311 19,407
Accumulated deficit .......................................... (17,976) (12,099)
--------- -------
Total stockholders' equity .............................. 1,378 7,351
--------- -------
Total liabilities and stockholders' equity..................... $ 11,322 $ 9,440
========= =======

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

F-3

GLOBAL PHARMACEUTICAL CORPORATION

STATEMENT OF OPERATIONS

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

Year Ended December 31,
----------------------------------------
1997 1996 1995
---- ---- ----
Net sales $ 427 $ -- $ --

Cost of sales 321 -- --
---------- --------- ---------
Gross margin 106 -- --

General and administrative 6,164 5,121 3,236

Debt conversion expense -- -- 47

Loss on sale of common stock
and warrants -- -- 938

Interest expense 65 40 242

Interest income (124) (375) --

Other income (122) (178) --
---------- --------- ---------
Net loss $ (5,877) $ (4,608) $ (4,463)

Less: Imputed dividend on
preferred stock * (2,547) -- --
---------- --------- ---------
Net loss applicable to Common
Stock $ (8,424) $ (4,608) $ (4,463)
========== ========== ==========
Net loss per common share
(basic and diluted) $ *(1.97) $ (1.08) $ (2.22)
========== ======== ==========
Weighted average common
shares outstanding 4,286,871 4,269,967 2,007,074
========== ========== ========

* The net loss per share applicable to Common Stock for the year ended
December 31, 1997 includes Preferred Stock Dividends of $2,547,000 or $0.59
per share representing the difference between the per share conversion price
and the market value of the Common Stock on the dates of issuance of the
Series A and Series B Convertible Preferred Stock (See Note 9).

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

F-4

GLOBAL PHARMACEUTICAL CORPORATION

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

(dollars and shares in thousands)

Common stock Total
--------------------- Additional stockholders'
Number of Par paid-in Accumulated equity
shares value capital deficit (deficit)
---------- ------- ---------- ----------- -------------

Balances at December 31, 1994......................... 1,942 $ 19 $ 2,393 $ (3,028) $ (616)
Issuance of common stock:
Conversion of stockholder loans.................. 297 4 2,473 -- 2,477
Stock and warrants issued to Merck KGaA.......... 150 1 299 -- 300
Sale of stock to Merck KGaA...................... -- -- 938 -- 938
Initial public offering on December 31, 1995..... 1,650 16 11,472 -- 11,488
Net loss.............................................. -- -- -- (4,463) (4,463)
--------- ----- -------- --------- ---------
Balances at December 31, 1995......................... 4,039 40 17,575 (7,491) 10,124
Issuance of common stock for over-allotment exercise
on January 29, 1996................................ 248 3 1,832 -- 1,835
Net loss.............................................. -- -- -- (4,608) (4,608)
--------- ----- -------- --------- ---------
Balances at December 31, 1996......................... 4,287 43 19,407 (12,099) 7,351
Issuance of convertible preferred stock............... -- -- 2,547 -- 2,547
Accretion of preferred stock dividend................. -- -- (2,547) -- (2,547)
Expenses relating to issuance of Series A and Series B
Preferred Stock....................................... -- -- (96) -- (96)
Net loss.............................................. -- -- -- (5,877) (5,877)
--------- ----- -------- --------- ---------
Balances at December 31, 1997......................... 4,287 $ 43 $ 19,311 $ (17,976) $ 1,378
========= ===== ======== ========= =========

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

F-5

GLOBAL PHARMACEUTICAL CORPORATION

STATEMENT OF CASH FLOWS

(dollars in thousands)

Year Ended December 31,
----------------------------------
1997 1996 1995
---- ---- ----

Cash flows from operating activities:
Net loss .................................................. $ (5,877) $ (4,608) $ (4,463)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization.......................... 455 281 214
Expenses paid through issuance of warrants ............ 101 -- --
Loss on sale of common stock and warrants.............. -- -- 938
Loss on debt conversion................................ -- -- 47
Change in assets and liabilities:
(Increase) decrease due from/to related party..... -- 2 (13)
(Increase) in accounts receivable................. (215) -- --
(Increase) in inventory........................... (386) -- --
(Increase) decrease in prepaid expenses and other
assets............................................ 3 (21) 24
Decrease in note receivable from stockholders..... -- -- 135
Increase (decrease) in accounts payable and
accrued expenses ................................ 520 (467) 229
------------ ----------- ----------
Net cash used for operating activities........ (5,399) (4,813) (2,889)
------------ ----------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment................. (335) (2,311) (345)
Purchases of marketable securities......................... (729) -- --
------------ ----------- ----------
Net cash used for investing activities........ (1,064) (2,311) (345)
------------ ----------- ----------
Cash flows from financing activities:
Long-term debt:
Borrowings............................................. 1,108 -- 70
Payments............................................... (108) (175) (126)
Payment of financing costs............................. -- (10) (3)
Long-term debt, related party:
Borrowings ............................................ -- -- 2,683
Payments............................................... -- -- (1,667)
Issuance of stock and warrants:
Stock and warrants issued to Merck KGaA................ -- -- 300
Initial public offering ............................... -- -- 11,488
Over-allotment exercise................................ -- 1,835 --
Series A and Series B Preferred Stock issued .......... 6,138 -- --
------------ ----------- ----------
Net cash provided by financing activities..... 7,138 1,650 12,751
------------ ----------- ----------
Net increase (decrease) in cash and cash equivalents............ 675 (5,474) 9,517
Cash and cash equivalents, beginning of period.................. 4,044 9,518 1
------------ ----------- ----------
Cash and cash equivalents, end of period........................ $ 4,719 $ 4,044 $ 9,518
============ =========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest..................................... $ 51 $ 40 $ 215
============ =========== ==========

For other supplemental disclosure of non-cash investing and financing
activities, see Notes 2, 3, and 9.

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

F-6

GLOBAL PHARMACEUTICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

1. FORMATION AND OPERATION OF THE COMPANY

Purpose

Global Pharmaceutical Corporation (the "Company") was formed in April 1993
to acquire the manufacturing plant, equipment and certain related assets and
liabilities (the "Facility") and the Abbreviated New Drug Applications
("ANDAs"), New Drug Applications ("NDAs") and New Animal Drug Applications
("NADAs") of Richlyn Laboratories, Inc. ("Richlyn"). Richlyn operated a generic
pharmaceutical business from 1947 to 1992; operations of the Facility had been
idled since September 1992 for failure to comply with Food and Drug
Administration ("FDA") regulations concerning current Good Manufacturing
Practices ("cGMP").

From its inception the Company has devoted substantially all of its efforts
to improving and renovating the Facility, establishing policies and procedures
to bring the Facility into compliance with cGMP, and obtaining all government
approvals necessary to begin operating the Facility. On July 11, 1997 the
Company was notified that, following an inspection, FDA had determined that
Global's Tetracycline Hydrochloride 250 mg capsules had been validated. The FDA
subsequently determined that sufficient data was available to assign an
expiration date to the product's label and the Company began shipping the
product in September 1997. On December 12, 1997, the FDA notified Global that
its Tetracycline Hydrochloride 500 mg capsules had been validated and upon the
subsequent determination by the FDA that sufficient data was available to assign
expiration date to the product's label, the Company began shipping the product
in December 1997. On January 12, 1998, the Company was notified that Global's
Chloroquine Phosphate 250 mg tablets had been validated and, in addition, the
FDA had no objections to the Company marketing Methyltestosterone 25 mg tablets.
Global began shipping both products in January 1998. Since Global commenced
operations, the FDA has routinely inspected and approved the work necessary for
each of Global's product introductions. On January 29, 1998, the FDA informed
the Company that product-by-product inspections and authorizations would no
longer be required for the Company's current ANDA product portfolio.

The Company was considered a development stage company as defined in
Statement of Financial Accounting Standards No. 7 until the fourth quarter of
1997 when the Company determined it had begun operations.

Organization

The Company was incorporated in Florida on April 20, 1993 ("Inception"). On
March 29, 1995, the Company reincorporated in Delaware through a merger with a
wholly-owned subsidiary of the same name by exchange of the Company's common
stock for 1.814 shares of common stock of the wholly owned subsidiary (the
"Reincorporation").

On April 6, 1995, the Company was the surviving corporation in a merger
(the "Merger") with a shell acquisition corporation ("Toledex") which had been
incorporated in Delaware in March 1995. The Merger was effected to recapitalize
the Company; shareholders of Toledex provided loan commitments of up to $3
million to the Company simultaneous with the Merger (see Note 7). At the time of
Merger, Toledex had no assets or liabilities, and 78% of its common stock was
held by stockholders of the Company; accordingly, the assets and liabilities of
the Company subsequent to the Merger are recorded at historical cost in a manner
similar to a pooling of interests.

Effective November 28, 1995, the Company effected a 39.182-for-one common
stock split, and increased its authorized capital stock to 10 million common
shares and 2 million shares of undesignated preferred stock (collectively, the
"Stock Split").

All references to share and per share amounts of common stock and preferred
stock for all periods presented have been adjusted to give effect to the
Reincorporation, the Merger and the Stock Split.

Funding of Activities

To date, the Company has funded its efforts to engage in the manufacture,
repackaging and sale of solid oral prescription and over-the-counter generic
drugs and dietary supplements through equity and debt financings.

F-7

GLOBAL PHARMACEUTICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

On July 29, 1997, the Company received a $758,000 loan from the
Pennsylvania Industrial Development Authority ("PIDA") at 3.75% annually fixed
for 15 years and a $350,000 loan from the Delaware River Port Authority ("DRPA")
via the Pennsylvania Industrial Development Corporation ("PIDC") at 5.00%
annually fixed for 10 years. These loans were partially used to fund capital
projects, and are secured by land, building and building improvements. From
these proceeds, $729,000 was invested in interest bearing certificates of
deposit owned by the Company and pledged as additional collateral for these
loans.

The Company completed an initial closing of $1,185,000 of its Series A
mandatorily redeemable convertible Preferred Stock on August 19, 1997 and a
subsequent closing of $150,000 on September 24, 1997. The Company filed a S-3
Registration Statement covering an aggregate of 1,200,000 shares of common
stock, which became effective on October 22, 1997.

In addition, the Company completed the closing of $5 million of its Series
B mandatorily redeemable convertible Preferred Stock on December 1, 1997. The
Company filed a S-3 Registration Statement covering an aggregate of 1,818,182
shares of common stock, which became effective on February 9, 1998.

The Company has expended significant funds to purchase production and
laboratory equipment, and to develop its sales and marketing and product
development activities. With the commencement of operations in the fourth
quarter of 1997, the Company believes it will require additional financing in
1998 for working capital requirements which it believes will not exceed $1.5
million. The Company believes that such financing is available through
asset-based debt financing, collaborative arrangements with corporate partners,
or through other sources, although there can be no assurance that such funds
will be available on terms and conditions acceptable to the Company. The
Company's failure to obtain sufficient financing or to produce and sell
sufficient quantities of its products, would adversely affect its development
and operating plans.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and cash equivalents

Cash and cash equivalents are stated at cost which approximates market
value. Cash equivalents include only securities having a maturity of three
months or less at the time of purchase.

Concentration of credit risk

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

Inventories

Inventories are stated at the lower of cost (determined on the basis of
first-in, first-out) or market. The Company considers product costs as inventory
once products receive FDA approval.

Property, plant and equipment

Property, plant and equipment are recorded at cost. Maintenance and repairs
are charged to expense as incurred and costs of improvements and renewals are
capitalized. Costs incurred in connection with the construction or major
renovation of facilities, including interest directly related to such projects,
are capitalized as construction in progress. Depreciation is recognized using
the straight-line method based on the estimated useful lives of the related
assets.

F-8

GLOBAL PHARMACEUTICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Intangible assets

Intangible assets are comprised of ANDAs, NDAs and NADAs acquired from
Richlyn and are recorded at fair value. Amortization is recognized on a
straight-line basis over a five year period starting on October 1, 1997, when
operations commenced.

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

Deferred financing costs

Deferred financing costs are amortized on a straight-line basis over the
terms of the respective debt instrument.

Investments

The Company's investments other than cash equivalents are classified as
"held-to-maturity" based upon the nature of the investments, their ultimate
maturity date, the restrictions imposed by the PIDA & PIDC loan agreements dated
July 29, 1997 (See Note 8) and management's intention with respect to holding
the securities. Realized gains and losses are determined on the basis of
specific identification of the securities sold. At December 31, 1997, the cost
of the Company's investments approximate fair value.

Revenue recognition

Sales are recorded upon shipment of products.

Income taxes

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

Earnings per share

Earnings per share are calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128 - "Earnings per share" (SFAS
No. 128), effective for 1997. SFAS No. 128 requires the Company to report both
basic earnings per share, which is based on the weighted-average number of
common shares outstanding, and diluted earnings per share, which is based on the
weighted average number of common shares outstanding and all dilutive potential
common shares outstanding. Because the Company had net losses in each of the
years presented, only the weighted average of common shares outstanding have
been used to calculate both basic earnings per share and diluted earnings per
share as the inclusion of the potential common shares would be anti-dilutive.

The earnings per share for 1995 were restated to meet the SFAS No. 128 and
Staff Accounting Bulletin No. 98 (SAB No. 98) requirements.

Accounting for stock-based compensation

In October 1995, SFAS No. 123, "Accounting for Stock Based
Compensation" ("SFAS 123") was issued. This statement requires the fair value of
stock options and other stock-based compensation issued to employees to either
be recognized as compensation expense in the income statement, or be disclosed
as a pro forma effect on net

F-9

GLOBAL PHARMACEUTICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

income in the footnotes to the Company's financial statements. As of December
31, 1996, the Company adopted SFAS 123 on a disclosure basis only.

Accounting estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities and
disclosure of contingencies at the date of the financial statements and the
reported expenses during the reporting period. Differences from those estimates
are recorded in the period they become known.

3. RELATED PARTY TRANSACTIONS

On November 8, 1995, the Company entered into an agreement ( the "Genpharm
Agreement") with Genpharm, Inc., a Canadian corporation ("Genpharm"), an
indirect subsidiary of Merck KGaA. Subsequently, in January 1997, the Company
revised its agreement with Genpharm, pursuant to which the Company shall supply
packaging with respect to Genpharm's United States Ranitidine production
requirements based on a five-year cost-plus and percentage of profits
compensation arrangement following the receipt of the requisite FDA Ranitidine
approvals.

In addition to the packaging of Ranitidine, the Genpharm Agreement provides
the Company with the opportunity to develop products with the assistance of
Merck KGaA that are marketed outside the U.S. Development is currently underway
with respect to the two products previously selected, with one ANDA having been
filed in January 1998 and the second ANDA anticipated to be filed by the Company
by the end of the first quarter of 1998.

In connection with the Genpharm Agreement in 1995, the Company sold to
Merck KGaA 150,000 shares of common stock for $300,000, and a warrant to
purchase 100,000 shares of common stock at an exercise price of $2.00 per share
(the "A Warrant"). In addition, the Company granted to Merck KGaA additional
warrants to purchase up to 700,000 shares, at an exercise price of $8.50 per
share (the IPO price per share), whose exercise is contingent upon the gross
profit (as defined in the agreement), if any, earned by the Company under the
Genpharm Agreement.

The Company recognized a non-recurring, non-cash expense in 1995 of
$937,500, representing the number of shares of common stock sold and A Warrants
issued to Merck KGaA, multiplied by the difference between the then estimated
market value of the Company's common stock ($5.75) and $2.00 (the price per
share of the common stock sold and the exercise price of the warrants issued).

4. INVENTORIES

Inventories consist of the following:

December 31,
-------------------------------
1997 1996
---- ----
(dollars in thousands)
Raw materials ........................... $ 44 $ --
Finished goods .......................... 342 --
------- ------
$ 386 $ --
======= ======

F-10

GLOBAL PHARMACEUTICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

Estimated December 31,
useful life --------------------
(years) 1997 1996
------- ---- ----
(dollars in thousands)

Land ................................................... $ 53 $ 53
Building................................................ 25 212 212
Building improvements................................... 15 2,983 1,900
Production equipment.................................... 10 1,097 1,039
Laboratory equipment.................................... 7 610 626
Office furniture and equipment.......................... 5 157 117
Construction in progress .............................. -- 7 836
-------- --------
$ 5,119 $ 4,783
Less: Accumulated depreciation.......................... 1,042 648
-------- --------
$ 4,077 $ 4,135
======== ========

6. ACCRUED EXPENSES

Accrued expenses consist of the following:

December 31,
------------
1997 1996
---- ----
(in thousands)

Accrued maintenance and repairs......................... $ 30 $ 34
Accrued professional fees .............................. 353 195
Accrued salaries and payroll expenses .................. 109 40
Other accrued expenses.................................. 157 150
-------- --------
$ 649 $ 419
======== ========

7. INCOME TAXES

Due to the Company's losses during its development stage, no provision for
income taxes is recorded for any period. The difference between the federal
statutory tax rate and the Company's effective income tax rate is attributable
to losses and future tax deductions for which no tax benefits have been
recognized.

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

December 31,
------------
1997 1996
---- ----
(in thousands)

Net operating losses.................................... $ 1,142 $ --
Deferred start-up and organization costs................ 6,140 4,734
Eurand development costs................................ 92 --
Depreciation and amortization........................... 304 281
-------- --------
Gross deferred tax assets............................ 7,678 5,015
Deferred tax asset valuation allowance.................. (7,678) (5,015)
-------- --------
$ -- $ --
======== ========

Due to historical losses incurred by the Company and limitations on the
future use of net operating losses due to changes in the Company's ownership, a
full valuation allowance for net deferred tax assets has been provided. If the
Company achieves profitability, certain of these net deferred tax assets would
be available to offset future income taxes.

F-11

GLOBAL PHARMACEUTICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. LONG-TERM DEBT

December 31,
------------
1997 1996
---- ----
(in thousands)

2% loan payable in 180 monthly installments of $6,602
commencing June 1, 1994 through May 1, 2009............. $ 808 $ 867
3.75% loan payable in 84 monthly installments of $3,672
commencing January 1, 1994, with a balance of $304,000
due on December 1, 2000 ................................ 393 420
3.75% loan payable in 180 monthly installments of $5,513
commencing September 1, 1997, through August 1, 2012 ... 745 --
5% loan payable in 120 monthly installments of $3,712
commencing September 1, 1997, through August 1, 2007 ... 341 --
-------- -------
2,287 1,287
Less: Current portion of long-term debt.................... (158) (90)
-------- -------
$ 2,129 $ 1,197
======== =======

On October 15, 1993, the Company received a $500,000 loan from PIDC. The
loan is secured by the Company's equipment. On April 18, 1994, the Company
received a $1,026,000 loan from PIDA. The loan is secured by land, building and
building improvements. On July 29, 1997, the Company received a $758,000 loan
from the PIDA and a $350,000 loan from the DRPA via the PIDC. Both loans are
secured by land, building and building improvements and an additional collateral
of $729,000, invested in interest bearing Certificates of Deposit owned by the
Company.

The PIDA and PIDC loans contain financial and non-financial covenants,
including certain covenants regarding levels of employment which were not
effective until the Company commences operations. The Company received a waiver
with respect to a non-financial covenant.

Scheduled maturities of long-term debt as of December 31, 1997 are as
follows:

1998.................. $ 158,000
1999.................. 165,000
2000.................. 472,000
2001.................. 144,000
2002.................. 148,000
Thereafter............ 1,200,000
----------
Total ...... $2,287,000

In connection with the Merger, the Toledex stockholders committed to make
loans to the Company. In connection with the IPO, on December 19, 1995, all loan
and accrued interest thereon, were converted into common stock, and the
commitments to make loans terminated.

9. MANDATORILY REDEEMABLE PREFERRED STOCK

The Company's Board of Directors authorized and designated, 60,000 and
50,000 shares of Preferred Stock as Series A Preferred and Series B Preferred,
respectively, with all shares priced at $100 per share. In August and September
1997, the Company issued Series A Preferred Stock of 13,350 shares for an
aggregate purchase price of $1,335,000. On December 1, 1997, the Company issued
Series B Preferred Stock to certain accredited investors of 50,000 shares for an
aggregate purchase price of $5,000,000.

At the option of the holder, each share of Series A Preferred and Series B
Preferred Stock is convertible into that number of shares of the Company's
common stock as is determined by dividing the liquidation value of $100 per
share by the conversion price. The conversion price is the lower of $2.75 per
share or the average closing sale price of the common stock for the five trading
days immediately preceding conversion but in no event less than $2.00 per share.
In the event the Company, within eighteen months from Preferred Stock issuance,
issues and sells more than $1 million of additional shares of common stock (or
securities convertible into common stock) for a consideration per share of
common stock of less than $2.75, the conversion price will be reduced to a price
equal to the consideration per share for which the additional shares are sold.
The difference between the $2.75 per share

F-12

GLOBAL PHARMACEUTICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

conversion price and the market value of the common stock on the dates of the
issuance of Preferred Stock has been recorded as a Preferred Stock dividend. The
Company recognized Preferred Stock dividends of $2,547,000 during 1997.

Holders of the shares of Series A Preferred and Series B Preferred Stock
vote on an as-converted basis, as a single class with all other stockholders of
the Company.

Each share of Preferred Stock is entitled to a liquidation preference equal
to $100 per share before any distributions to holders of common stock, and is
not entitled to dividends.

The Company has the option to redeem outstanding shares of the Preferred
Stock by paying the liquidation value for each share, provided that the closing
sale price of the common stock is ten dollars or more per share for a
consecutive twenty day trading period. Each holder of Preferred Stock shall be
entitled to redeem any or all shares in the event that the Company breaches or
fails to comply with its obligations under the respective Certificates of
Designations or the Stock Purchase Agreements, to the extent that the breach or
failure is material to or had a material adverse effect on the Company, and is
not cured within thirty days.

10. STOCKHOLDERS' EQUITY

Preferred Stock

The Company authorized 2,000,000 shares of preferred stock, $.01 par value
per share (the "Preferred Stock"). The Company issued 63,350 shares of Preferred
Stock which are classified in mandatorily redeemable preferred stock at December
31, 1997. (see note 9).

Common Stock

On December 19, 1995, the Company completed its IPO in which 1,650,000
shares of common stock were sold for net proceeds to the Company of $11,488,000.
In connection with the IPO, the underwriter received an option to purchase up to
247,500 shares of common stock at $8.50 per share (the "over-allotment"). The
underwriter exercised this option on January 29, 1996, at which time the Company
sold 247,500 shares of common stock for net proceeds of $1,835,000.

11. STOCK OPTIONS

The Company's 1995 Stock Incentive Plan was adopted by the Company's
Board of Directors on November 9, 1995 for the purpose of securing for the
Company and its stockholders the benefits arising from the ownership of Company
stock options by non-employee directors and key employees who are expected to
contribute to the Company's future growth and success.

During September and October 1995, the Company committed to grant
non-qualified stock options to purchase an aggregate of 37,500 shares of common
stock at $5.75 per share, the then estimated market value of the Company's
common stock. In addition, immediately prior to the IPO, the Company granted to
each of two directors options to purchase 30,000 shares of common stock at an
exercise price equal to the IPO price.

Effective December 19, 1997, the Company's Board of Directors approved
the repricing of all outstanding options to $3.125 per share, the market value
of common stock on that date. As a result, all outstanding options at December
19, 1997 were effectively rescinded and reissued at an exercise price of $3.125
per share. Options vest over a three to four year period and have a maximum term
of ten years. The weighted average fair value of options granted during 1997 and
1996 was $2.03 and $3.37, respectively. The fair value of each option was
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions: (i) no expected dividend yield in 1996 and 1997, (ii)
expected stock price volatility of 30% in 1996 and 50% in 1997, (iii) weighted
average risk free interest rate of 6% in 1996 and 5.89% in 1997, and (iv)
expected life of options of five years in 1996 and 1997.

F-13

GLOBAL PHARMACEUTICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Stock option transactions were:

1997 1996 1995
----------------------------------------------------------------------------------
Weighted Avg Weighted Avg Weighted Avg
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- ------------ ------ ------------ ------ ------------

Options outstanding at January 1 297,700 $8.53 236,000 $8.07 -- $ --
Granted 159,700 $7.42 111,700 $8.87 236,000 $8.07
Canceled (20,600) $8.64 (50,000) $7.13 -- $ --
Rescinded (426,800) $8.23 -- $ -- -- $ --
Reissued 426,800 $3.13 -- $ -- -- $ --

Options outstanding at December 31 436,800 $3.13 297,700 $8.53 236,000 $8.07

Options exercisable at December 31 188,016 75,306 0
Options available for grant at December 31 113,200 252,300 164,000

Had compensation cost for the Company's 1996 and 1997 grants for
stock-based compensation plans been recognized under the provisions of SFAS 123,
the Company's net loss, and net loss per common share for 1996 and 1997 would
approximate the pro forma amounts below (in thousands, except for per share
data):

For the Year Ended For the Year Ended For the Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
------------------ ------------------ ------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- --------- ----------- ---------

Net loss ($8,424) ($8,871) ($4,608) ($4,817) ($4,463) ($4,469)
Net loss per common share ($ 1.97) ($ 2.07) ($ 1.08) ($ 1.13) ($ 1.80) ($ 1.80)

The pro forma results may not be representative of the effect on
reported operations for future years.

At December 31, 1997, 436,800 options are outstanding with an exercise
price of $3.128, and a weighted average remaining contractual life of 8.5 years.
Of these options, 188,016 were exercisable at December 31, 1997.

12. COMMITMENTS AND CONTINGENCIES

Richlyn Order

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

Product liability and insurance

The Company assumed the liabilities of Richlyn in connection with
Diethyl Stilbestrol ("DES"), which was manufactured by Richlyn during the late
1950's and early 1960's. DES was prescribed to pregnant women during that period
and has been alleged to cause birth defects. There have been numerous claims
brought against drug manufacturers in connection with DES. While Richlyn's
insurers have in the past defended those DES claims against Richlyn and paid all
settlements in connection therewith to date, the insurers have reserved their
right to discontinue the defense of the claims and the payment of settlements at
any time. Claims settlements to date have been based upon market share, and
Richlyn's share of the market during the periods in question was less than 1%.
While there can be no assurance as to the ultimate resolution of these matters,
in the opinion of Management, the ultimate liabilities resulting from such
lawsuits and claims will not materially adversely affect the financial position,
operating results or cash flow of the Company.

F-14

GLOBAL PHARMACEUTICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Eurand America Agreement

The Company is committed to payments of $300,000 for the development and
supply of product batches necessary for clinical studies under the license and
supply agreement entered into with Eurand America to develop a gastro-protected
pancrelipase product, subject to Eurand's performance in accordance with the
terms and conditions of the agreement. Annual minimum royalty payments will also
become payable upon the shipment of the product.

F-15